GM - General Motors

[Guest roark33]

I don't understand value investor on companies like GM.  The stock is trading at 6x earnings now, but if earnings get cut in half, it is trading at 12x earnings, or worse.  I think you need to look at a cyclical company and understand what it will earn over the cycle (some companies don't earn anything over the full cycle). 

 

I know this point sounds obvious, but people often forget the obvious. 

[Dalal.Holdings]

Until recently, they kept raising the dividend.  When you raise the dividend, you lower your financial flexibility from a credit perspective so you need to hoard cash on your balance sheet.  Which means less cash available for repurchasing stock at 5-6x earnings.  Taxable shareholders are now receiving cash and paying taxes instead of getting the double tax-deferral/value accretion benefit from share repurchases.

 

Mary Barra is the best CEO ever though, a world class capital allocator.  ;)

 

Certainly better than her peers, but they set a pretty low bar (ie. see Ford).

 

Shocking that no stock was bought back in Q1. They attributed it to the pending Opel sale and being restricted from doing so. Never heard of such a provision when selling a division, probably more likely due to negative auto FCF in Q1. They still plan on buying back $5B total this year, but that number needs to be higher, especially now with the shares lower. The exit from Europe and Venezuela is encouraging and shows discipline in capital allocation, mgmt should think about cutting capex in Brazil too.

 

Ya, auto sales might be dipping or at plateau, but the tectonic shift in mix is what matters: sales of crossovers/SUVs (ie. large, high margin vehicles where GM excels) have risen/are rising drastically. Product refreshment in this segment has just begun for GM and results are thus far encouraging (Acadia, XT5 surging). Fuel prices are likely to stay low for a while with flexible shale drilling and the crossovers are more fuel efficient than before. So the total auto sales are flat/declining, but SUV/crossovers are way up vs passenger cars.

 

Willing to bet that GM is less cyclical than many believe. Should keep chugging along with buybacks as swiftly as possible.

[Viking]

If the US economy continues to chug along for the next couple of years at 2.5% growth (consensus opinion) is this not positive for car companies like GM and Ford? If vehicle sales plateau at 17 million per year for the next couple of years is this not ok for car companies?

 

Yes, vehicle sales are plateauing. Is a recession coming soon (next 24 months)? I don't think so.

[Guest roark33]

This is a good video that has implications for new car sales:

 

[tylerdurden]

No investor will buy GM above 38. There is no connection between the earnings that GM makes and the stock price any more. 5x earnings it is cheap; it'll be cheap again 3-4x earnings unless the management does some drastic change like an accelerated share buyback program or something.

 

I believe that GM can make decent earnings even during a downturn but they won't believe until they see it. Sad but true...

[dyow]

Until recently, they kept raising the dividend.  When you raise the dividend, you lower your financial flexibility from a credit perspective so you need to hoard cash on your balance sheet.  Which means less cash available for repurchasing stock at 5-6x earnings.  Taxable shareholders are now receiving cash and paying taxes instead of getting the double tax-deferral/value accretion benefit from share repurchases.

 

Mary Barra is the best CEO ever though, a world class capital allocator.  ;)

 

Certainly better than her peers, but they set a pretty low bar (ie. see Ford).

 

Shocking that no stock was bought back in Q1.

 

 

 

Shocking? what is shocking is you believe she is on your side and einhorn isn't.  She is a ceo.  her main concern is keeping her job. Getting her salary, and getting her options. She is probably already thinking about what she will do with her millions when she retires. Nobody at gm has the stock price as a top priority. 

 

Make no mistake about it, the only guy who has the same interest as you here is einhorn.  He wants to stock price to go up so shareholders get paid after watching the stock trade at $33 for 200 years....

 

Not in this.

 

 

 

[atbed]

No investor will buy GM above 38. There is no connection between the earnings that GM makes and the stock price any more. 5x earnings it is cheap; it'll be cheap again 3-4x earnings unless the management does some drastic change like an accelerated share buyback program or something.

 

I believe that GM can make decent earnings even during a downturn but they won't believe until they see it. Sad but true...

 

I so agree with this...

[Gregmal]

Until recently, they kept raising the dividend.  When you raise the dividend, you lower your financial flexibility from a credit perspective so you need to hoard cash on your balance sheet.  Which means less cash available for repurchasing stock at 5-6x earnings.  Taxable shareholders are now receiving cash and paying taxes instead of getting the double tax-deferral/value accretion benefit from share repurchases.

 

Mary Barra is the best CEO ever though, a world class capital allocator.  ;)

 

Certainly better than her peers, but they set a pretty low bar (ie. see Ford).

 

Shocking that no stock was bought back in Q1.

 

 

 

Shocking? what is shocking is you believe she is on your side and einhorn isn't.  She is a ceo.  her main concern is keeping her job. Getting her salary, and getting her options. She is probably already thinking about what she will do with her millions when she retires. Nobody at gm has the stock price as a top priority. 

 

Make no mistake about it, the only guy who has the same interest as you here is einhorn.  He wants to stock price to go up so shareholders get paid after watching the stock trade at $33 for 200 years....

 

Not in this.

 

 

 

I totally agree with you. And I am a huge fan of what Mary Barra has done and is doing here. It amazes me how one sides with a CEO (with little at risk in terms of stock and a lot at risk in terms of the benefits of the status quo) over an investor or fund manager who's livelihood depends on producing positive returns.

 

I do not exactly have an issue with GM's status quo, but it's time they start listening to shareholders because they obviously don't have a clue how to get their stock price to where many think it should be. You trade at 5x earnings? Good, then cut the bullshit and wager that over the next 5 years you can at least maintain current earnings and in the process retire every share outstanding if the market wants to continue to rate this as it has...

[dyow]

^ I appreciate someone who can see both sides of the issue objectively.  Barra can be a great operational CEO, but someone needs to step up and move this stock, if value can be extracted in an unorthodox way, why not try?...i don't even own this and i want it to go higher.

[txvalue]

I agree with Greg here, his note is spot on. MB has been ok but I am voting to shake things up a bit with a sizable position. The buyback is just taking too long to materialize at significant levels. I'm hoping the voting results send a message.

 

The GM culture still circles  the wagons too much for my liking. Sergio wants to chat,  MB should say fine and negotiate from a position of strength rather than dodging the phone call. With stronger leadership the stock wouldn't be getting folks like Sergio, Einhorn and Tepper constantly trying to unlock its value.

 

[cmlber]

I agree with Greg here, his note is spot on. MB has been ok but I am voting to shake things up a bit with a sizable position. The buyback is just taking too long to materialize at significant levels. I'm hoping the voting results send a message.

 

The GM culture still circles  the wagons too much for my liking. Sergio wants to chat,  MB should say fine and negotiate from a position of strength rather than dodging the phone call. With stronger leadership the stock wouldn't be getting folks like Sergio, Einhorn and Tepper constantly trying to unlock its value.

 

To quote WEB, Mary Barra is "like a concert pianist arriving at Carnegie Hall - only to be handed a violin."  The CEOs most important job is capital allocation and on that, she gets a solid F.  Maybe she's a great operator (i.e., a concert pianist), although anyone who thinks they know enough based on publicly available information to claim she is a "great" operator is fooling themselves; she's been operating the biggest auto company on the planet fresh out of bankruptcy with no legacy liabilities and a strong position in trucks during a huge cyclical recovery with a fortuitous mix shift towards trucks. 

[hyten1]

well same can be said, if anyone thinks they know enough based on publicly available information to claim she is gets a "F" as a capital allocator is fooling themselves. what make her such a bad capital allocator?

 

I am not saying she is the best, nor am i happy with how the stock is performing, but people seems to forget the entire sector is not doing so hot, except for TSLA of course.

 

also people seem to forget GM under invested and the bankruptcy period halted various investment initiatives, so they sort of had to get back on track and invest/catch up.

 

I actually like some of MB's investments/divestitures:

 

- cruise automation - i think so far its promising, not a lot of hype but steady as she goes (it seems from what i have read Cruise is only behind Google, and that is pretty impressive considering...).

- lyft and maven etc - related to above no complaints so far

- EV- no complaints here, sure this didn't start with her, but the speed Bolt was release was pretty impressive.

 

- getting out of russia, europe etc.

 

Sure i am frustrated with the stock, I do think they should scrape the dividend and buy more stock. other than that, i don't have much complaint given where i am as a outsider (none of us knows the intimate details of what is going on there or anywhere else for that matter)

 

EDIT: I do wish they promote themselves better... but then again

 

EDIT: I do wish GM handle the FCAU better, but i can see where they are coming from.

 

 

I agree with Greg here, his note is spot on. MB has been ok but I am voting to shake things up a bit with a sizable position. The buyback is just taking too long to materialize at significant levels. I'm hoping the voting results send a message.

 

The GM culture still circles  the wagons too much for my liking. Sergio wants to chat,  MB should say fine and negotiate from a position of strength rather than dodging the phone call. With stronger leadership the stock wouldn't be getting folks like Sergio, Einhorn and Tepper constantly trying to unlock its value.

 

To quote WEB, Mary Barra is "like a concert pianist arriving at Carnegie Hall - only to be handed a violin."  The CEOs most important job is capital allocation and on that, she gets a solid F.  Maybe she's a great operator (i.e., a concert pianist), although anyone who thinks they know enough based on publicly available information to claim she is a "great" operator is fooling themselves; she's been operating the biggest auto company on the planet fresh out of bankruptcy with no legacy liabilities and a strong position in trucks during a huge cyclical recovery with a fortuitous mix shift towards trucks.

[cmlber]

well same can be said, if anyone thinks they know enough based on publicly available information to claim she is gets a "F" as a capital allocator is fooling themselves. what make her such a bad capital allocator?

 

1)  Why are you paying a 5% dividend yield and not buying back stock when the stock is trading a 5x earnings?

 

2)  Why does it take activist investors to convince you to buy back any stock in the first place?

 

3)  When FCAU wants to discuss a merger, why not spend some time considering it instead of just saying "We're still busy merging with ourselves."  It's tough to imagine the synergies from a deal wouldn't have been worth more than the entire market cap of FCAU at the time Sergio made the attempt. 

 

1 & 2 are enough in my opinion to give her a C.  3 takes her to an F.  I imagine her thought process went something like this:  "I don't own any stock, I'm in this for the salary.  A merger would be a lot of work, and if it's successful my salary probably won't go up that much because I already make $20 million a year, but if it doesn't work, I'll probably get fired."

[jeffmori7]

I do totally disagree with the recent comments. Personally, I don't think it's the CEO job to care about the stock price or the market cap...the CEO has to build a company that is sustainable, profitable, efficient, that has to stay relevant in a nearly disrupted industry. GM is doing a good job, and the market will price it accordingly, someday. It is not their fault it the market doesn't want to give them a richer evaluation. They have to concentrate on doing what's the best for the shareholders, which means running the company the better they can without loosing time with financial engineering gimmick.

 

If the stock stay depressed really long, they will be bought, or they will finish by buying back a lot of shares, or any of you can buy more and someday the stock will go up.

 

Or they could lose time with complicated alternative shares and debentures, talking with a guy who doesn't fit with their view, returning too much money and being accused of bad capital allocation and bad management the day their market is disrupted or a recession happens and they don't have any cushion to survive and innovate...Just saying.

[cmlber]

I do totally disagree with the recent comments. Personally, I don't think it's the CEO job to care about the stock price or the market cap...the CEO has to build a company that is sustainable, profitable, efficient, that has to stay relevant in a nearly disrupted industry. GM is doing a good job, and the market will price it accordingly, someday. It is not their fault it the market doesn't want to give them a richer evaluation. They have to concentrate on doing what's the best for the shareholders, which means running the company the better they can without loosing time with financial engineering gimmick.

 

If the stock stay depressed really long, they will be bought, or they will finish by buying back a lot of shares, or any of you can buy more and someday the stock will go up.

 

Or they could lose time with complicated alternative shares and debentures, talking with a guy who doesn't fit with their view, returning too much money and being accused of bad capital allocation and bad management the day their market is disrupted or a recession happens and they don't have any cushion to survive and innovate...Just saying.

 

I think Einhorn's idea is terrible by the way.  That's not what I'm referring to.  Paying out a 5% dividend is not making the company stronger in any way.  Buybacks are clearly a better use of that cash at this price. 

[hyten1]

I guess we will agree to disagree, buy back is not always the best "even when the stock is undervalued".

 

i agree i rather she buy stock than dividend, but that doesn't mean she gets a F, in my book at least.

 

As for the merger, i think they did considered it, but they decide to pass, so did pretty much everyone else in the industry.

 

 

 

well same can be said, if anyone thinks they know enough based on publicly available information to claim she is gets a "F" as a capital allocator is fooling themselves. what make her such a bad capital allocator?

 

1)  Why are you paying a 5% dividend yield and not buying back stock when the stock is trading a 5x earnings?

 

2)  Why does it take activist investors to convince you to buy back any stock in the first place?

 

3)  When FCAU wants to discuss a merger, why not spend some time considering it instead of just saying "We're still busy merging with ourselves."  It's tough to imagine the synergies from a deal wouldn't have been worth more than the entire market cap of FCAU at the time Sergio made the attempt. 

 

1 & 2 are enough in my opinion to give her a C.  3 takes her to an F.  I imagine her thought process went something like this:  "I don't own any stock, I'm in this for the salary.  A merger would be a lot of work, and if it's successful my salary probably won't go up that much because I already make $20 million a year, but if it doesn't work, I'll probably get fired."

[txvalue]

I do totally disagree with the recent comments. Personally, I don't think it's the CEO job to care about the stock price or the market cap...the CEO has to build a company that is sustainable, profitable, efficient, that has to stay relevant in a nearly disrupted industry. GM is doing a good job, and the market will price it accordingly, someday. It is not their fault it the market doesn't want to give them a richer evaluation. They have to concentrate on doing what's the best for the shareholders, which means running the company the better they can without loosing time with financial engineering gimmick.

 

If the stock stay depressed really long, they will be bought, or they will finish by buying back a lot of shares, or any of you can buy more and someday the stock will go up.

 

Or they could lose time with complicated alternative shares and debentures, talking with a guy who doesn't fit with their view, returning too much money and being accused of bad capital allocation and bad management the day their market is disrupted or a recession happens and they don't have any cushion to survive and innovate...Just saying.

 

For all the buyback chatter the outstanding shares have barely budged. This is not an AIG situation where billions in stock is relentlessly retired quarter after quarter.

 

I think it is a stretch to say that the auto industry is nearly disrupted. Big SUV's and trucks are the things generating profits. Uber and Tesla are commanding rich prices (public and pvt) for loss making operations. In Uber's case last year they lost 2.8 billion. If you feel performance is what matters and stock price is truly irrelevant than disruption is not on the horizon.

 

A CEO needs to play the cards that the have in their hand. If you have an richly valued stock, issue equity and use that to grow. If you have an undervalued stock buy it back hand over fist as you cash in record profits. I would like to see mgmt capitalize on opportunity especially with so much cash in the company. If Dimon had a stock sitting at 4x or 5x do you think he would be buying it in at all costs or talking about how he needed a 18 billion cash cushion?

 

[Gregmal]

well same can be said, if anyone thinks they know enough based on publicly available information to claim she is gets a "F" as a capital allocator is fooling themselves. what make her such a bad capital allocator?

 

I am not saying she is the best, nor am i happy with how the stock is performing, but people seems to forget the entire sector is not doing so hot, except for TSLA of course.

 

also people seem to forget GM under invested and the bankruptcy period halted various investment initiatives, so they sort of had to get back on track and invest/catch up.

 

I actually like some of MB's investments/divestitures:

 

- cruise automation - i think so far its promising, not a lot of hype but steady as she goes (it seems from what i have read Cruise is only behind Google, and that is pretty impressive considering...).

- lyft and maven etc - related to above no complaints so far

- EV- no complaints here, sure this didn't start with her, but the speed Bolt was release was pretty impressive.

 

- getting out of russia, europe etc.

 

Sure i am frustrated with the stock, I do think they should scrape the dividend and buy more stock. other than that, i don't have much complaint given where i am as a outsider (none of us knows the intimate details of what is going on there or anywhere else for that matter)

 

EDIT: I do wish they promote themselves better... but then again

 

EDIT: I do wish GM handle the FCAU better, but i can see where they are coming from.

 

 

I agree with Greg here, his note is spot on. MB has been ok but I am voting to shake things up a bit with a sizable position. The buyback is just taking too long to materialize at significant levels. I'm hoping the voting results send a message.

 

The GM culture still circles  the wagons too much for my liking. Sergio wants to chat,  MB should say fine and negotiate from a position of strength rather than dodging the phone call. With stronger leadership the stock wouldn't be getting folks like Sergio, Einhorn and Tepper constantly trying to unlock its value.

 

To quote WEB, Mary Barra is "like a concert pianist arriving at Carnegie Hall - only to be handed a violin."  The CEOs most important job is capital allocation and on that, she gets a solid F.  Maybe she's a great operator (i.e., a concert pianist), although anyone who thinks they know enough based on publicly available information to claim she is a "great" operator is fooling themselves; she's been operating the biggest auto company on the planet fresh out of bankruptcy with no legacy liabilities and a strong position in trucks during a huge cyclical recovery with a fortuitous mix shift towards trucks.

 

As with most of my investments, I have about a 5-10 year expected holding period, if not longer. I think the Cruze/Lyft investments could turn out to be Ebay/Paypal type home runs that perhaps one day get spun out at massive multiples to the price paid by GM. When you think about all that people are hyping into crap like Tesla, GM has many of those same call options, except you are essentially getting them for free.

 

As I said, I like what MB has done here. Her handling of the recall was admirable as well. Buick has been revitalized, and Cadillac seems to be making some nice progress. No complaints. But a CEO is limited typically to running the business(whether through their interpretation of their job description, or in their capacity as a capital allocator). There is a reason companies have management teams, and then boards. The Board is supposed to look out for shareholders while the CEO/CFO run the business.

 

I've seen too many companies of late, excuse/blame poor performance on their shareholders, analysts, etc. The one thing all these companies have in common? A refusal to be aggressive with buybacks, aggressive executive compensation, and lousy(in terms of accountability) directors at the board level. Just the past week I have GM, CTO, BX.

 

Bottom line, if your stock is cheap, and you have done as good a job with the business as you are telling everyone, call the bluff, and buyback stock until the situation changes. Otherwise you are just a schemer who is full of shit. Eric Langan at RICK should be a case study for CEOs who successfully tackled this issue. Dump money into what produces the best ROI for shareholders, rather than pissing it away on whatever industry asset you think you are supposed to be buying to *grow* the size of the company.

[tylerdurden]

Why all these haters think just one person, Mary Barra in this case, even if she is the CEO of a company has the power to change everything so she is so stupid that she is not doing it right? It's so easy to criticize people as always, perhaps without knowing too much...

 

She is doing great for the long term value of the company; this long term could be really long in GM's case. I have been waiting for more than 3 years now.

 

This is a company which is operating in a highly cyclical industry and they were Bankrupt yeah pretty recently so you can not expect these people to play really aggressive in terms of the buybacks. They are doing much better and will do more this year. Unlike all of us on this board they are actually running a very large firm so it is not that easy unfortunately. All these MB haters do not follow the used car values etc. as much or anything else going on with the company/industry I suppose. Just go and see the presentation they put against Einhorn's proposal. There is a slide which tells why his proposal will not change any of the concerns about GM. That's the only slide you need to know about GM now nothing else...

 

Actually I am totally against making people heros or stupid CEOs etc. All I am hearing for last several years how great Sergio is and how stupid mary barra. It just doesn't make sense. They both operate in the same industry and have to play their hands according to what industry dynamics dictates.

 

Anyways, I can go on and on but after a while it becomes hard to read long write-ups so I'll just leave it there...

[Dalal.Holdings]

Wow, engaging discussion activated.

 

1) It is the CEO's job (and that of the chairman of the board which she also holds) to serve the owners of a corporation: ie. shareholders.

 

2) Many investors seem to forget that this is a cyclical, capital intensive industry. GM is buying back stock with whatever free cash is left over (ie after capex) while maintaining $20B liquidity. Management has been crystal clear about this. Pulling out of places like Europe will decrease future capex and the liquidity requirements, fueling buybacks, but closing deals like selling Opel take time.

 

3) GM's dividend was initiated before Barra took the helm. The divi hasnt been cut lukely bc companies that cut dividends are often stigmatized for a long pd of time (see GE).

 

4) Einhorn's proposal does nothing to change the underlying value but offers the possibility of quick (but overall meaningless) bump in share price, something that a call option holder would be after, but a true long term shareholder wouldn't really care about.

 

And that's the key word here: long term mindset. Barra has been CEO for like 3 years. WEB says a true long term holder should be prepared to hold for 10 years at least. Guess it's all about your mentality (or in Einhorn's case, if you hold call options).

 

Selling Opel, developing Bolt, Cruise auto, growing earnings and buying back with free cash--that's what I look for in a CEO.

[tylerdurden]

1) In terms of dividend, they wanted to put a floor on the share price as well so all these dividend lovers buy the stock when it drops to 28-30 levels. It worked from that angle and thanks god they stopped increasing the dividend.

 

2)I like Einhorn but his proposal is out of desperation mostly I think. He thinks long term too; that's why he agrees with the management on almost everything but of course he is managing a fund and he has to perform. He tried his chances to reenergize the stock probably and it didn't work. I don't think he sincerely believes in his own proposal.

 

The issue with GM is it is really a cyclical business so the market is not giving value to what GM does in good or ok times right; what happens when we have a downturn? It might take really long time for this stock to perform. We might need a downturn as I mentioned several times to see they prove themselves. Not many investors have 10 years or infinite time horizons. 3-5 years maybe but 10-20 years don't think so...

[merkhet]

IIRC, Einhorn has owned shares since 2012. I can see why he is beginning to lose patience.

 

FWIW, I think Mary Barra has been a fantastic CEO, but I wish she was a little better in terms of capital allocation re buybacks. Again, IIRC, we only got increased buybacks as a result of the last roving band of activists.

[Spekulatius]

Wow, engaging discussion activated.

 

1) It is the CEO's job (and that of the chairman of the board which she also holds) to serve the owners of a corporation: ie. shareholders.

 

2) Many investors seem to forget that this is a cyclical, capital intensive industry. GM is buying back stock with whatever free cash is left over (ie after capex) while maintaining $20B liquidity. Management has been crystal clear about this. Pulling out of places like Europe will decrease future capex and the liquidity requirements, fueling buybacks, but closing deals like selling Opel take time.

 

3) GM's dividend was initiated before Barra took the helm. The divi hasnt been cut lukely bc companies that cut dividends are often stigmatized for a long pd of time (see GE).

 

4) Einhorn's proposal does nothing to change the underlying value but offers the possibility of quick (but overall meaningless) bump in share price, something that a call option holder would be after, but a true long term shareholder wouldn't really care about.

 

And that's the key word here: long term mindset. Barra has been CEO for like 3 years. WEB says a true long term holder should be prepared to hold for 10 years at least. Guess it's all about your mentality (or in Einhorn's case, if you hold call options).

 

Selling Opel, developing Bolt, Cruise auto, growing earnings and buying back with free cash--that's what I look for in a CEO.

 

+1 - I agree with all the above.

 

Einhorn's preferred stock idea was already floated for AAPL and I think the actionable was very weak there and is even weaker for GM. I think GM did a great capital allocation move by getting rid of Opel, which has been a dog in terms of financial performance as long as I can remember. More buybacks would be nice for owners, but MB goal has to be to keep GM viable and I think a $20B cash buffer is not unreasonable, given that recession can drain many billion $ in cash in a single quarter. Just a reminder that GM was also FCF negative people during the last quarter.

[Dalal.Holdings]

Wow, engaging discussion activated.

 

1) It is the CEO's job (and that of the chairman of the board which she also holds) to serve the owners of a corporation: ie. shareholders.

 

2) Many investors seem to forget that this is a cyclical, capital intensive industry. GM is buying back stock with whatever free cash is left over (ie after capex) while maintaining $20B liquidity. Management has been crystal clear about this. Pulling out of places like Europe will decrease future capex and the liquidity requirements, fueling buybacks, but closing deals like selling Opel take time.

 

3) GM's dividend was initiated before Barra took the helm. The divi hasnt been cut lukely bc companies that cut dividends are often stigmatized for a long pd of time (see GE).

 

4) Einhorn's proposal does nothing to change the underlying value but offers the possibility of quick (but overall meaningless) bump in share price, something that a call option holder would be after, but a true long term shareholder wouldn't really care about.

 

And that's the key word here: long term mindset. Barra has been CEO for like 3 years. WEB says a true long term holder should be prepared to hold for 10 years at least. Guess it's all about your mentality (or in Einhorn's case, if you hold call options).

 

Selling Opel, developing Bolt, Cruise auto, growing earnings and buying back with free cash--that's what I look for in a CEO.

 

+1 - I agree with all the above.

 

Einhorn's preferred stock idea was already floated for AAPL and I think the actionable was very weak there and is even weaker for GM. I think GM did a great capital allocation move by getting rid of Opel, which has been a dog in terms of financial performance as long as I can remember. More buybacks would be nice for owners, but MB goal has to be to keep GM viable and I think a $20B cash buffer is not unreasonable, given that recession can drain many billion $ in cash in a single quarter. Just a reminder that GM was also FCF negative people during the last quarter.

 

A lot of people on here think "good capital allocation" means only financial engineering (Marchionne style) where you do some fancy stock split, leverage up to buy back stock, or spinoffs/other engineering. Good capital allocation in the auto biz to me means allocating capex to businesses that make good return on capital employed. That means leaving Russia, Europe, downsizing Australia, focusing on NA and China, etc. All moves that GM has made. It's like Buffett allocating capital to BNSF: a capital intensive business with high returns while jettisoning capital intensive businesses that don't earn their cost of capital (ie. like Berkshire Hathaway the textile maker).

[txvalue]

Exiting poor markets is a good move, decreasing daily rental sales is a good move etc. Operationally Mary has been fine but Sergio's Ferrari move has played out very well for stockholders. Sergio has done much more with a weaker hand and cars. I'm not advocating for Mary to go, and I am not bashing her - I just feel that the buyback has been lacking and capital allocation has been suspect in some areas.

 

If the 20 billion (or 18 ex the Euro mkt sale) is truly what's needed then take out long term debt to fund a big buyback. You will lock in low interest rates and retire stock that is yielding 4-5% annually. The only argument I could accept is if somehow this is a move to improve credit ratings for something like GM Financial. I haven't heard them say this though, only that this is necessary to have as a cushion.

 

This is not a GM only issue, Ford's allocation has been worse so you are right that it's a cyclical industry mentality at work. The humorous part is mentioning BNSF. Railroads were thought of with disdain until the industry consolidated and rational competition set in. Essentially what Sergio has maintained needs to happen in the auto industry.

 

My fear is that GM will "merge with itself" for too long and waste an opportunity. If you can't buy in shares at the top of the cycle I think it's a safe bet they won't buy them in at the bottom. I will continue to hold the shares and I feel like they still have tailwinds like GM Financial maturing that aren't present with most other auto companies. Just would like them to sharpen up allocation.