GM - General Motors

[CorpRaider]

Yeah, mr. market is starting to get a semi.

[Steven B]

Einhorn mentioned the possibility of GM enhancing value through making "modest changes" to the capital structure. Anyone know what he's talking about?

[cmlber]

Einhorn mentioned the possibility of GM enhancing value through making "modest changes" to the capital structure. Anyone know what he's talking about?

 

That's a fancy way of saying "more buybacks."

[rsmehta]

    What are people's opinions on tailwinds for more retail market share b/c of the nationalistic trump administration?

[rb]

    What are people's opinions on tailwinds for more retail market share b/c of the nationalistic trump administration?

I think it's getting a bit ridiculous. People will not choose a different brand of vehicle just because Donald Trump got elected president.

 

Furthermore why should GM be a beneficiary? I don't know how many cars GM produces in the US. They stopped reporting production numbers in 2013. But foreign manufactures build a lot of cars in the us. 2015 figures: Toyota: 1.5M production, 2.1M sales. Honda: 1.3M production 1.6M sales. By the way, that's higher than average for the US as a whole which is about 2/3 production to sales.

 

Now if the Trump administration starts playing with tariffs that will be a tectonic shift that will hit the auto industry which will have loads of unintended and unforeseen effects. These companies use highly optimized global supply chains. One certain result will be higher prices and that is never a tailwind for unit sales.

[Jurgis]

Now if the Trump administration starts playing with tariffs that will be a tectonic shift that will hit the auto industry which will have loads of unintended and unforeseen effects. These companies use highly optimized global supply chains. One certain result will be higher prices and that is never a tailwind for unit sales.

 

This. And not only for auto industry.

[Dalal.Holdings]

The only sustainable way to build retail share is to build great products. Period. Doesn't matter really who is POTUS. GM (especially the Chevy brand) has been building significant U.S. retail share as of late. We think it's due to product quality and consumer focus, but you can draw your own interpretation.

 

The reason why fleet sales are indicators of decline in auto companies is because fleet sales don't necessarily require you to build great, differentiated products. When companies lean on fleet sales, it is often done because retail customers don't buy their products when choosing with their own wallets. Product quality inevitably suffers.

 

We've seen similar "quality" trends in computing for 2 decades now: many individual ("retail") customers buy Apple products when choosing with their own wallet, while many corporate ("fleet") customers buy cheap Dell/HP/etc boxes. Apple needs to sell a lot fewer computers to make the same profit as Dell, while reaping the benefits of perceived higher quality and brand value--enhancing margins further in not only that, but other product lines (halo effect).

[rsmehta]

Retail market share is always dominated by the domestic manufactures

 

Fiat in Italy

Toyota/Honda in Japan

VW in Germany

Etc.

 

    Not referring to the supply chain sourcing, rather brand headquarters when I make that statement.

 

--------------------------------------

 

    To say that national pride has no play amongst car consumers, and doesn't factor into decision making at all is a bit arroganant.

 

     

[rb]

Brilliant fact based argument there rsmehta.

 

Because Trump became US president of the US instead of Hillary Clinton means that the US became more patriotic and will buy more GM. This despite the fact that Clinton got more votes right? So domestic sales definitely will go up.

 

The fact that the global auto market is dominated by Japanese, German, American, Korean, and to a lower extent Italian, French and Chines (more locally) automakers means that the rest of the countries in this world don't have much national pride right? British, Canadians, Australians.... no pride for country.

 

Your post is ridiculous.

[constructive]

GM (especially the Chevy brand) has been building significant U.S. retail share as of late. We think it's due to product quality and consumer focus, but you can draw your own interpretation.

 

Here's the historical context for GM's 0.5% market share increase in 2016.

 

http://image.slidesharecdn.com/swieckipresentation-150925163749-lva1-app6891/95/auto-summit-2015-3-638.jpg?cb=1443199310

[rb]

GM (especially the Chevy brand) has been building significant U.S. retail share as of late. We think it's due to product quality and consumer focus, but you can draw your own interpretation.

 

Here's the historical context for GM's 0.5% market share increase in 2016.

 

http://image.slidesharecdn.com/swieckipresentation-150925163749-lva1-app6891/95/auto-summit-2015-3-638.jpg?cb=1443199310

Thank you for posting that. It's nice to have it as a reference.

 

As an anecdote to the idea of the new and improved quality for American cars. A couple of years ago I had to buy a new car for my mom. As a family in the past we drove American cars (not a good experience), then we switched to Japanese cars (a pleasant experience), I drive a German car (I'm not impressed). Despite all this I decided to keep an open mind and consider everything. Fords were horrible. On the GM side Chevy was a no go, but I was impressed by Buick. It was well put together, nice features, and it actually drove nice. I was quite ready to buy it but then I went and did some research on the reliability. It was horrible. Lots of stalls, electrical problems, engines shutoffs while car was running,  cracked engine blocks, etc, etc, etc....

 

So I went ahead and bought my mom a Lexus. She absolutely loves it and all this time not a single problem with the car. My thoughts are that the American auto makers start making a truly great product with the best of them they'll continue to loose market share no matter which party occupies the White House.

[Uccmal]

    What are people's opinions on tailwinds for more retail market share b/c of the nationalistic trump administration?

I think it's getting a bit ridiculous. People will not choose a different brand of vehicle just because Donald Trump got elected president.

 

Furthermore why should GM be a beneficiary? I don't know how many cars GM produces in the US. They stopped reporting production numbers in 2013. But foreign manufactures build a lot of cars in the us. 2015 figures: Toyota: 1.5M production, 2.1M sales. Honda: 1.3M production 1.6M sales. By the way, that's higher than average for the US as a whole which is about 2/3 production to sales.

 

Now if the Trump administration starts playing with tariffs that will be a tectonic shift that will hit the auto industry which will have loads of unintended and unforeseen effects. These companies use highly optimized global supply chains. One certain result will be higher prices and that is never a tailwind for unit sales.

 

You are right on.  This is what I have seen on the ground, as in real life.  Cars in North America have parts in them that get shipped multiple times across the border(s).  Mr. Uncertain is jawboning at assembly plants.  If they start to tinker with Tariffs for the entire supply chain we will see the price of cars go way up, everywhere in NA.  I dont know if anyone has noticed but the prices of non-luxury vehicles have hardly kept pace with inflation for 20 years or more.  This is because of free trade, amd supply chain optimization. 

 

So, GM, F, Toyota shut the PE POTUS up by promising to build a few assembly lines in the US that they would have built anyway with state incentives.  Car plants in Ontario do it all the time under direct government pressure.  What's old, is new again. 

[Uccmal]

GM (especially the Chevy brand) has been building significant U.S. retail share as of late. We think it's due to product quality and consumer focus, but you can draw your own interpretation.

 

Here's the historical context for GM's 0.5% market share increase in 2016.

 

http://image.slidesharecdn.com/swieckipresentation-150925163749-lva1-app6891/95/auto-summit-2015-3-638.jpg?cb=1443199310

Thank you for posting that. It's nice to have it as a reference.

 

As an anecdote to the idea of the new and improved quality for American cars. A couple of years ago I had to buy a new car for my mom. As a family in the past we drove American cars (not a good experience), then we switched to Japanese cars (a pleasant experience), I drive a German car (I'm not impressed). Despite all this I decided to keep an open mind and consider everything. Fords were horrible. On the GM side Chevy was a no go, but I was impressed by Buick. It was well put together, nice features, and it actually drove nice. I was quite ready to buy it but then I went and did some research on the reliability. It was horrible. Lots of stalls, electrical problems, engines shutoffs while car was running,  cracked engine blocks, etc, etc, etc....

 

So I went ahead and bought my mom a Lexus. She absolutely loves it and all this time not a single problem with the car. My thoughts are that the American auto makers start making a truly great product with the best of them they'll continue to loose market share no matter which party occupies the White House.

 

That too.  Its not that good cars cant be built at reasonable prices in NA.  The Honda Civic, and its Acura cousin are made in Ontario.  In Louisville Kentucky they build the Toyota Sienna. 

 

The issue with GMs and why I will never buy one again is they are crappy.  The same with most Fords and Chryslers.  GM's big handicap is that they build sh*t cars, and have done so for 50 years.  I have owned two GMs and the things dissolved before my eyes.  I have had both a Civic and an Accord, and they are the exact opposite.  I have had a Ford (Mazda) that also was trash.  My parents buy Chryslers, over and over, for real cheap, drive them for 100000 miles, and dispose.  A friend of mine has a Toyota  Sienna with 500000 miles on it. 

 

GM is fighting an uphill battle to get market share any greater than what it is. 

[jeffmori7]

GM is getting quite better in the recent years.

 

Car brands by owner satisfaction: http://www.consumerreports.org/car-reliability-owner-satisfaction/car-brands-ranked-by-satisfaction/

 

And car brands reliability: http://www.consumerreports.org/car-reliability/car-brands-reliability-how-they-stack-up/

 

and here: http://www.jdpower.com/press-releases/2016-us-vehicle-dependability-study-vds

[DooDiligence]

I can't speak for GM as a whole but the Chevy Colorado I recently bought (after driving the Ford, Dodge, Toyota & Nissan offerings) is a very good vehicle.

 

Drives & handles well (awesome turn radius) & is roomy & comfortable (I get about 23 mpg overall with a 50/50 city/hwy mix of driving.)

 

That said; the infotainment system is experiencing problems & I have an appointment with the dealership to try & resolve this week (the radio has actually locked up numerous times - probably wouldn't happen with a Japanese vehicle.)

 

I've owned 2 Infiniti's over the past 15 years & they were very satisfying with zero problems...

[DTEJD1997]

Hey all:

 

I've owned Chrysler, Ford, Mercedes, and Chevy vehicles over the years.

 

Without a doubt, NOT EVEN CLOSE, the Mercedes had the best engineering and quality build. 

 

The Chevy had some great engineering, but the quality was lacking, especially for a car of it's calibre.

 

The Ford was a basic truck.  Had one problem...but drove it many miles.  Engineering was OK, quality was decent.

 

Chrysler was probably the worst of the bunch...but still not terrible.

 

HOWEVER, the GM dealerships can be the absolutely WORST.  I probably won't do business with them in the future because of this.  I also can tell "crazy" stories about them...Simply stunning what some of them do.

[Jurgis]

I think the anecdotal evidence here is not very useful, but I'll chime in for fun.

 

Japanese car owner pretty much here. Had ~1980 Corolla (was stolen, then recovered, sold), ~1979 Datsun (before Nissan, sold), then ~1995 VW Jetta (electrical problems, crappy paint job, sold), 1992 Accord (wife totalled), 1997 Camry (no problems, traded in), 2003 Accord (still own, no problems), 2011 Camry (still own, no problems). We don't drive much so even 1997 trade in only had over 100K miles, 2003 Accord is still at 75K or so.

 

IMO fleet sales can be positive. I really liked Nissan Altima I got to rent, so I wanted to buy it afterwards. Even went to Nissan dealer. So that's a plus. On the other hand, I had some US car as rental couple years ago and I did not like it at all, so that's a turnoff.

 

Re patriotism (?) - when I drove across US coast to coast, it was pretty evident how coasts have way more non-US cars compared to interior US. East coast has a bit more European cars... but I think there's not much Euro cars overall in US, so it's tiny difference. 15+ years ago Hyundai was a staple for Korean community who did not like buying Japanese cars due to the WW2 history. Then Indians bought Hyundai's because it was rather "luxury" brand in India (AFAIK, was told by some Indian friends at the time). Then Hyundai just got wide distribution... Just anecdotes.

[rb]

The problem with a lot of the reliability studies is that they focus on fairly recent models. This is also why doo's experience with his new Colorado is not relevant as either. Generally for the fist 3 years or so you can expect a vehicle to hold up pretty well no matter who made it. I know that's not always the case and I sympathize with people that have had bad experiences.

 

Generally the level of reliability of a vehicle will become more obvious as it enters year 6 or 7 and things become more likely to break down. Even at this point not only the frequency of defects is relevant but also the severity. Are the breakdowns going to be a $200 ABS sensor or a $1,000 differential fix? With Toyotas it tends to be more of the former, with GMs it tends to be more of the latter.

 

I should mention that I come from a large family, we drive a lot, and always buy used cars. We've had so many that anecdotal evidence is starting to be statistically significant.

 

As jurgis mentioned, foreign manufacturers captured a lot of market share on the coasts, not so much in the interior US. A lot of the GM and Ford market share comes from selling large vehicle (lots of pickups) in the inner US. There is a lot of brand loyalty there - I'm a GM guy, I'm a Ford guy type of thing.  These trucks have reliability issues and Toyota trucks have legendary reliability. Keep in mind that making reliable cars is not that hard, the reason that GM doesn't do it is because they don't want to - essentially ripping the customer off. Why should a customer be loyal to a company that's ripping him off? Just because the company's headquarters are in the US? I'm thinking that there's only a matter of time until Toyota does with trucks in inner America what they've done with sedans on the coasts.

[Dalal.Holdings]

GM (especially the Chevy brand) has been building significant U.S. retail share as of late. We think it's due to product quality and consumer focus, but you can draw your own interpretation.

 

Here's the historical context for GM's 0.5% market share increase in 2016.

 

http://image.slidesharecdn.com/swieckipresentation-150925163749-lva1-app6891/95/auto-summit-2015-3-638.jpg?cb=1443199310

 

This post is highly misleading:

 

1) The chart includes overall market share which includes fleet sales. The 0.5% share growth GM experienced was strictly in the retail segment, its fleet sales were way down. GM of the early 2000s notoriously bumped fleet sales to maintain 29% market share and execs even wore "29" lapel pins to promote this strategy. The resulting disaster despite having huge market share in 2008 shows you how destructive fleet and pursuing market share at all costs can be.

 

2) GM's bankruptcy meant shutting down of Saturn, Saab, and Pontiac brands. Drop in market share would be obvious from this.

 

Given the above caveats I have no idea what helpful "context" the figure can provide about GM in 2016 or today.

 

Focusing on Trump's effect on GM is classic--many investors dwell too much on macro events when making investment decisions. The great investors (i.e. Buffett) often comment on how little such events impact their own view on investing.

 

When retail customers buy products, they tend to put more thought into the decision than "oh I'll just buy from my home country"--otherwise we wouldn't be importing so much from other countries and carrying a huge trade deficit.

[Dalal.Holdings]

A lot of the anecdotes of past experiences should be taken with a huge grain of salt. There will be an inherent lag in quality perceptions if an auto company were to improve its products. Cars are owned for long periods of time and perceptions held for long periods. GM in our view has greatly improved quality over the past 3-5 years, but that will take time to trickle through to widespread perceptions (Buick already has nice momentum though).

 

Real product improvement though does give you more of a runway to grow. It would be very difficult for Toyota to further improve quality and grow market share (since perception is already maxed). But an improved GM would have a longer runway of growth.

[RadMan24]

Comparing GM's market share of the best to the present will get you nowhere as Dalal noted. If anything, GM (and other autos) focusing on profits, rather than market share (albeit Chevy, and GM total gaining retail share) only serves to credit the turnaround GM is pursuing since 09.

 

The 90% market share (maybe not that high) in large SUVs (Tahoe Suburban) is what counts - those are money makers and beautiful vehicles. GM is also debuting a refreshed mid size SUV lineup that looks promising - a big segment that has grown larger and faster than sedans.

 

Reliability wise, GM has an after market parts dealer, so worst case scenario, they have a recurring business!

 

The company also keeps $20 billion in cash on hand for the inevitable downturn. So they're focused on long-term profitable growth with an eye towards the downside scenario.

[DooDiligence]

Just finished reading the chapter in Jeff Gramm's "Dear Chairman" about Ross Perot & GM.

 

This is a very good book!

 

Is GM still operating with legacy management problems from that earlier era?

[Uccmal]

A lot of the anecdotes of past experiences should be taken with a huge grain of salt. There will be an inherent lag in quality perceptions if an auto company were to improve its products. Cars are owned for long periods of time and perceptions held for long periods. GM in our view has greatly improved quality over the past 3-5 years, but that will take time to trickle through to widespread perceptions (Buick already has nice momentum though).

 

Real product improvement though does give you more of a runway to grow. It would be very difficult for Toyota to further improve quality and grow market share (since perception is already maxed). But an improved GM would have a longer runway of growth.

 

I'll believe the are producing quality cars when I see it. 

 

A runway to grow against who?  The market is 100% occupied with new entrants everywhere. 

[Uccmal]

Comparing GM's market share of the best to the present will get you nowhere as Dalal noted. If anything, GM (and other autos) focusing on profits, rather than market share (albeit Chevy, and GM total gaining retail share) only serves to credit the turnaround GM is pursuing since 09.

 

The 90% market share (maybe not that high) in large SUVs (Tahoe Suburban) is what counts - those are money makers and beautiful vehicles. GM is also debuting a refreshed mid size SUV lineup that looks promising - a big segment that has grown larger and faster than sedans.

 

Reliability wise, GM has an after market parts dealer, so worst case scenario, they have a recurring business!

 

The company also keeps $20 billion in cash on hand for the inevitable downturn. So they're focused on long-term profitable growth with an eye towards the downside scenario.

 

Right now we are at or near the top of the vehicle replacement cycle.  Any chart you pull on vehicle sales will show you that. 

 

How is the stock price going to go up, which is what we want, when there are so many potential tailwinds coming to an end:

- Cheap fuel - ending

- rising sales cycle - ending

- interest rates rising - unknown

- labour costs - big profits in this industry dont go unnoticed. 

None of this is specific to GM.  IMO, it is exactly the wrong time to be invested in a car company. 

[Homestead31]

In my opinion, you are missing the nuance in your statement about tail winds "ending."

 

"Ending" means they haven't "ended" while stock is priced like they have already.

 

That is the opportunity.  Given fleet age, population growth and potential economic growth those factors could be in the "ing" phase for 5+ years.  Combine that with low multiples and better capital allocation and you have the potential for significant upside.