GM - General Motors

[jeffmori7]

guys the gm.ws.b warrants have to be sold/exercised before July or we'll lose are money right?

 

Exactly

[JRM]

https://seekingalpha.com/news/3422387-gm-plus-6-percent-hiking-guidance

 

$6B FCF... $7 EPS. Peak auto bro...

 

...but..but...2008...bankruptcy...Tesla...how can this be?

[fuzzhead1506]

Some big picture thoughts that I have on GM:

 

Since the end of 2016, GM has added $5B to its cash horde via cash flows, offered $5B in dividends, and another $5B on the stock buyback.... investments in Lyft and Cruise have each gone up by $5B and GM spent an extra $3B for a restructuring expected to add immense value to shareholders.  That is at least ~$22B in value creation over the last 2 and a half years but shareholders have only seen the $3 from divvys and perhaps an extra $2 on the sp as a means of the investment (throw in an extra $1 for divvy reinvestment, perhaps) for a total CAGR of ~4-7%.  GM was valued at around $55B in December 2016.  Between short back of the envelope estimates above and the forward estimates provided by management for what free cash flow is going to be for 2020 (an extra $6B per year), I would estimate this stock should be valued at something closer to $100/share, yet most analysts have one year price targets in the 40-50 range while the stock buyback remains paltry.

 

It would seem to me that either management can't be trusted and analysts are accounting for this or I am missing something huge.  The conversation earlier on this thread would indicate the former, at this point...

 

Delays on, albeit ambitious, timelines (e.g. autonomous vehicle roll-out strategy [" in quarters not years"], and industry leaders - including GM - continually pushing back the estimated date of cost parity for electric vehicles) offer examples of an "over promise, under deliver" type of dynamic.

 

They have also said that they want to return all free cash flow to shareholders, yet the cash balance goes higher...

 

Does GM have visibility into an earnings shortfall that they are not divulging and/or know that the forward cash flow guidance given is not attainable or even possible?  Are the China trade deal or tariffs a much bigger issue than the pictures they are painting?  Why aren't they truly open to talks with activists (conversation with Einhorn stopped after he suggested issuing something similar to preferred debt)? 

 

Management should be bending over backwards to create a total shareholder return strategy now that the company is creating cash flows that are generally considered mouthwatering by industry standards and their AV strategy puts them at/near the top of the competition... but here we are?  Is management purposely waiting to create a total return strategy for some time after the B Warrants expire?

 

I believe Mary has done everything right for the company since her tenure started 5.5 years ago...but this.  Maybe building an extra $5B in cash this late in the cycle is the right strategy, but in my mind it should've gone toward knocking the share count down toward the 1.3B level. I know several of you share these sentiments, so has anyone else considered throwing in the towel, here?  I am not even sure a reported ROIC of ~25% and projected forward 20% FCF yield are sufficient to make up for failing to deliver on their promises the last few years.  Sentiment is the poorest it has ever been and there is no near term catalyst since they have indicated that the AV roll-out is still not quite ready for game time.

 

It would not be prudent to invest her money in the same manner as Elon Musk  :P, but it would seem to me that holding only $40M of stock while having been paid $100's of millions in her GM tenure is a slap in the face to shareholders.  I put this in perspective by considering Jamie Dimon, who was paid ~$130M over the last 4 years and now has ~$90M worth of stock.  Much of this is company issued stock options, but he has also made purchases using his own money of >$50M since 2007.  Mary hasn't made one open market purchase with her money in her 10 years of receiving awards from GM - Musk on the other hand has made several token purchases in his tenure while also having made a $100 Million purchase in 2013.  Mary is intelligent - why isn't she putting her money where her mouth is?  Even a token purchase of $1-2 million would go a very long way toward showing us that she truly believes in her own long term vision. 

[DTEJD1997]

Some big picture thoughts that I have on GM:

 

Since the end of 2016, GM has added $5B to its cash horde via cash flows, offered $5B in dividends, and another $5B on the stock buyback.... investments in Lyft and Cruise have each gone up by $5B and GM spent an extra $3B for a restructuring expected to add immense value to shareholders.  That is at least ~$22B in value creation over the last 2 and a half years but shareholders have only seen the $3 from divvys and perhaps an extra $2 on the sp as a means of the investment (throw in an extra $1 for divvy reinvestment, perhaps) for a total CAGR of ~4-7%.  GM was valued at around $55B in December 2016.  Between short back of the envelope estimates above and the forward estimates provided by management for what free cash flow is going to be for 2020 (an extra $6B per year), I would estimate this stock should be valued at something closer to $100/share, yet most analysts have one year price targets in the 40-50 range while the stock buyback remains paltry.

 

It would seem to me that either management can't be trusted and analysts are accounting for this or I am missing something huge.  The conversation earlier on this thread would indicate the former, at this point...

 

Delays on, albeit ambitious, timelines (e.g. autonomous vehicle roll-out strategy [" in quarters not years"], and industry leaders - including GM - continually pushing back the estimated date of cost parity for electric vehicles) offer examples of an "over promise, under deliver" type of dynamic.

 

They have also said that they want to return all free cash flow to shareholders, yet the cash balance goes higher...

 

Does GM have visibility into an earnings shortfall that they are not divulging and/or know that the forward cash flow guidance given is not attainable or even possible?  Are the China trade deal or tariffs a much bigger issue than the pictures they are painting?  Why aren't they truly open to talks with activists (conversation with Einhorn stopped after he suggested issuing something similar to preferred debt)? 

 

Management should be bending over backwards to create a total shareholder return strategy now that the company is creating cash flows that are generally considered mouthwatering by industry standards and their AV strategy puts them at/near the top of the competition... but here we are?  Is management purposely waiting to create a total return strategy for some time after the B Warrants expire?

 

I believe Mary has done everything right for the company since her tenure started 5.5 years ago...but this.  Maybe building an extra $5B in cash this late in the cycle is the right strategy, but in my mind it should've gone toward knocking the share count down toward the 1.3B level. I know several of you share these sentiments, so has anyone else considered throwing in the towel, here?  I am not even sure a reported ROIC of ~25% and projected forward 20% FCF yield are sufficient to make up for failing to deliver on their promises the last few years.  Sentiment is the poorest it has ever been and there is no near term catalyst since they have indicated that the AV roll-out is still not quite ready for game time.

 

It would not be prudent to invest her money in the same manner as Elon Musk  :P, but it would seem to me that holding only $40M of stock while having been paid $100's of millions in her GM tenure is a slap in the face to shareholders.  I put this in perspective by considering Jamie Dimon, who was paid ~$130M over the last 4 years and now has ~$90M worth of stock.  Much of this is company issued stock options, but he has also made purchases using his own money of >$50M since 2007.  Mary hasn't made one open market purchase with her money in her 10 years of receiving awards from GM - Musk on the other hand has made several token purchases in his tenure while also having made a $100 Million purchase in 2013.  Mary is intelligent - why isn't she putting her money where her mouth is?  Even a token purchase of $1-2 million would go a very long way toward showing us that she truly believes in her own long term vision.

 

With the amount of money that Mary has been paid, why should she risk any amount in anything?  She has as much as she and her family could ever reasonably want.  Investing $5MM million in GM to make $10MM over 4-5 years is simply of no use/interest.

 

That is one of the problems with American publicly traded corporations...management has "captured the capital".  They get paid handsomely NO MATTER WHAT.  If the company makes money, then they REALLY do well.

 

As to Mary, will paying her $100MM vs. $50MM make her work twice as hard?  Twice as good?

 

I think once you start passing $2mm or so per year for salary (with full benefits), shareholders are getting the shaft in regards to executive compensation.

[sleepydragon]

You guys are not happy with Mary. Who else is better? Elon musk? ;)

[fuzzhead1506]

I am happy with Mary. 

 

I suppose the problem is that she is wealthy beyond her means. That is why I brought up Jamie Dimon and Elon Musk.  Both men are also incredibly wealthy.  Any time they bought shares, sentiment in their respective stocks changed materially, regardless if it was a drop in the bucket.  If she can find $1 million between the couch cushions, it would mean a lot if she would plunk it down as a gesture.  What is that to her... like 2% of her net worth? Even if she already has 60% of it already in the company via her current ownership.

 

GM is partly right to have her compensation tied to ROIC as that generally is how shareholders should value a company, but it would be better if the company tied her compensation to total shareholder return.  ROIC has greatly improved and most investors can’t/won’t see it because they never bother to dig past the company’s P/E ratio. 

 

I don’t even mind so much paying a giant salary to a CEO given some value creation, I just want boards to rethink how it gets paid out.  If, as part of a larger pay package, companies offered long-dated OTM call options to execs (for example) that would incentivize the company’s management to offer total shareholder return instead of sitting on their hands while a share price languishes its actual intrinsic value.

 

Edit: grammar

[Spekulatius]

Top execs should be required to hold several years worth of annual compensation in company stock, just to make sure they are aligned with owners.

 

It’s one thing I look at and consider when voting on compensation and I vote no a lot.

[ander]

(Reuters) - General Motors Co's(GM) majority-owned Cruise self-driving division on Tuesday said T. Rowe Price and a group of existing investors put down $1.15 billion in new equity, valuing the unit at $19 billion.

 

The latest funding round includes General Motors(GM), Japan'sSoftBank Vision Fund and Honda Motor Co Ltd(HMC) , and should give the firm much needed cash as it aims to launch vehicles by the end of 2019.

 

The additional capital comes at a crucial time as a host of automakers and technology companies weigh how quickly autonomous vehicles can be marketed and sold in large volumes, and find ways to share rising costs for hardware and software development.

 

Rival Ford Motor Co is in talks with German automaker Volkswagen AG about joining forces to create autonomous vehicles in a deal that could involve an investment by VW in Argo AI, an autonomous vehicle technology company majority owned by Ford.

 

Cruise, which has secured capital commitments of $7.25 billion in the past year, was valued at $14.6 billion in the last funding round by Honda(HMC) in October, which had invested $2.75 billion.

 

The current valuation is equivalent to about 35 percent of GM’s market capitalization despite no significant revenue and a product not ready for commercial launch.

 

 

(Reporting by Ankit Ajmera in Bengaluru; Editing by Bernard Orr)

 

 

[Guest roark33]

Everyone on this board probably makes fun of the valuation that Softbank is giving to some of these money burning pre-IPO companies, but if Softbank invests in a unit of GM, then that mark to market valuation gets 100% credit.  Something tells me, Cruise is worth nowhere near what Softbank is investing at. 

[TwoCitiesCapital]

Everyone on this board probably makes fun of the valuation that Softbank is giving to some of these money burning pre-IPO companies, but if Softbank invests in a unit of GM, then that mark to market valuation gets 100% credit.  Something tells me, Cruise is worth nowhere near what Softbank is investing at.

 

True that it may not be worth the $19 billion, but the $7.5 billiom raised is real dollars that GM gets to spend that isn't its own. That's a real benefit to shareholders.

[vince]

Some big picture thoughts that I have on GM:

 

Since the end of 2016, GM has added $5B to its cash horde via cash flows, offered $5B in dividends, and another $5B on the stock buyback.... investments in Lyft and Cruise have each gone up by $5B and GM spent an extra $3B for a restructuring expected to add immense value to shareholders.  That is at least ~$22B in value creation over the last 2 and a half years but shareholders have only seen the $3 from divvys and perhaps an extra $2 on the sp as a means of the investment (throw in an extra $1 for divvy reinvestment, perhaps) for a total CAGR of ~4-7%.  GM was valued at around $55B in December 2016.  Between short back of the envelope estimates above and the forward estimates provided by management for what free cash flow is going to be for 2020 (an extra $6B per year), I would estimate this stock should be valued at something closer to $100/share, yet most analysts have one year price targets in the 40-50 range while the stock buyback remains paltry.

 

It would seem to me that either management can't be trusted and analysts are accounting for this or I am missing something huge.  The conversation earlier on this thread would indicate the former, at this point...

 

Delays on, albeit ambitious, timelines (e.g. autonomous vehicle roll-out strategy [" in quarters not years"], and industry leaders - including GM - continually pushing back the estimated date of cost parity for electric vehicles) offer examples of an "over promise, under deliver" type of dynamic.

 

They have also said that they want to return all free cash flow to shareholders, yet the cash balance goes higher...

 

Does GM have visibility into an earnings shortfall that they are not divulging and/or know that the forward cash flow guidance given is not attainable or even possible?  Are the China trade deal or tariffs a much bigger issue than the pictures they are painting?  Why aren't they truly open to talks with activists (conversation with Einhorn stopped after he suggested issuing something similar to preferred debt)? 

 

Management should be bending over backwards to create a total shareholder return strategy now that the company is creating cash flows that are generally considered mouthwatering by industry standards and their AV strategy puts them at/near the top of the competition... but here we are?  Is management purposely waiting to create a total return strategy for some time after the B Warrants expire?

 

I believe Mary has done everything right for the company since her tenure started 5.5 years ago...but this.  Maybe building an extra $5B in cash this late in the cycle is the right strategy, but in my mind it should've gone toward knocking the share count down toward the 1.3B level. I know several of you share these sentiments, so has anyone else considered throwing in the towel, here?  I am not even sure a reported ROIC of ~25% and projected forward 20% FCF yield are sufficient to make up for failing to deliver on their promises the last few years.  Sentiment is the poorest it has ever been and there is no near term catalyst since they have indicated that the AV roll-out is still not quite ready for game time.

 

It would not be prudent to invest her money in the same manner as Elon Musk  :P, but it would seem to me that holding only $40M of stock while having been paid $100's of millions in her GM tenure is a slap in the face to shareholders.  I put this in perspective by considering Jamie Dimon, who was paid ~$130M over the last 4 years and now has ~$90M worth of stock.  Much of this is company issued stock options, but he has also made purchases using his own money of >$50M since 2007.  Mary hasn't made one open market purchase with her money in her 10 years of receiving awards from GM - Musk on the other hand has made several token purchases in his tenure while also having made a $100 Million purchase in 2013.  Mary is intelligent - why isn't she putting her money where her mouth is?  Even a token purchase of $1-2 million would go a very long way toward showing us that she truly believes in her own long term vision.

 

I think this is a great post.  I sold all my GM stock a couple years ago (i did make substantial profits because I bought the majority of shares, options, and warrants when the stock was in the low 20's around 6-7 years ago) largely because of the things you mentioned.  It is unbelievable to me how well she did with operations while at the same time failing to realize that she could have incrementally created an equal amount of value with a telephone and a desk.  Imagine what the stock price would be if John Malone had control of their balance sheet.  The biggest surprise for me in my 20 years of stock market studies is just how financially unsophisticated MOST CEO/CFO's are and how they don't realize how much value can be created aside from operations. I mean it's kind of embarrassing when CEO's of 100 billion dollar+ companies have to call Omaha for a tutorial on buybacks.

 

[sleepydragon]

  The biggest surprise for me in my 20 years of stock market studies is just how financially unsophisticated MOST CEO/CFO's are and how they don't realize how much value can be created aside from operations. I mean it's kind of embarrassing when CEO's of 100 billion dollar+ companies have to call Omaha for a tutorial on buybacks.

 

If she is that smart and is good both operationally and financially, she could be the next Warren Buffett (or she could be running the next Enron).

 

[fuzzhead1506]

Everyone on this board probably makes fun of the valuation that Softbank is giving to some of these money burning pre-IPO companies, but if Softbank invests in a unit of GM, then that mark to market valuation gets 100% credit.  Something tells me, Cruise is worth nowhere near what Softbank is investing at.

 

Except for that they aren't getting that credit.  GM, overnight, changed it's equity value held in Cruise from about ~$7B to around ~$10B and the market gave it credit for only 15-20% of that (1% on $54B is about $540M of increased market cap). I am not sure of the exact numbers so don't use my estimates as gospel, but it is stuff like this that makes me think that the stock is still just misunderstood... even if we consider that $CARZ is down 2%, that is still only giving credit for $2B in increased equity... not the full amount I estimate has been created.

[sleepydragon]

Everyone on this board probably makes fun of the valuation that Softbank is giving to some of these money burning pre-IPO companies, but if Softbank invests in a unit of GM, then that mark to market valuation gets 100% credit.  Something tells me, Cruise is worth nowhere near what Softbank is investing at.

 

Except for that they aren't getting that credit.  GM, overnight, changed it's equity value held in Cruise from about ~$7B to around ~$10B and the market gave it credit for only 15-20% of that (1% on $54B is about $540M of increased market cap). I am not sure of the exact numbers so don't use my estimates as gospel, but it is stuff like this that makes me think that the stock is still just misunderstood... even if we consider that $CARZ is down 2%, that is still only giving credit for $2B in increased equity... not the full amount I estimate has been created.

 

I agree. I think most investors are still biased against GM, due to:

- post bankruptcy

- traditionally ultra competitive business (but nowaday it’s a low margin un-attractive business)

- capital intensive (robots and automation has helped)

- a car company (truck is really a high margin and higher moat business)

 

 

[sleepydragon]

If Mary become Tesla’s CEO and Elon become GM’s CEO, both stocks might go up! :)

[Gregmal]

https://www.wsj.com/articles/gms-car-sharing-business-to-end-service-in-eight-of-its-17-north-american-cities-11558382917

 

Oh just another example of ambitious managements shunning boring old share repurchases to pursue some unnecessary business venture that ultimately incinerates capital...

[ander]

https://www.wsj.com/articles/gms-car-sharing-business-to-end-service-in-eight-of-its-17-north-american-cities-11558382917

 

Oh just another example of ambitious managements shunning boring old share repurchases to pursue some unnecessary business venture that ultimately incinerates capital...

 

I completely agree that they should be stepping up share repurchases at these price levels and believe they have the capacity to do it. Though I was thinking about this one yesterday and overall I think Mary has done a good job of trying to fight off the forces of creative destruction. But I'm with you, starting buying back shares, if you think that run-rate cycle FCF is probably $7 Bn going forward!

[fareastwarriors]

https://www.wsj.com/articles/gms-car-sharing-business-to-end-service-in-eight-of-its-17-north-american-cities-11558382917

 

Oh just another example of ambitious managements shunning boring old share repurchases to pursue some unnecessary business venture that ultimately incinerates capital...

 

I use Maven on the Gig side, not car sharing. I think it's a good service. If they can't make money renting their Chevy Bolt to me at $290 a week, I don't know what else to say.

[Gregmal]

https://www.wsj.com/articles/gms-car-sharing-business-to-end-service-in-eight-of-its-17-north-american-cities-11558382917

 

Oh just another example of ambitious managements shunning boring old share repurchases to pursue some unnecessary business venture that ultimately incinerates capital...

 

I use Maven on the Gig side, not car sharing. I think it's a good service. If they can't make money renting their Chevy Bolt to me at $290 a week, I don't know what else to say.

 

I dont doubt that there is potential here; I dont think any company goes into a venture knowing its a bad idea but does it anyway. My point was moreso to highlight just another example of how a company takes on a riskier venture rather than just keeping it simple and buying back stock.

[Gregmal]

This is just the gift that keeps on giving.....

[Ahab]

I sold out of my position in the B-warrants early this morning. Even though I have a positive long term outlook on the stock (particularly related to Cruise Auto), I think the trade war & SAAR worries will slam the stock some more this year. Looking to establish a position in the Jan 21' LEAPS at a later point..

[Gregmal]

I dont disagree. I just have zero confidence in Barra doing anything remotely useful in terms of capital allocation. She is ruining whatever benefits may come from running the business in a respectable fashion. The CEO of a public company should not be clueless when it comes to handling that side of the company.

[Ahab]

I totally agree. It's really disheartening that they have not conducted a larger buyback. In my thinking, conducting sizable buybacks and highlighting the value of Cruise are the two major levers for management to finally push this stock higher.

[JRM]

I threw in the towel (sort of) yesterday, so now is probably the time to buy.  I sold a $35 and $40 strike calls against 2/3 of my position and used the proceeds to buy $30 strike puts against my full position (Jan 2021 expiration); slightly below my original cost basis a few years ago of $32. Worst case scenario I can get out for slightly less than I got in for and collect dividends for 5 years.  Best case 1/3 of my current position goes to infinity and beyond.

[hyten1]

Watch Cruise’s self-driving cars perform 1,400 unprotected left turns in 24 hours

 

https://www.theverge.com/2019/5/23/18637358/cruise-gm-self-driving-unprotected-left-turn