GM - General Motors

[JRM]

My biggest complaint about GM is the dilution of shareholders through the excessive stock options.  I actually wrote an SA article about it a couple of years ago.  In general, though, I feel better about my investment in GM today than I did when I initiated the position 3.5 years ago.  They have de-risked the pension situation, they have invested in factories and production (lowering production cost and preparing for the next generation of trucks and SUVs), and they have de-risked their loan portfolio (GM Financial).  These were all made possible because of the strong auto market for the past several years despite calls for peak auto.  Eventually there will be a recession,  but every day GM becomes stronger and more resilient to weather the storm.  The market seems to be busy fighting the last war when it comes to GM.

[Spekulatius]

My biggest complaint about GM is the dilution of shareholders through the excessive stock options.  I actually wrote an SA article about it a couple of years ago.  In general, though, I feel better about my investment in GM today than I did when I initiated the position 3.5 years ago.  They have de-risked the pension situation, they have invested in factories and production (lowering production cost and preparing for the next generation of trucks and SUVs), and they have de-risked their loan portfolio (GM Financial).  These were all made possible because of the strong auto market for the past several years despite calls for peak auto.  Eventually there will be a recession,  but every day GM becomes stronger and more resilient to weather the storm.  The market seems to be busy fighting the last war when it comes to GM.

 

They also got rid of their money losing European operations (Opel/ Vauxhall), which were a sinkhole for money and a huge distraction.

[Spekulatius]

I would like to hear how you folks explain, why PSA Group was able to run Opel group profitable manner right from the get-go.

 

https://www.independent.co.uk/news/business/news/opelvauxhall-first-profit-two-decades-financial-results-psa-group-a8462016.html

 

Probably because PSA understands Europe and GM didn’t. Also, PSA won more scale in Europe that Opel never had. Opel bled a lot of market share over the years and decades to rivals VW and others.

 

It’s a very valid question though. Ford has the same issue.

[Gilp]

They have much more synergies in Europe. Manufacturing, R&D and sales easier to integrate. They have the scale as well.

[Sullivcd]

Just hit 52 week low. Anyone buying or holding? I owned in the past but sold because of rising debt and lack of cash produced. Cheap on price to earnings basis as it has been for a long time.

[boilermaker75]

Just hit 52 week low. Anyone buying or holding? I owned in the past but sold because of rising debt and lack of cash produced. Cheap on price to earnings basis as it has been for a long time.

 

actually a minus $33 billion of cash in the last three years.

[vince]

Just hit 52 week low. Anyone buying or holding? I owned in the past but sold because of rising debt and lack of cash produced. Cheap on price to earnings basis as it has been for a long time.

 

actually a minus $33 billion of cash in the last three years.

 

They just continue to do the things that the activists tried to stop them from doing.  The problem is they might be right this time around.  However, they deserve all the criticisms they get and could have delivered unbelievable returns in last 5 years rather than hopeful of those same returns in the future.

[Gregmal]

Just hit 52 week low. Anyone buying or holding? I owned in the past but sold because of rising debt and lack of cash produced. Cheap on price to earnings basis as it has been for a long time.

 

actually a minus $33 billion of cash in the last three years.

 

They just continue to do the things that the activists tried to stop them from doing.  The problem is they might be right this time around.  However, they deserve all the criticisms they get and could have delivered unbelievable returns in last 5 years rather than hopeful of those same returns in the future.

 

Exactly. It's awful and they refuse to do anything other than what they want to do. Barra and Co should be fired and the board replaced. I don't care if "Einhorn's plan didnt make sense" or whatever the rhetoric here was, what these guys are doing just isn't working and it's screwing the shareholder.

 

I'm just so sick of managements talking about shareholder value when there just isn't any evidence of any. Especially in terms of the only thing that matters; the share price.

[vince]

It would have been childs play to increase shareholder returns.  They have had 20 billion of cash and lots of borrowing ability at attractive rates.  Its incredible to me that they didnt take advantage of this period.... their cash flow would have improved if they borrowed to repurchase shares in the low 30's (dividend yield higher than borrowing costs).  I realize that this is a cyclical business and a strong balance sheet is necessary but they could have borrowed 10 year money at 5% and/or been more flexible with their cash balance.  Was it really that difficult to tender 5-10 billion of stock the few times it got really attractive in the low 30's?  Do you really need a PHD in economics to see that borrowing at a fixed rate of 5% and purchasing equity that is yielding between 10-20% is value creating?  I could have created more value with a telephone, desk and a small office.  I guess job security is number one for them rather than owner returns but the irony is, in the end they may achieve neither.

[Spekulatius]

It would have been childs play to increase shareholder returns.  They have had 20 billion of cash and lots of borrowing ability at attractive rates.  Its incredible to me that they didnt take advantage of this period.... their cash flow would have improved if they borrowed to repurchase shares in the low 30's (dividend yield higher than borrowing costs).  I realize that this is a cyclical business and a strong balance sheet is necessary but they could have borrowed 10 year money at 5% and/or been more flexible with their cash balance.  Was it really that difficult to tender 5-10 billion of stock the few times it got really attractive in the low 30's?  Do you really need a PHD in economics to see that borrowing at a fixed rate of 5% and purchasing equity that is yielding between 10-20% is value creating?  I could have created more value with a telephone, desk and a small office.  I guess job security is number one for them rather than owner returns but the irony is, in the end they may achieve neither.

 

I see this a bit differently. A company should to haven’t to do financial engineering to have their shares increase in line with intrinsic value.  Sometimes it happens that intrinsic value and share prices disconnect. I have stocks that I owned for 5 years and that safe down 19-15% (not counting dividends), where thr IV has probably increased by 20-30%.  These things happen. The management foremost responsibility is to take care of the business, not to manage the share price. I have found that a fixation on share price can be counterproductive for management. It is what it is and how value stocks are born.

[Ahab]

I sympathize with the disappointment of many posters about GM's lagging share price and the lack of buybacks to help buoy it. Personally, Fiat Chrysler has been a much better investment (I expected the opposite 2 years ago).

On the other hand, I believe that Cruise gives us a lot to look forward to as shareholders. The bulk of the value of this business could be in that unit within the next 5-10 years. I remain optimistic that Mr. Market will wake up to the value of this subsidiary, as well as that of the core business.

[Gilp]

Agree about Cruise. Lots of potential value there. They are one of the leaders, SoftBank, Honda and I believe few other important players will join them.

 

Also the management did many things that make sense, reduce costs, get out of unprofitable markets, renegotiate GM Korea.

 

Seems like car manufacturing is a tough business to make profit and grow the profit over the years.

 

I also believe that while FCAU created a lot of value over the years, however if you look at the company potential today, it seems weak. Not enough brands, not enough future technology(EV, AV). it can fade away in several years.

 

GM is here to stay for many more.

 

[Spekulatius]

Agree about Cruise. Lots of potential value there. They are one of the leaders, SoftBank, Honda and I believe few other important players will join them.

 

Also the management did many things that make sense, reduce costs, get out of unprofitable markets, renegotiate GM Korea.

 

Seems like car manufacturing is a tough business to make profit and grow the profit over the years.

 

I also believe that while FCAU created a lot of value over the years, however if you look at the company potential today, it seems weak. Not enough brands, not enough future technology(EV, AV). it can fade away in several years.

 

GM is here to stay for many more.

 

Cruise is just like a free call option at this point. FCAU is doing well right now, but I agree that the future outlook is muddied. I think owners speculate on a sale at this point, but if it doesn’t happen, than what? All car manufacturers are cheap, thr Germans like BMW, Daimler, VW, thr japanese like Toyota and Honda ir chinese ones like Great Wall Motors and others. The consensus is that the profits going forward are lower, which might be right or wrong. GM generally moved in the right direction, they fixed their balance sheet and went out of unprofitable markets ( Opel) and fixed others. That’s the managements primary job, not financial engineering. It is even questionable to me that the share prices would be higher, if they had bought back a lot of stock at prices higher than it is today. Many companies have not done that well doing so.

[fareastwarriors]

SoftBank, Toyota Team Up on Ride-Hailing, Self-Driving Cars

 

https://www.bloomberg.com/news/articles/2018-10-04/softbank-toyota-said-to-ally-on-ride-sharing-autonomous-cars?srnd=premium

[vince]

Buying back shares at the levels I was talking about is not financial engineering or about keeping the stock price up.  In fact, if they were buying back lots of stock I would want the stock to be even lower. 

[RadMan24]

Why are people complaining about the stock price of a cyclical company at the peak of the cycle? And for those who take jabs at GM's job of Opel, they have warrants on PSA so not all is lost, the better PSA does the better for GM.

 

GM is facing higher steel prices, launching its most important vehicles - 2019 trucks and testing 2020 Suburban/Tahoe and related cousins for next year. As long as they execute and then allocate capital appropriately from then on, stock price will follow through.

 

Further, you got the Blazer coming out, Cadillac making moves starting with the XT4, and cruise automation making headways. GM China launching a bunch of new vehicles as well. If you're disappointed in the stock price and think management should be fire, you're a loof.

 

 

[Spekulatius]

GM still has $8B in net debt and just a BBB credit rating - 2 notches above junk. Staying investment grade is important, especially if there is stress in credit markets at some point. I would say the leverage looks right. A lot of Th eir competitors habe no net debt. They did buy back 6% of their shares during the last 12 month. Just from my point of view, the capital allocation looks sound to me.

 

https://www.sec.gov/Archives/edgar/data/1467858/000119312518266808/d620742dex991.htm

[Gregmal]

Why are people complaining about the stock price of a cyclical company at the peak of the cycle? And for those who take jabs at GM's job of Opel, they have warrants on PSA so not all is lost, the better PSA does the better for GM.

 

GM is facing higher steel prices, launching its most important vehicles - 2019 trucks and testing 2020 Suburban/Tahoe and related cousins for next year. As long as they execute and then allocate capital appropriately from then on, stock price will follow through.

 

Further, you got the Blazer coming out, Cadillac making moves starting with the XT4, and cruise automation making headways. GM China launching a bunch of new vehicles as well. If you're disappointed in the stock price and think management should be fire, you're a loof.

 

People have been claiming "peak auto" for 5 years now. That's not really an excuse for them anymore IMO. If you've been trading at 5x for the past half decade and your share price has gone nowhere, that means you are doing something wrong, especially on the capital allocation front.

[dutchman]

if this trade war ramps up, i wonder if the Chinese will retaliate against gm.  Although they have Chinese partners so its hard to say.

[Lakesider]

"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett

 

BRK have been buying gm at these levels.

[Gregmal]

"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett

 

BRK have been buying gm at these levels.

 

I don't disagree, but you have to draw the line somewhere. Using the above mentioned logic has allowed countless management teams to transfer money from the patient(shareholders), to the incompetent(management). In my portfolio specifically, companies like GM and CTO are guilty as all hell of this. Talking about how much long term value you've created until you are blue in the face should not compensate for turning in nothing by the way of share appreciation for a near half decade. Especially in an environment that AT WORST, has been incredibly generous to these types of companies.

[Ahab]

I agree with others that more could be done by management to support the stock. The current valuation reflects both the cyclicality of the business, as well as the cyclicality of investor's preferences (growth stocks have been leading this market, why own a "legacy" automaker?). The thing that excites me about GM is I believe the narrative surrounding the stock could be ripe for a change. It is cheap and we have an intriguing call option in Cruise.

[vince]

All posters have made good points.  I have made quite a bit of money in GM over the last 5 years and I believe the company and the stock price will do at least reasonably well over the next 5 years.  And mgmt has operated well and has shed some unprofitable assets.  Its silly to get really upset over their performance of last 5 years.  But just imagine what the stock would look like if Mike Jackson, Henry Singleton, or John Mallone were allocating the cash flows for the last 5 years.  I guarantee the stock would not be trading at 34 bucks or what would be 2.5 times operating earnings per share, albeit with a reduced share count.  And it wouldnt have been that drastic to hold a little bit less cash on the balance sheet, a little more very cheap fixed debt, earlier shedding of shitty assets and more discipline on their spending across the board.  This is not short term thinking, this is not financial engineering, this is not about supporting the stock price.  This is plain old effective capital allocation where the goal is the highest risk adjusted returns.  Did they do pretty good with the cards they were dealt? Yes, sure they did.  Did they maximize and do whats reasonably expected for executives making that kind of money? No Way!!

[DTEJD1997]

Hey all:

 

I wonder if there is some way to get somebody on the BOD who represents the shareholders?

 

Maybe figure out who some of the big holders are (funds) and solicit their proxy vote?

 

Somebody on the BOD who represents the shareholders and their interests, might go a LONG way to closing the valuation gap?

 

Any thoughts/ideas?

[cmlber]

Mgmt is also dishonest with the "Adjusted" EBIT #s.  They adjust for everything "one-time" and negative but then no adjustment for pension expense.  In 2017 they include in the "Adjusted EBIT" pension income of $1.2Bn because the interest cost on benefit obligations is 3.35% but then they assume they'll earn 6.23% on plan assets so the result is income.  Somehow a pension underfunded by $14 billion makes its way into the income statement and therefore Adjusted EBIT as a huge positive (makes up 10% of adjusted EBIT), and they don't adjust this out?  But they don't miss an opportunity to adjust out "one-time" restructuring and recall issues that seem to happen every year.  This is one of the reasons the automotive cash flow is always significantly less than earnings.