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PlanMaestro

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Now if you just want to flip this back out at 10-13x EPS that is a different story. But it seems like people are kind of falling in love with the long-term story given the various investors we have in the company, like Pabrai or Weschler. That to me seems silly. That said, I have owned this stock in the past post bankruptcy and it can give you opportunities to buy at 5x EPS with a solid balance sheet. We're not there again but it's getting close.

 

I think most people are looking for the flip from 6x P/E to 10x-12x P/E. I'm not sure that I've heard anyone who is thinking about marrying this position. (Not sure what Pabrai or Weschler's thoughts are on this.)

 

Got it.  I know Pabrai has the GM ticker on his license plate so it seemed like he was a little more married to the idea. 

 

Another big issue with GM is the upcoming catalyst that is always 12 months away.  For example, GM Europe should turn breakeven soon.  Or interest rates should go up which will decrease their pension liability.  Does anyone really think this is the kind of environment where policy makers are going to jack up rates 3%?  The next upcoming catalyst will be the China improvement now that the market has appeared to peak.  It's never ending and you need a short time window to make the P/E flip a profitable one on an annualized basis.  So far it's been dead money waiting for a catalyst that never comes. 

 

It reminds me of Renault which was a popular value investment for a while.  It also lagged for years, giving almost no value to their Nissan stake.  Then suddenly it just started working and the stock went from $25 to $95.  So I mean these moves happen in the "value" auto space but it can take a really long time. 

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

 

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

oddball,

 

Say your ground research says that GM cars are not good as being claimed and in reality it is just a subpar product, not a Tesla or a BMW, or even a similar priced Toyota. But shouldn't it then be reflected in the numbers? Shouldn't GM be losing market share to similar priced products made by other companies? Or that dealer inventory to be rising? And say that you are right, that GM does make a subpar product - does the product need to be one superior for the stock to be priced at 5-6x P/E (if indeed a 5-6x P/E is normalized P/E)?

 

Your point about doing ground research is fair in general. But not sure how it is relevant here, for both the reasons I mentioned above.

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

oddball,

 

Say your ground research says that GM cars are not good as being claimed and in reality it is just a subpar product, not a Tesla or a BMW, or even a similar priced Toyota. But shouldn't it then be reflected in the numbers? Shouldn't GM be losing market share to similar priced products made by other companies? Or that dealer inventory to be rising? And say that you are right, that GM does make a subpar product - does the product need to be one superior for the stock to be priced at 5-6x P/E (if indeed a 5-6x P/E is normalized P/E)?

 

Your point about doing ground research is fair in general. But not sure how it is relevant here, for both the reasons I mentioned above.

 

If you're looking to flip this from 6x to 12x I'm not sure it matters.  Unless the subpar leads to something else (think VW).

 

Look, Kia makes junk cars.  Everyone knows this, buyers know this.  But the cheapness of the car outweighs the quality.  In my mind you have Kia at the bottom (in actuality Land Rover is far lower on the poor quality scale) Ford low-middle, GM middle, and the foreign manufacturers higher.  I'd purchase a GM sedan over a Ford sedan.

 

My point is if GM is rebranding themselves as high quality it might not be true.  But if they're just cranking out affordable cars that break down at 120k miles and people know this then maybe it's fine?

 

I have shared this story in the past, maybe not publicly.  I have a friend who creates the paint formulas for car companies.  Back in 2012 I was backpacking with him.  He said "avoid VW cars".  I asked why, he said the pressure to cut costs, dilute paint and cheapen clear coat was too much for him.  They demanded an inferior product.  His reasoning was if they were asking of this for the clear coat what else were they doing to cut costs and skate by?  We know now, the whole emissions cheating thing.  Was this actionable for an investor?  It took three years to be exposed.  But here's the thing, to me at least, value investing is about avoid risk, not catching some rocket to the moon.  You buy something cheap and avoid the blow up scenario.  Now on this board we've mostly transitioned to growth and good CEO's.  If you're looking to hitch onto some company for the next 5-10 years don't you want to avoid blow up risk?  VW had it after talking to this guy, does GM?  I don't know, the old GM did for sure, has that culture completely changed?  Maybe it did, maybe all the cheapskates left during the crisis, maybe their new culture programs took effect, I don't know.  But that's the risk.

 

Like I said at the start, if you're just flipping this then it probably doesn't matter.  You just want to own it long enough to make money and get out.  If there are quality problems you hope they happen in three years and you're out in a year or two.  There is no shame in that, it's probably a good bet.

 

To shift gears...on the ground research.  The auto market has changed.  Speak to dealers, the goal isn't throughput as much as service now.  A manufacturer that makes a piece of junk is a dealer's friend.  Nothing will line the pockets of a dealer quicker than a car requiring frequent repairs.

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This sums up my thoughts well on the quality (not the article, the comments): http://www.gminsidenews.com/forums/f70/gmi-analysis-consumer-reports-gives-gm-opportunity-228241/

 

If Buick were *that* much of a better build then why not promote that team to manage the entire process?  The problem with rankings is they're driven by how owners care for cars.  Buick or Cadillac owners are better owners, and under better owners cars perform better.  Likewise Lexus is the highest ranked, why? The people who own those things baby them. 

 

Amazingly on the graph Kia is ranked top for quality.  Ask any Kia owner how often their vehicle is in the shop.  Had a friend who dumped their Kia for a Traverse, which by the way is a nice vehicle that I considered (didn't tow as much as I needed).  They like the Traverse better, but had endless issues with the AC not working during the summer.  I'm not sure if it's the owner/shop/vehicle to blame, although knowing this person my inclination is owner/shop.

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

I don't need ANY quality reports on GM.  I (and my family) have bought & owned MANY different GM vehicles through the years.  I have close friends who have GM vehicles.  I know what I experienced both in ownership & silliness going on at dealers.  I have experienced FIRSTHAND the shoddy craftmanship that GM has.  Not just once, but multiple times. 

 

This was not just on the high end Corvettes.  I have a crazy story about quality in a Chevy Cavalier, but that is a story for another time...

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

oddball,

 

Say your ground research says that GM cars are not good as being claimed and in reality it is just a subpar product, not a Tesla or a BMW, or even a similar priced Toyota. But shouldn't it then be reflected in the numbers? Shouldn't GM be losing market share to similar priced products made by other companies? Or that dealer inventory to be rising? And say that you are right, that GM does make a subpar product - does the product need to be one superior for the stock to be priced at 5-6x P/E (if indeed a 5-6x P/E is normalized P/E)?

 

Your point about doing ground research is fair in general. But not sure how it is relevant here, for both the reasons I mentioned above.

 

If you're looking to flip this from 6x to 12x I'm not sure it matters.  Unless the subpar leads to something else (think VW).

 

 

I doubt anyone on this board thinks of GM as a "high" quality business to hold for the long-term. It is a subpar business that is arguably trading cheaply. I don't buy any of the arguments by management or anyone else that GM, as a product they make, has changed in any dramatic way. The capital structure has changed dramatically making it much safer post bankruptcy. Also, I said arguably trading cheaply, because a few threads ago I asked the question is it "really" that cheap if US sales are at 15 year peak and US EBIT margins are at peak.

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

oddball,

 

Say your ground research says that GM cars are not good as being claimed and in reality it is just a subpar product, not a Tesla or a BMW, or even a similar priced Toyota. But shouldn't it then be reflected in the numbers? Shouldn't GM be losing market share to similar priced products made by other companies? Or that dealer inventory to be rising? And say that you are right, that GM does make a subpar product - does the product need to be one superior for the stock to be priced at 5-6x P/E (if indeed a 5-6x P/E is normalized P/E)?

 

Your point about doing ground research is fair in general. But not sure how it is relevant here, for both the reasons I mentioned above.

 

If you're looking to flip this from 6x to 12x I'm not sure it matters.  Unless the subpar leads to something else (think VW).

 

Look, Kia makes junk cars.  Everyone knows this, buyers know this.  But the cheapness of the car outweighs the quality.  In my mind you have Kia at the bottom (in actuality Land Rover is far lower on the poor quality scale) Ford low-middle, GM middle, and the foreign manufacturers higher.  I'd purchase a GM sedan over a Ford sedan.

 

My point is if GM is rebranding themselves as high quality it might not be true.  But if they're just cranking out affordable cars that break down at 120k miles and people know this then maybe it's fine?

 

I have shared this story in the past, maybe not publicly.  I have a friend who creates the paint formulas for car companies.  Back in 2012 I was backpacking with him.  He said "avoid VW cars".  I asked why, he said the pressure to cut costs, dilute paint and cheapen clear coat was too much for him.  They demanded an inferior product.  His reasoning was if they were asking of this for the clear coat what else were they doing to cut costs and skate by?  We know now, the whole emissions cheating thing.  Was this actionable for an investor?  It took three years to be exposed.  But here's the thing, to me at least, value investing is about avoid risk, not catching some rocket to the moon.  You buy something cheap and avoid the blow up scenario.  Now on this board we've mostly transitioned to growth and good CEO's.  If you're looking to hitch onto some company for the next 5-10 years don't you want to avoid blow up risk?  VW had it after talking to this guy, does GM?  I don't know, the old GM did for sure, has that culture completely changed?  Maybe it did, maybe all the cheapskates left during the crisis, maybe their new culture programs took effect, I don't know.  But that's the risk.

 

Like I said at the start, if you're just flipping this then it probably doesn't matter.  You just want to own it long enough to make money and get out.  If there are quality problems you hope they happen in three years and you're out in a year or two.  There is no shame in that, it's probably a good bet.

 

To shift gears...on the ground research.  The auto market has changed.  Speak to dealers, the goal isn't throughput as much as service now.  A manufacturer that makes a piece of junk is a dealer's friend.  Nothing will line the pockets of a dealer quicker than a car requiring frequent repairs.

 

On the topic of anecdotes, I have a friend who is a high level exec in sales at one of the cloud companies that worked at Oracle earlier to that. He was telling me how Oracle would sell its cloud services.  They were known to jack up prices on their legacy database contracts when contracts were up. They started instead not raising prices if customers agreed to buy a slightly smaller $$$ amount of cloud product. For the end customer, it was win since they could get their database contracts at a lower price increase. They cared less about the cloud product. In return Oracle could boost to Wall Street that they are seeing growth in cloud and get a higher multiple. Arguably, according to my friend, IBM was doing the same thing, but had less leverage because their contracts are not as locked-in as Oracle. Hmm, Mr. Buffett, doesn't know this and has been buying. Or is it that IBM is too cheap despite this?

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

oddball,

 

Say your ground research says that GM cars are not good as being claimed and in reality it is just a subpar product, not a Tesla or a BMW, or even a similar priced Toyota. But shouldn't it then be reflected in the numbers? Shouldn't GM be losing market share to similar priced products made by other companies? Or that dealer inventory to be rising? And say that you are right, that GM does make a subpar product - does the product need to be one superior for the stock to be priced at 5-6x P/E (if indeed a 5-6x P/E is normalized P/E)?

 

Your point about doing ground research is fair in general. But not sure how it is relevant here, for both the reasons I mentioned above.

 

If you're looking to flip this from 6x to 12x I'm not sure it matters.  Unless the subpar leads to something else (think VW).

 

Look, Kia makes junk cars.  Everyone knows this, buyers know this.  But the cheapness of the car outweighs the quality.  In my mind you have Kia at the bottom (in actuality Land Rover is far lower on the poor quality scale) Ford low-middle, GM middle, and the foreign manufacturers higher.  I'd purchase a GM sedan over a Ford sedan.

 

My point is if GM is rebranding themselves as high quality it might not be true.  But if they're just cranking out affordable cars that break down at 120k miles and people know this then maybe it's fine?

 

I have shared this story in the past, maybe not publicly.  I have a friend who creates the paint formulas for car companies.  Back in 2012 I was backpacking with him.  He said "avoid VW cars".  I asked why, he said the pressure to cut costs, dilute paint and cheapen clear coat was too much for him.  They demanded an inferior product.  His reasoning was if they were asking of this for the clear coat what else were they doing to cut costs and skate by?  We know now, the whole emissions cheating thing.  Was this actionable for an investor?  It took three years to be exposed.  But here's the thing, to me at least, value investing is about avoid risk, not catching some rocket to the moon.  You buy something cheap and avoid the blow up scenario.  Now on this board we've mostly transitioned to growth and good CEO's.  If you're looking to hitch onto some company for the next 5-10 years don't you want to avoid blow up risk?  VW had it after talking to this guy, does GM?  I don't know, the old GM did for sure, has that culture completely changed?  Maybe it did, maybe all the cheapskates left during the crisis, maybe their new culture programs took effect, I don't know.  But that's the risk.

 

Like I said at the start, if you're just flipping this then it probably doesn't matter.  You just want to own it long enough to make money and get out.  If there are quality problems you hope they happen in three years and you're out in a year or two.  There is no shame in that, it's probably a good bet.

 

To shift gears...on the ground research.  The auto market has changed.  Speak to dealers, the goal isn't throughput as much as service now.  A manufacturer that makes a piece of junk is a dealer's friend.  Nothing will line the pockets of a dealer quicker than a car requiring frequent repairs.

 

On the topic of anecdotes, I have a friend who is a high level exec in sales at one of the cloud companies that worked at Oracle earlier to that. He was telling me how Oracle would sell its cloud services.  They were known to jack up prices on their legacy database contracts when contracts were up. They started instead not raising prices if customers agreed to buy a slightly smaller $$$ amount of cloud product. For the end customer, it was win since they could get their database contracts at a lower price increase. They cared less about the cloud product. In return Oracle could boost to Wall Street that they are seeing growth in cloud and get a higher multiple. Arguably, according to my friend, IBM was doing the same thing, but had less leverage because their contracts are not as locked-in as Oracle. Hmm, Mr. Buffett, doesn't know this and has been buying. Or is it that IBM is too cheap despite this?

 

I don't think IBM is cheap regardless.  They have a culture problem, I believe they have a product/management problem as well.  I'm not going to go into details on it, but I have my share of stories to tell about IBM.  Not surprising on Oracle, it's a common tactic.  The difference between Oracle and GM is that Oracle has a great product that in many markets is untouched.

 

I'm not as reverent towards Buffett as most on here.  Maybe IBM works out for him, I don't know.  But I wouldn't be tagging along for the ride.  The best investment strategy there is for IBM is to found a startup and have them buy you.  They are aggressive acquirers, purchase excellent products, blue-wash them and they disappear.  The founders are cashed out and can leave to start a new business.

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So to all the GM bulls has anyone purchased a Chevy recently?  Anyone thinking of ditching their current car for a Chevy?  If not why not?

I see the point you are trying to make.  I've not met a person who thinks the new corvette is anything short of stunning tho!

 

Right, same here. My father-in-law has one, nice machine. I've owned numerous Chevy's. The problem is GM doesn't make their money on the banner car, rather it's the bread and butter every day vehicles. I have found GM's reliably blow their head gasket between 120-140k miles....

 

We find the emphasis on personal anecdotes to make investment decisions...strange...to say the least. We will always rely on more objective data to guide our own decisions:

 

http://www.jdpower.com/press-releases/2015-vehicle-dependability-study

 

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

 

http://www.consumerreports.org/cro/news/2014/05/in-the-recall-aftermath-is-it-smart-to-buy-a-gm-car/index.htm

 

Ah..yes, these ratings, must be true right? Let me say this.  I worked for a company that was trying to increase their rating with a group like this.  The product couldn't get there on its own, but lo and behold if our company paid for their "consultants" suddenly our ranking would go up. 

 

I think relying on a single anecdotal story is crazy too, but if there are enough stories it's a trend.  I know it's not popular to do on the ground research for companies in the value community, and it's easier to stick your nose in a filing or a paper, but there is real value to boots on the ground research.

 

There is enormous value to thinking differently and researching differently.  I knew a guy who made a mint by tracking used book prices on Amazon, he used interest as pricing as a proxy for an investment and was able to determine demand returned before filings.

 

I ate dinner across the street from Chipotle Saturday night.  The place was dead, dead, I'd never seen it so empty.  This is anecdotal yup, but guess what, if you go to enough places you get a feel.  There is value to true research like this.

 

I spent some time surfing Craigslist for GM cars.  Found a Cruze with a new engine/tranny replaced under warranty at 70k miles.  A 2011, seems soon?

 

They depreciate extremely fast, a 2014 can be had for $9k, they're $16-25k list price.  To me pricing is a powerful indicator, the market is saying something when a year old car can be had for 50% off the new price.  Compare that to a Toyota, or Accura.

 

You mentioned Buick and Cadillac and reliability.  My sense on these from what I've seen on car forums is they are no more reliable, but the owners baby them to death.

 

You're obviously invested in this and seem emotional about it.  I'm not hating on GM, I've owned plenty of GM vehicles.  I have purchased GM in the past because they are a "value" car in that they're dirt cheap and drive.  But I'm also not lying to myself that these things are bullet proof.  My experience is old, but for a summer I worked at a GM supplier.  We built oil filters, door panels and stereo trays.  The factory was fine, but there was no GM edict on quality, it was get the parts out as cheap as possible.  The upside is replacement parts are cheap.

 

oddball,

 

Say your ground research says that GM cars are not good as being claimed and in reality it is just a subpar product, not a Tesla or a BMW, or even a similar priced Toyota. But shouldn't it then be reflected in the numbers? Shouldn't GM be losing market share to similar priced products made by other companies? Or that dealer inventory to be rising? And say that you are right, that GM does make a subpar product - does the product need to be one superior for the stock to be priced at 5-6x P/E (if indeed a 5-6x P/E is normalized P/E)?

 

Your point about doing ground research is fair in general. But not sure how it is relevant here, for both the reasons I mentioned above.

 

If you're looking to flip this from 6x to 12x I'm not sure it matters.  Unless the subpar leads to something else (think VW).

 

Look, Kia makes junk cars.  Everyone knows this, buyers know this.  But the cheapness of the car outweighs the quality.  In my mind you have Kia at the bottom (in actuality Land Rover is far lower on the poor quality scale) Ford low-middle, GM middle, and the foreign manufacturers higher.  I'd purchase a GM sedan over a Ford sedan.

 

My point is if GM is rebranding themselves as high quality it might not be true.  But if they're just cranking out affordable cars that break down at 120k miles and people know this then maybe it's fine?

 

I have shared this story in the past, maybe not publicly.  I have a friend who creates the paint formulas for car companies.  Back in 2012 I was backpacking with him.  He said "avoid VW cars".  I asked why, he said the pressure to cut costs, dilute paint and cheapen clear coat was too much for him.  They demanded an inferior product.  His reasoning was if they were asking of this for the clear coat what else were they doing to cut costs and skate by?  We know now, the whole emissions cheating thing.  Was this actionable for an investor?  It took three years to be exposed.  But here's the thing, to me at least, value investing is about avoid risk, not catching some rocket to the moon.  You buy something cheap and avoid the blow up scenario.  Now on this board we've mostly transitioned to growth and good CEO's.  If you're looking to hitch onto some company for the next 5-10 years don't you want to avoid blow up risk?  VW had it after talking to this guy, does GM?  I don't know, the old GM did for sure, has that culture completely changed?  Maybe it did, maybe all the cheapskates left during the crisis, maybe their new culture programs took effect, I don't know.  But that's the risk.

 

Like I said at the start, if you're just flipping this then it probably doesn't matter.  You just want to own it long enough to make money and get out.  If there are quality problems you hope they happen in three years and you're out in a year or two.  There is no shame in that, it's probably a good bet.

 

To shift gears...on the ground research.  The auto market has changed.  Speak to dealers, the goal isn't throughput as much as service now.  A manufacturer that makes a piece of junk is a dealer's friend.  Nothing will line the pockets of a dealer quicker than a car requiring frequent repairs.

 

On the topic of anecdotes, I have a friend who is a high level exec in sales at one of the cloud companies that worked at Oracle earlier to that. He was telling me how Oracle would sell its cloud services.  They were known to jack up prices on their legacy database contracts when contracts were up. They started instead not raising prices if customers agreed to buy a slightly smaller $$$ amount of cloud product. For the end customer, it was win since they could get their database contracts at a lower price increase. They cared less about the cloud product. In return Oracle could boost to Wall Street that they are seeing growth in cloud and get a higher multiple. Arguably, according to my friend, IBM was doing the same thing, but had less leverage because their contracts are not as locked-in as Oracle. Hmm, Mr. Buffett, doesn't know this and has been buying. Or is it that IBM is too cheap despite this?

 

I don't think IBM is cheap regardless.  They have a culture problem, I believe they have a product/management problem as well.  I'm not going to go into details on it, but I have my share of stories to tell about IBM.  Not surprising on Oracle, it's a common tactic.  The difference between Oracle and GM is that Oracle has a great product that in many markets is untouched.

 

I'm not as reverent towards Buffett as most on here.  Maybe IBM works out for him, I don't know.  But I wouldn't be tagging along for the ride.  The best investment strategy there is for IBM is to found a startup and have them buy you.  They are aggressive acquirers, purchase excellent products, blue-wash them and they disappear.  The founders are cashed out and can leave to start a new business.

 

Ok, so back to the question of quality of the product, in gwneral how important is the quality of the product when the stock is priced very cheap and mostly for failure?

 

From your question on quality, I can infer either of the two:

1) GM is not priced cheaply, so let's make sure we don't have a dud on our hand OR

2) independent of the stock price, we need to make sure that the business produces a superior product that people universally want and need

 

I presume you ask the question because of 1. Is that right?

I asked a different question - is GM really cheap when sales are at peak and margin at peak? I think this is a fair question.

 

If you do believe it is statically cheap, what is the motivation for the question? If one does a basket of cheap stocks like Walter Scloss one is bound to make errors, but statistically, it seems there will be more winners than losers.

 

Say I agree with your conclusion from anecdotal experience - that GM does not produce a great product - and say someone convinces me that GM is very cheap based on current numbers ( which is quite possible) -what am I to do - sell the stock ?

 

 

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Ok, so back to the question of quality of the product, in gwneral how important is the quality of the product when the stock is priced very cheap and mostly for failure?

 

From your question on quality, I can infer either of the two:

1) GM is not priced cheaply, so let's make sure we don't have a dud on our hand OR

2) independent of the stock price, we need to make sure that the business produces a superior product that people universally want and need

 

I presume you ask the question because of 1. Is that right?

I asked a different question - is GM really cheap when sales are at peak and margin at peak? I think this is a fair question.

 

If you do believe it is statically cheap, what is the motivation for the question? If one does a basket of cheap stocks like Walter Scloss one is bound to make errors, but statistically, it seems there will be more winners than losers.

 

Say I agree with your conclusion from anecdotal experience - that GM does not produce a great product - and say someone convinces me that GM is very cheap based on current numbers ( which is quite possible) -what am I to do - sell the stock ?

 

I guess the question is first is it cheap or is it cyclical?  We have rail car loadings taking a dive and indicating a recession.  Maybe we are, maybe we aren't?  Many cyclicals look really cheap and trade on low multiples at the top.  At the bottom, when they are truly cheap there is no multiple. 

 

If it is really cheap then does quality matter?  At some point it doesn't.  I've owned companies at less than 25% of book value and at that level if they're selling broken Chinese trinkets and sell enough they are probably worth double.  For myself I care about product quality with most of my holdings.  I want something of at least average quality.  I think GM makes average quality vehicles.  I guess the problem could be if they're making average quality but selling premium quality.  Consumer expectation needs to match the company's output, when it does then consumers are satisfied regardless of quality.  When you buy a Kia you're not expecting a Lexus.  When the AC compressor fails in the first year you're not surprised.  But if you're expecting Lexus quality you'll be disappointed. 

 

One company where there's a mismatch in the car space is Nissan.  People expect Japanese quality, but they're getting Renault quality.  Something like that damages the brand, and the stock was damaged for a while as well.  Although I kick myself because I researched Renault when Nissan was "free" but never purchased.  If you can get something for free like that I think it's a good trade.  If it's not free it's really a discussion of grades of cheapness, and then consumer expectation vs reality.  If expectation and reality are in alignment and the company is statistically cheap then it's a buy.

 

As for GM? I would be wary of basing the cheapness off of peak car sales numbers.

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Why do people think we are at peak auto sales?

 

A little bit of math shows that light vehicle sales dropped about 6 million units and didn't get back to the 15.5 million unit long-term average for about four or five years, which means a loss of 0.5 * 6 * 4 = 12 million units. In the last two years, we have made up 3 million of those units above the long-term average.

 

We have 9 million units to go, so... why do people think we are at peak auto sales?

image.thumb.jpeg.d58c82c795748dcf654324257f15991e.jpeg

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Last ~50 yrs of SAAR for some perspective (graphed by calculatedriskblog.com).

 

http://3.bp.blogspot.com/-lpQpp9lljFo/VowoHCxzu4I/AAAAAAAAmL4/9PPMav9h1XU/s1600/VehicleSalesDec2015.PNG

 

And then you normalize that against US population and find they're both up by roughly equal percentages over that span.

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Ok, let's all assume we are at peak auto sales. This is as good as it gets....we are heading into a massive recession.

 

What should GM be worth?

 

They are currently forecasting $5.00-$5.50 in EPS for 2016 and GM is valued at  6 times the low end of guidance...

 

I think this is the important question. I asked this a few threads ago when the discussion moved to product quality.

 

I understand that answering question about product quality is important, but let's first take the product quality at face value, and come up what the fair value range should be.

 

If this is really peak sales, I don't see still how GM is only worth $5 (peak EPS) x 6.

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Last ~50 yrs of SAAR for some perspective (graphed by calculatedriskblog.com).

 

http://3.bp.blogspot.com/-lpQpp9lljFo/VowoHCxzu4I/AAAAAAAAmL4/9PPMav9h1XU/s1600/VehicleSalesDec2015.PNG

 

And then you normalize that against US population and find they're both up by roughly equal percentages over that span.

 

 

# of vehicles per household has risen as well.

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Why do people think we are at peak auto sales?

 

A little bit of math shows that light vehicle sales dropped about 6 million units and didn't get back to the 15.5 million unit long-term average for about four or five years, which means a loss of 0.5 * 6 * 4 = 12 million units. In the last two years, we have made up 3 million of those units above the long-term average.

 

We have 9 million units to go, so... why do people think we are at peak auto sales?

 

You could technically make the argument at any peak on the chart. Unless you are arguing for a plateau period before the drop off?

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I dunno, looking at that chart says investing in GM or FCAU or whoever else "auto" is a bet that this time is different. 

 

The one big difference is the balance sheet differences. But that is what has attracted most of us to GM to begin with. At the end of the day it's about a full cycle of earnings. I'm not so sure it makes sense to value these stocks ex cash.

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Why do people think we are at peak auto sales?

 

A little bit of math shows that light vehicle sales dropped about 6 million units and didn't get back to the 15.5 million unit long-term average for about four or five years, which means a loss of 0.5 * 6 * 4 = 12 million units. In the last two years, we have made up 3 million of those units above the long-term average.

 

We have 9 million units to go, so... why do people think we are at peak auto sales?

 

You could technically make the argument at any peak on the chart. Unless you are arguing for a plateau period before the drop off?

 

Yes, to be clear, I'm not saying that growth will continue unabated into the 20s. I'm merely saying that, by my estimation, we have 9 million units of missing demand that we will likely have to make up over the next three to four years barring a recessionary period that brings it below the 15.5 million unit average.

 

I'm unclear if it's 18 million a year for four years or whatever, but it's not likely the auto sales are going to start a downward trend any time soon.

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Ok, let's all assume we are at peak auto sales. This is as good as it gets....we are heading into a massive recession.

 

What should GM be worth?

 

They are currently forecasting $5.00-$5.50 in EPS for 2016 and GM is valued at  6 times the low end of guidance...

 

I think this is the important question. I asked this a few threads ago when the discussion moved to product quality.

 

I understand that answering question about product quality is important, but let's first take the product quality at face value, and come up what the fair value range should be.

 

If this is really peak sales, I don't see still how GM is only worth $5 (peak EPS) x 6.

GM Raises 2016 Profit Forecast, Boosts Buyback by $4 Billion

http://www.bloomberg.com/news/articles/2016-01-13/gm-increases-2016-profit-forecast-boosts-buyback-by-4-billion?cmpid=yhoo.headline

 

So "peak" earnings are moving up to $5.75 EPS now !?

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