GM - General Motors

[Homestead31]

The MS analyst has a remarkable record of changing his forecasts to justify the current price of the stock. 

 

In my opinion - and I think most of us here at COBF would agree - regardless of what company you are talking about, that is the exact opposite approach that one should take when considering the real value of a company.

[Homestead31]

Op-ed from the New York Times 2 days ago clowning the Morgan Stanley auto analyst:

 

http://www.nytimes.com/2015/08/29/opinion/joe-nocera-the-tesla-cheerleader.html?_r=0

 

article is mostly about how this guy is obsessed w/ Tesla, despite no earnings etc.  as was discussed previously on this tread in regards to GM, he seems to not care about earnings for some reason when he comes up with stock calls.

 

a good quote, "Just like the Internet stocks of yore, Tesla has its own Wall Street cheerleader: Adam Jonas, Morgan Stanley’s auto analyst. Jonas could not be less interested in mundane factors like earnings per share; indeed, he has had to lower his 2015 earnings estimates several times; he now predicts the company will lose $2.70 a share. But never mind: In the future that he envisions, Tesla will be the most important car company on earth."

[Liberty]

I like how the journalist thinks that losing money this year and being the most important car company in the world down the road are somehow mutually exclusive.

 

Tesla is building the biggest battery factory on Earth (which will significantly slash its battery costs), ramping up production at about 50%/year, working on two unreleased models (Model X, Model 3 -- but they also said they want to do a F150-like electric pickup truck down the road), building a worldwide network of superchargers and company-owned stores, writing software for self-driving cars (and possibly a robot-car Uber-like service down the road), launching Tesla Energy which sells stationary battery storage to consumers and utilities, and working on who knows what other secret projects. If they weren't losing money, I'd be surprised. Cut all that investment in future growth, and things would look financially different now (better), but they would also look different (worse) in 5-10 years...

 

In any case, it depends how you define "important", but Tesla is arguably already the most important car company in the world when it comes to technology and products (nobody else that I can think of has captured everyone's attention and influences the direction of the whole industry down the road).

[rpadebet]

I like how the journalist thinks that losing money this year and being the most important car company in the world down the road are somehow mutually exclusive.

 

Tesla is building the biggest battery factory on Earth (which will significantly slash its battery costs), ramping up production at about 50%/year, working on two unreleased models (Model X, Model 3 -- but they also said they want to do a F150-like electric pickup truck down the road), building a worldwide network of superchargers and company-owned stores, writing software for self-driving cars (and possibly a robot-car Uber-like service down the road), launching Tesla Energy which sells stationary battery storage to consumers and utilities, and working on who knows what other secret projects. If they weren't losing money, I'd be surprised. Cut all that investment in future growth, and things would look financially different now (better), but they would also look different (worse) in 5-10 years...

 

In any case, it depends how you define "important", but Tesla is arguably already the most important car company in the world when it comes to technology and products (nobody else that I can think of has captured everyone's attention and influences the direction of the whole industry down the road).

 

+1

 

It personally took me a while to understand this and value this attribute in my investments. A company which can reinvest for you at high ROIC's but has bad reported earnings in the present is more valuable than a company that can't reinvest and pays out the cash flows.

[hyten1]

Geely profits surge 26% in first half on strong domestic sales

http://www.autonewschina.com/en/article.asp?id=13713

 

Great Wall first-half profit rises 19% on robust SUV demand

http://www.autonewschina.com/en/article.asp?id=13713

 

 

 

[RadMan24]

I like how the journalist thinks that losing money this year and being the most important car company in the world down the road are somehow mutually exclusive.

 

Tesla is building the biggest battery factory on Earth (which will significantly slash its battery costs), ramping up production at about 50%/year, working on two unreleased models (Model X, Model 3 -- but they also said they want to do a F150-like electric pickup truck down the road), building a worldwide network of superchargers and company-owned stores, writing software for self-driving cars (and possibly a robot-car Uber-like service down the road), launching Tesla Energy which sells stationary battery storage to consumers and utilities, and working on who knows what other secret projects. If they weren't losing money, I'd be surprised. Cut all that investment in future growth, and things would look financially different now (better), but they would also look different (worse) in 5-10 years...

 

In any case, it depends how you define "important", but Tesla is arguably already the most important car company in the world when it comes to technology and products (nobody else that I can think of has captured everyone's attention and influences the direction of the whole industry down the road).

 

Take your Tesla conversation elsewhere! BYD in China has done just as much and earned a profit in the process. GM earns $3 a share in FCF. Tesla has captured the attention and influence of mass competition. That's something to be proud of. Elon Musk is a great CEO. Buying Tesla is buying Elon Musk, not electric cars! I wish him luck, he's got one hell of an uphill battle :)

[bigspydee]

http://mobile.reuters.com/article/USLegal/idUSL1N11M2QY20150916

 

Bittersweet news, but major headwind out of the way.

[racemize]

http://mobile.reuters.com/article/USLegal/idUSL1N11M2QY20150916

 

Bittersweet news, but major headwind out of the way.

 

anyone have what their reserve was for this?

[vinod1]

http://mobile.reuters.com/article/USLegal/idUSL1N11M2QY20150916

 

Bittersweet news, but major headwind out of the way.

 

anyone have what their reserve was for this?

 

They did not reserve for this as they are not able to estimate a range for the probable cost. They did reserve for customer compensation ($315 million) for this issue but that would not cover criminal settlement.

 

See Note 17 in 10-K for a bit more info.

 

Vinod

[racemize]

ouch.

[LowIQinvestor]

Anyone have valuation work on GM's Onstar unit? I've heard Onstar had revs around $1.8B annually and 30-35% operating margins.

 

There was some talk about the future capabilities of Onstar during Citi 2015 Global Technology Conference :

http://seekingalpha.com/article/3496996-general-motors-gm-management-on-citi-2015-global-technology-conference-transcript

 

Topics such as OnStar, 4G, LTE as over-the-air upgrade and car sharing technology were discussed.

 

Looking to maybe buy more GM today on the VW debacle...

 

 

[hyten1]

chevy cruze vs vw, diesel emissions

 

http://www.thetruthaboutcars.com/2015/09/tech-dive-chevy-cruze-stays-clean/

 

 

[muscleman]

chevy cruze vs vw, diesel emissions

 

http://www.thetruthaboutcars.com/2015/09/tech-dive-chevy-cruze-stays-clean/

 

I wonder if they have tested the Cruze 2.0L before claiming it is clean. It sounds the author of the article was just guessing since Cruze made a bunch of hardware changes, it may be clean.

[LowIQinvestor]

**GM Sees FY16 EPS $5-$5.50

 

So even at the low end of guidance for 2016, GM trades for a 6 PE and will grow earnings at least 10% YOY.

 

GM Posts Sixth Consecutive Jump in Retail Market Share

 

Thu, Oct 1 2015

Chevrolet retail sales up 19 percent

Best September for Chevrolet Malibu retail sales in 10 years

Chevrolet crossovers up 49 percent; pickups up 22 percent

GMC crossovers up 20 percent; pickups up 32 percent

Best September for Buick since 2006

Buick crossovers up 21 percent; Regal up 27 percent

Cadillac SRX up 85 percent

Commercial deliveries up for 23rd consecutive month

 

http://www.gm.com/article.content_pages_news_us_en_2015_oct_1001-gmsales.html

 

 

 

 

 

[Mephistopheles]

Where do you see the guidance? I can't find it.

[LowIQinvestor]

Click on "Chart Set"

See slide 121

 

http://www.gm.com/company/investors/announcements-events/event_detail_page.event_5194074.~content~gmcom~home~company~investors~announcements-events.html

 

20%+            ROIC

$4.50            EPS in 2015

$5.00- $5.50 EPS in 2016

[Picasso]

How do others view their calculation of ROIC? 

[Mephistopheles]

Click on "Chart Set"

See slide 121

 

http://www.gm.com/company/investors/announcements-events/event_detail_page.event_5194074.~content~gmcom~home~company~investors~announcements-events.html

 

20%+            ROIC

$4.50            EPS in 2015

$5.00- $5.50 EPS in 2016

 

Thank you

[gokou3]

How do others view their calculation of ROIC?

 

The attached screenshot shows an example ROIC calculation from a June 2015 presentation.  The adjustments made for pension and DTA don't seem to make sense to me.  For example, if interest rate rises and they no longer have a pension deficit, the ROIC would suddenly shoot up.  Or after a few years when they have used up their DTA, their ROIC will go down...

 

[Picasso]

That was sort of my thinking too.  It gives a really volatile measure of ROIC and if we remove the deferred tax asset in a few years, ROIC is probably going to be mediocre.  Also not sure why or how they're using the adjusted EBIT.  Wouldn't you look at operating cash after tax as the best measure of return and then just remove the deferred tax asset to get an idea of a stabilized ROIC?

[vinod1]

The problem is not with their calculation, it is just that the balance sheet is not a good representation of the economics of the company. The adjustments they do make sense. Pension obligations are similar to debt and needed to be added back. DTA is not an operating asset and needed to be removed.

 

- Their equity got wiped out during bankruptcy and New GM does not really reflect the equity that is needed to reproduce the company. So equity is understated. So their starting point itself is problematic.

- They generate $2 billion in net income from chinese JV on equity of about $8 billion. This is a gross misrepresentation of the economics of the business there.

 

So I really do not give much consideration for their ROIC metric.

 

Vinod

[RadMan24]

It's okay, basically they meet their incentive goals operating around 8-10% margins, which is obviously not that bad. It also keeps them conservative on capacity and from overextending balance sheet. In my opinion.

[compounding]

Some notes from the Global Business Conference Call presentations

 

Mary Barra

 

* Focusing on the customer relationship beyond the car.

* Knows they are in a cyclical business - need to maximise efficiencies.

* Growth from emerging markets + Cadillac.

* Eight consecutive quarters of yoy GMNA margin expansion.

* Returned over $4.5B to shareholders through dividends and repurchases through first 9 months of 2015.

* $5B global investment in Chevrolet.

* Goals for 2016 on track: NA EBIT-adjusted margin ~10%, Europe profitable, sustain strong China margins.

 

 

Dan Ammann

 

* Past five years about restructuring - next five years about growth and future of mobility.

* Decisions made to improve ROIC: exit Chevy Europe, Thailand, Indonesia, Russia, Brazil, Australia, South Africa, downsized Opel capacity.

* Partnerships to drive efficiencies that have saved $2-3B: SAIC (China), Honda (fuel cells), Isuzu (global cooperation, trucks?), Nissan (small commercial van), PSA (joint purchasing in Europe), Ford (9/10-speed automatic transmissions), Navistar (medium duty truck), Renault (medium/large commercial van for Europe).

* Partnership works best when each partner brings something to the table. Execution is easier said than done. Will pursue other partnerships in the future where both parties bring something to the table.

* Have traded volume for sustainability/margins/higher ROIC. Expect this to continue in the years to come.

* The total global industry will continue to grow at roughly the rate of GDP for a long time. The growth geographical composition will change from developed markets/China to other "growth markets". A significant portion of the global population is yet to own its first car.

* Growth market simplification & scale: expectations in growth markets have risen, so the old model of introducing legacy models in new markets isn' going to cut it. Co-developing a new vehicle program with SAIC. Today they are doing over 1 million units from 7 architectures - in the future the want to do over 2 million units from 1 architecture to achieve a low cost model.

* Luxury & Full-size trucks are 14% of global industry volume but ~60% of global industry profit. Will continue to grow and invest in these segments.

* Aftersales revenues have been growing despite the GM car park shrinking the last few years. Aftersales is a 30-40% margin business. Aftersales = accessories, service retention at dealerships.

* GMF: 5 years since acquisition of AmeriCredit. Have invested $5B total from the motor company. Will be earning $2B/year in pretax earnings in short order. Benefits to motor company from increased retention etc.

* Customer relationship beyond the car: 7 million connected cars on the roads today + GMF etc are key enablers for future service offerings like autonomous, sharing etc.

 

 

Mike Abelson

 

* The owner-driver business model in the automotive industry hasn't changed in the past 100 years - believe this will change. Fundamentally the change is caused by connectivity.

* Onstar: launched 19 years ago. Added remote link in 2010 - in 2013 >23m interactions, in 2014 >40m interactions, in 2015 >50 in H1. >1m 4G LTE enable vehicles on the road - sold more 4G LTE vehicles in 3 days in June than the rest of the industry combined in H1 2015. Only OEM with available on 3 continents. GM has >500 patents in this area.

* Using vehicle data for diagnostics (like GE in jet engines).

* GM advantages: breadth and scope of portfolio, extensive dealer network, support system with many years of experience and data.

* Programs in urban mobility: Google pilot in 2014, SJTU EN-V 2.0, Warren tech center sharing since middle of 2014 ~same capabilities as Google (any Onstar vehicle after 2011 is able to use the tech), Opel CarUnity (car sharing peer-2-peer app, started in June, 7500 users 1700 cars from Frankfurt area), Let's drive NYC (pilot program since June, car-sharing model partnered with Stonehenge and Icon Parking, 3 hours included in the rent).

* Wiill be launching a city-wide car sharing program in a US city in Q1 2016.

 

 

Mark Reuss

 

* Last year they talked about: architecture consolidation, engine consolidation, reducing capital spending, reducing material cost, funding future of transportation and mobility.

* Focused on mass reduction. Improves vehicle efficiency and performance and paves way for new technology. In total GM will save $2B in material cost this year. Malibu weight reduced by 300 pounds but at the same time made it longer and wider, with same safety. Also increased variable profit/unit by $1500 in the US. Same story with other models like Volt, Cruze, Camaro.

* With lighter weighting you get more efficient vehicles with improved performance. More aluminium. This is happening across all brands and price points. Front body structure on Cadillac went from 25 parts to 2 - reduces complexity, mass and tooling investment.

* GM active safety features today: traffic sign memory, following distance indicator, high beam assist, forward collusion alert, full speed range adaptive cruise control, rear automatic braking, front automatic braking, rear cross traffic alert, advanced parking assist, lane change alert, lane keep assist, surround vision.

* GM active safety features tomorrow: rear camera mirror, night vision, low speed front automatic braking, front pedestrian braking, curb view camera.

* Plan to carry out partnerships with non-automotive companies. For example Mobileye.

* Alternative propulsion: multifaceted approach - both battery electric vehicles and fuel cell electric vehicles. Both have non-automotive applications that represent growth opportunities.

* Electric vehicles: need to improve infrastructure and charge times which will reduce range anxiety. Lower cost per mile than hydrogen or gas. GM leads the industry in battery cell cost.

* Fuel cell: faster fill up, longer range ... but need to build out infrastructure. Long-term contract for a vehicle for the military. Cooperation crucial for development. Lot of work to be done on the storage system. Together with Honda GM has the strongest patent portfolio in the industry.

* eBike concept debut early next year.

* Global product freshness: % of refreshed vehicles will be higher in each of the five next years than it is today.

 

 

Q&A

 

* They don't know which model they will go for in mobility, trying different ones. Agrees a lot of revenues will be incremental.

* Profit contribution from aftermarket is measured in billions of dollars, not hundreds of millions.

* GMF will be financed by retained earnings.

* ROIC from China over 50%

 

 

Johan de Nysschen

 

* Luxury brands: ~12% of global sales = ~38% of profits. GM has a 11.4% global market share - Cadillac's share is only 3.4%.

* US still largest market for Cadillac.  Inventory supply has been reduced to 50 days from about 134 in January 2014. Goal is to maintain a supply of around 60-65 days. ATP's have risen thanks to a rigorous and disciplined approach and are second only to Mercedes-Benz in the US. Driven also by model mix (Escalade).

* Cadillac and Mercedes-Benz are the only two in the luxury space with a yoy decline in incentive spend.

* Volumes flat for 2015, market share slightly down. Market growth has happened largely in segments Cadillac is not active. Japanese automakers leveraging weak yen and aggressive incentive spending.

* Anticipated future portfolio covers >90% of the luxury market compared to ~54% today.

* The 2016 CT6 will include SuperCruise, V2V and will be available PHEV technology.

* Cadillac will become more global compared to a more US based brand today. A lot of growth from China - expect 80k sales in 2015. Volume goals for 2015: 270k, 2018: 350k, 2020: 500k

 

 

Matt Tsien

 

* China market is maturing: expect 3-5% cagr in 2014-2020 compared to 17% from 2008-2014. 24m units sold in the industry in 2014, at least 5m more units per year in 2020.

* Tier 1 cities have been in negative growth in H1 15 while Tier 2-4 have grown at double digit rates. Registration caps holds back growth in some cities. Average age of the car parc in China is around 4 years compared to 10 in more developed markets. 85% of GM volume is in Tier 2-4 markets.

* GM competes in all price ranges in China.

* Mix will change in China in the rest of the decade, primarily with luxury, MPV and SUV growing faster than the market (80% of total growth). GM will have 26 new/refreshed entries in these markets until 2020.

* 10+ alternative propulsion entries planned for China from 2016-2020. Localization: will be first foreign OEM to have battery assembly plant in China.

* Challenges: moderating/volatile markets, pricing pressure (5% down from previous year), cost inflation (wages up 8% per year), regulatory constraints.

* Opportunities: improved mix, cost efficiencies (been able to offset majority of headwinds this year), leveraging scale (working on 2m units on common architecture), downstream revenues (onstar, SAIC GMAC - largest auto finance company in China, INSAIC - insurance, ACDelco - aftermarket)

* 4000+ dealer outlets in China. 9 manufacturing bases. "Well positioned for future."

 

 

Karl-Thomas Neumann

 

* Onstar: available for the entire product portfolio. They have call centers for every European language. 50% of Opel vehicles will have Onstar from now on. 500k by the end of 2016, 2017 1.7m vehicle, largest fleet in Europe.

* New Astra: 200 kg lighter, larger on the inside, new efficient engines, good reception in media so far.

* Opel Bank: new full captive financing arm. Takes deposits, 17k customers, 450m deposits.

* CarUnity: peer-to-peer carsharing in Frankfurt with 7500 registered users/1700 cars.

* Working on the Opel brand. 130 years of history. Want to make it more exciting to own an Opel.

* 29 new models until 2020 - "strongest pipeline ever." Average age coming down from >5 years to 3.9.

* Light commercial vehicles: growing 25% vs 8.1% for the market.

* Drive! 2022: goal to be no 2 in Europe with 8% market share and EBIT-adjusted margins in excess of 5%. A step to this is to breakeven next year through higher profitability per car from higher transaction prices, lower material & fixed costs (closure of Bochum + other restructuring), taking market share in a growing market.

 

 

Alan Batey

 

* The road to 10% margins in North America: 10.4% in Q2. Key factors going forward: material cost, sales performance, new models, adjacent sales, GM Financial.

* US market share performance: retail up 0.4% and fleet down 3% - down 0.1% in total. Growing faster than the markets with Chevrolet in important markets like New York, Washington and LA.

* Pick-up share performance: 31% share in mid-size from zero, highest ATPs and $500 incentives. Full capacity at the moment. 15% of customers come from FS pickups. 3.1 percentage point increse in FS light duty and 2.5 in FS heavy duty. Largest share gains from F-150.

* Medium duty truck: agreement with Navistar to get into the market by 2018. Gives complete lineup of commercial vehicles.

* GM mainstream brands are making progress in sales satisfaction/service index surveys. Five years ago put dealerships through Disney Institute training to improve customer service. One point in customer loyalty represents $700m in revenue.

* Improved customer loyalty by 15 points since 2010.

 

 

Chuck Stevens

 

* Earnings growth accelerating: expect double-digit earnings growth over the next number of years.

* Disciplined capital allocation: committed to return all excess cash to shareholders.

* Robust downside protection: different company with much lower breakeven which will enable robust performance throughout the cycle.

* FCF growth greater than earnings growth: $20B FCF last five years = >40% of market capitalization. Have returner >100% of FCF to owners in the last three years. Expect FCF-generation to accelerate going forward. Expect $6-7B FCF/year in 2016-18 and $9-10B/year in 2020 and beyond.

* Cost efficiencies: expect run rate improvement of $5.5B in 2018 by lowering material costs & logistics, manufacturing and reducing footprint + global business services and IT/SG&A.

* Capital allocation framework: invest at 20%+ ROIC, higher FCF, increased earnings => share price appreciation & additional return of capital. $12B returned to shareholders from 2012-2015 YTD; ~100% of FCF.

* Different company to last downturn: total automotive debt down from $39B in 2007 to $9B today. Net pension & OPEB down from $49B to $18B today. US breakeven rate in SAAR units down from 16m in 2007 to 10-11m today. Target cash balance of $20B. Fixed cash obligations associated with the balance sheet in 2007 were $5B/year - today it's less than $1B/year. Fixed costs has been relatively flat in the past 4-5 years.

* Expect EPS of $5.00-5.50 in 2016

 

 

Q&A

 

* China margins will be maintained by: better mix, cost efficiencies. They are at 90% capacity utilization now.

* Opel diesel penetration is 43%. All OEMs need diesels in Europe to reach emissions targets.

 

[vinod1]

compounding - Thank you!

[Guest MarkS]

Great numbers out for GM. Beats on revenues and earnings. Hopefully the stock will finally run.