GM - General Motors

[CorpRaider]

Ford Sees Pretax Profit $6 Billion, Missing 2014 Profit Goals

 

http://www.bloomberg.com/news/2014-09-29/ford-sees-pretax-profit-6-billion-missing-2014-profit-goals.html

 

GM seems to have tracked this move down in Ford.  GM has about 17% market share in Brazil versus Ford at 9.2%.  I wonder how these losses in South America will compare to GM.

 

Hopefully, this is new CEO tanking guidance.  I sure wouldn't want to have to meet Mullaly's guidance.  Strong dollar and weak europe and imploding brazil won't be good in the short term.

[muscleman]

Buffett said in a recent interview that Ted has 15% of the money he manages in GM. Kyle Bass called this his best idea.

 

Pabrai has a huge investment GM warrant B and according to poster above Ted said for his personal portfolio he would have bought the C warrants a he can take on more risk.

 

analyst expect close to $5 EPS in 2016 + you have $17 cash per share. US car fleet is old and the replacement cycle is on.

 

Current share price is at $33. At 10x you are looking at $50 share plus cash gives you options.

 

The catalyst could be the recalls ending and the cases being settled.

 

The C warrants trade for a dollar, while the 42 strike 2016 options also trade for a dollar.  Any advantage to the warrants aside from liquidity on large purchases?

 

I guess I have two hesitancies on GM.  The first is the likes of competition from TSLA.  The second is the generally low valuations for all automakers.  Even the Japanese automakers trade for a small premium to book value and near 10x earnings. 

 

So would it be better to buy the best (Toyota Motors) at 1.3x book and 10x earnings or GM at 1x book and 7x earnings?  Or is it better to buy a highly levered one (Fiat) which trades at a very low multiple or normalized earnings?

 

Perhaps the thing I like best about GM is the optionality of cash, close to a 4% dividend to reduce some opportunity cost risk, and generally distaste among investors.

 

I'm under the impression that the valuation more than offsets any potential negatives but if those negatives present themselves as further hurdles in the years ahead it would be prudent to change the thesis (looking at you SHLD investors).

 

This is hard to say...

Fiat has been aggressively taking market shares from GM, especially the truck sector, which is the profit center of US auto makers.

On the other hand, GM is indeed cheap. If an activist pushes for $12 per share special dividend, GM's balance sheet will look somewhat like Fiat's, and it has potential to double in the next few years.

I am interested in this one, but I am not sure if GM's cars are as competitve as Fiat's. ::)

[fareastwarriors]

GM Outlines Aggressive Financial Outlook

 

Auto Maker Sees Profits Boosted by Cost Cuts, Better Marketing, Business Changes

 

 

http://online.wsj.com/articles/gm-outlines-financial-plans-1412173772?mod=WSJ_hp_LEFTTopStories

[nikhil25]

Chrysler, GM, Nissan sales soar; Ford down

http://www.usatoday.com/story/money/cars/2014/10/01/september-2014-auto-sales/16521289/

 

Chrysler and General Motors reported that September sales of their cars and trucks soared 19% and 19.4% respectively, as the two Detroit automakers' performance easily outpaced the expected overall industry sales increase for the month.

[Homestead31]

Wisdom - you cited a Buffett interview where he said that Weschler had 15% of his portfolio in GM...  I have tried to find that interview but have been unable.  Can you supply a link?  TY

 

Any thoughts from warrant holders on special dividend risk?

[wisdom]

15% of Ted's portfolio as it is Wescheler's investment. I will have to look it up - i believe it might have been the one with Dan Gilbert in Detroit.

[valueinvesting101]

It's about $1.07bn position with BRK holding 32,960,056 shares. Assuming Ted's allocation was $7bn, it is about 15%.

[CorpRaider]

15% of Ted's portfolio as it is Wescheler's investment. I will have to look it up - i believe it might have been the one with Dan Gilbert in Detroit.

 

That's the one.

[argonaut]

Buffet mentioned they are each running about 9b now ... They have had gains which pushed the value higher.

[fareastwarriors]

GM Won't Follow All-Aluminum Strategy in Future Cars

 

Auto Maker Plans to Use a Mix of Materials to Shed Pounds From Future Cars, Trucks

 

 

http://online.wsj.com/articles/gm-wont-follow-all-aluminum-strategy-in-future-cars-1412271919?mod=WSJ_hp_LEFTWhatsNewsCollection

[Homestead31]

thanks.

 

i didn't realize it was specifically known as one of ted's positions.

 

i know at the BRK meeting this year (or maybe last year?) during the movie there was a skit that had warren on the phone w/ charlie and they were talking about buying GM at $34, so i assumed it was one of his.

[MYDemaray]

Wisdom - you cited a Buffett interview where he said that Weschler had 15% of his portfolio in GM...  I have tried to find that interview but have been unable.  Can you supply a link?  TY

 

Any thoughts from warrant holders on special dividend risk?

 

A special dividend will adjust the exercise price

 

Section 5.01. Adjustments to Exercise Price. The Exercise Price for the Warrants shall be subject to adjustment (without duplication) upon the occurrence of any of the following events:...

 

© The dividend or distribution to all holders of Common Stock of (i) shares of the Company’s Capital Stock (other than Common Stock), (ii) evidences of the Company’s indebtedness, (iii) rights or warrants to purchase the Company’s securities or the Company’s assets or (iv) property or Cash (excluding any ordinary cash dividends declared by the Board of Directors and excluding any dividend, distribution or issuance covered by clauses (a) or (b) above), in which event the Exercise Price will be adjusted based on the following formula:

 

http://www.sec.gov/Archives/edgar/data/1467858/000119312510078119/dex1030.htm

[JPerez]

I think there is a very small chance of a special dividend.

From yesterdays presentation they said that their priorities with the cash are:

1. Invest back in the business

2. Maintaining a "Fortress balance sheet"

3. Return to shareholders, mainly through incremental dividends but also through opportunistic actions.

 

What is interesting is what a "fortress balance sheet" means to them they are targeting

Auto Cash and equivalents 20-25B

Auto Debt and underfund pension 25-30

 

The actual numbers at YE13 from the 10K are:

Auto Cash and equivalents 27.9B

Auto Debt and underfund pension 33.4

 

So they are above their target on both but they will need the cash to buy the financial business in China later in the year and the preferred stock and I would hope that the underfund pension will come down by year end 14 so pretty much on target on both accounts.

So according to them they have no excess cash because they want to be conservative which is understandable in a company that has gone through bankruptcy not too long ago.

What I would expect is that most of their free cash flow will be return to shareholders coming forward and I would expect given their expected cash flows that dividends hit 0.5 a quarter in the mid term.

I was hoping they would be more aggresive on buy backs but it looks like they prefer to return cash through dividends which makes little sense when the stock is at this levels.

What i think is that they might repurchase blocks of stock as they come for sale from people that got them in the bankruptcy procedure.

There is quite a bit of negativity in auto stocks in the last while because some investors have the view that this is as good as it gets and this is the peak of the auto market and it is not sustainable. I dont believe it seems to me that there is still pent-up demand out there (I hope I am not wrong)

There are also plenty of people that hate GM because of their political views and that shows in the share price.

I believe the stock should be worth 45-55$ based on earning power and they have one of the strongest balance sheets in the auto industry

[JPerez]

By the way if somebody would have a link to a transcript from yesterday event would be great as it is not available in the gm web.

Thanks

[fareastwarriors]

oops

 

 

http://online.wsj.com/articles/gm-recalls-more-vehicles-1412340536

 

 

General Motors Recalls Another Half-Million Vehicles

 

Cadillacs, Saabs and Chevrolet Sparks Recalled for Potential Torque, Latch Hood Problems

[Cervelo]

Keep in mind that as interest rates rise, and they will eventually, that underfunded pension will improve as the actuaries apply a higher rate of return. I think its something in the neighborhood of $6Billion for every 1% increase in interest rates. Don't see rates going up 3% but 1% is not out of the realm of possibilities.

[nikhil25]

GM Halts Pickup Sales While Searching for Air-Bag Fix

http://www.bloomberg.com/news/2014-10-03/gm-halts-pickup-sales-while-searching-for-air-bag-fix.html

 

General Motors Co. (GM), already reeling from a record number of vehicle recalls this year, is halting sales on two new pickup truck models after discovering an electrical flaw that could cause the air bags to misfire.

 

The issue affects an undisclosed number of 2015 Chevrolet Colorado and GMC Canyon midsized pickups. The air bags were wired incorrectly, which will disrupt the firing process, the company said in a statement yesterday.

 

“GM is working to validate the correction for the condition,” Alan Adler, a spokesman for the Detroit-based automaker, said in the statement. “Once that service procedure is released to dealers, customer deliveries can resume.”

 

The largest U.S. automaker is trying to move beyond a year in which it has recalled almost 30 million cars and trucks in North America. Chief Executive Officer Mary Barra faced four separate congressional hearings over the handling of an ignition-switch recall now tied to 23 fatalities.

 

[fareastwarriors]

GM Recalls Nearly 7,600 Chevy Caprices Over Transmission Issue

 

Latest Recall of Police Patrol Cruisers Marks GM’s 75th Safety Action This Year

 

 

http://online.wsj.com/articles/gm-recalls-nearly-7-600-chevy-caprices-1412684018?mod=WSJ_hp_LEFTWhatsNewsCollection

[nikhil25]

Morgan Stanley Downgrades General Motors

 

http://www.businessinsider.com/morgan-stanley-downgrades-general-motors-2014-10

[tombgrt]

Nice, keep 'em coming! I'm buying soon enough at this pace.

[fareastwarriors]

52 wk low for the B warrants.

[muscleman]

I am still scratching my head on GM. It sounds like your price target would be $40-45, so why bother buying at $30? ::)

How would you view Fiaty compared with GM?

GM has low leverage and potentially lower returns and lower risks, right?

[Mephistopheles]

Has anyone thought about the likelihood of an activist investor in GM?

 

Cash makes up 60% of the current market cap, you have a pension liability with a below market discount rate (seems very manageable), and now a return to investment grade in the corporate bond market.

Do they disclose the discount rate? I'm having trouble finding it in the 10-k. Unless you're talking about the rate of return assumption, which is 6.5%.

 

Page 100 of the last 10-K.  The discount rate is just under 4%.

 

From a 2013 Bloomberg article http://www.bloomberg.com/news/2013-07-26/gm-to-ford-pension-gains-frees-cash-for-fusion-like-hits.html

 

For GM, each increase of 1 percentage point in the discount rate cuts $8.76 billion from the present value of its U.S. pension obligation, according to its 2012 annual report. A similar increase would reduce Ford’s U.S. total obligation by $5.2 billion, its regulatory filing shows.

 

So the discount rate you're talking about, is the one to determine the net expenses, at 3.59% for U.S. and 3.69% for non-U.S., right?

 

The one used to calculate the benefit obligation, which is shown on the balance sheet, are 4.46% and 4.10%, which are still low.

 

Shouldn't we be thinking about the latter two if we are looking at the balance sheet liability?

[Mephistopheles]

Has anyone thought about the likelihood of an activist investor in GM?

 

Cash makes up 60% of the current market cap, you have a pension liability with a below market discount rate (seems very manageable), and now a return to investment grade in the corporate bond market.

Do they disclose the discount rate? I'm having trouble finding it in the 10-k. Unless you're talking about the rate of return assumption, which is 6.5%.

 

Page 100 of the last 10-K.  The discount rate is just under 4%.

 

From a 2013 Bloomberg article http://www.bloomberg.com/news/2013-07-26/gm-to-ford-pension-gains-frees-cash-for-fusion-like-hits.html

 

For GM, each increase of 1 percentage point in the discount rate cuts $8.76 billion from the present value of its U.S. pension obligation, according to its 2012 annual report. A similar increase would reduce Ford’s U.S. total obligation by $5.2 billion, its regulatory filing shows.

 

So the discount rate you're talking about, is the one to determine the net expenses, at 3.59% for U.S. and 3.69% for non-U.S., right?

 

The one used to calculate the benefit obligation, which is shown on the balance sheet, are 4.46% and 4.10%, which are still low.

 

Shouldn't we be thinking about the latter two if we are looking at the balance sheet liability?

 

So I guess I'm confused about pension accounting. If anybody can help me with this: what is the difference between the discount rate for expense and the one used for the obligation on the balance sheet?

[tylerdurden]

Any views on the impact of potential European slowdown on GM's prospects? Europe at around 16% of the revenues should not be an issue that GM cannot weather with the help of still robust NA sales I think. Oil/gas price decreases is a new plus. China story based on September sales data is still on track. SA is going through usual volatility as expected from those countries. Bottomline I don't see any reason for this huge selloff on the stock but perhaps I am missing something. Morgan Stanley downgrade and the language used by the analyst ("They didn't warn, so we're doing it for them.") which I find very cocky didn't really help for sure...

 

Thanks.