General Motors Company (NYSE:GM) designs, manufactures, and markets cars, crossovers, trucks, and automobile parts globally. The company sells its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel, Daewoo, Holden, and Vauxhall brand names, as well as under the Alpheon, Jiefang, Baojun, and Wuling brand names.
GM though still bearing the brunt of some earlier decisions which drove it to bankruptcy, has come out as stronger and better. The company seems to be more focused and ready to face challenges. Investors need to be cautious with GM in the short term (3-6 months), as earnings estimates and stock may need to move lower first, before embarking on the long-term, product-cycle-driven advance.
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General Motors Company (NYSE:GM)’s earnings were down by $0.1 billion, or 4 cents per share, due to the effect of special items. Without the special items, the company earned 93 cents per share during the third quarter. The net cash flow from operating activities surged from $1.8 billion last year, to the current $3.1 billion.
GM’s earnings from international operations increased from $0.4 billion to $0.7 billion (EBIT-adjusted). Its earnings in South America were $1 billion, compared with the same period in 2011. The revenue in North America came down from $2.2 billion last year to $1.8 billion.
In Europe, the company suffered $0.5 billion in losses during the past three months, due to its restructuring phase in the region. GM is looking forward to report $1.5 billion to $1.8 billion (EBIT-adjusted) in losses in the region for the full-year 2012. The company looks forward to an improved performance in the region in 2013.
Overall, General Motors Company (NYSE:GM) appears to be containing its European losses and taking advantage of demand in other regions, especially in North America. However, profits from home market declined on higher warranty costs for auto recalls. Investors appreciated the company’s higher cash flow and better than expected results.
Competitor Slightly Ahead
Though General Motors is a making effort to offer a global line of vehicles, particularly when it comes to Chevrolet and Cadillac, the company is still suffering from massive tech based overlap which causes huge inefficiencies and unnecessary complexity. To overcome this, GM is working hard to decrease the number of platforms and engines by 2018, while it’s most recent vehicles are of the global nature (Sonic/Aveo, Cruze, Malibu). Sadly that doesn’t pertain to the entire lineup quite yet, as the Equinox, Traverse, Orlando, and Trax are not truly global products. General motor is yet to make efforts to decrease complexity and increase efficiency by reducing platforms and power trains.
Slim International Profits
General Motors is highly successful and profitable in North America, but this is not the case worldwide. The automaker has been losing money in Europe for past few years. The uninspiring performance has been a cause of concern, though the losses are mainly due to lower demand and price competition triggered by weak Europe economy. The Company is taking measures to restructure its European operations, but it will not deliver any result until 2015.
General Motors is the market leader in China, thanks to the popularity of Buick and Chevrolet. GM’s joint venture partner in China contributes half of the sales volume in China, but the relationship doesn’t really do any good for the bottom line because profits on the cheap Wuling Vans and trucks are less even before Wuling takes its joint venture cut. VW is catching up to China in overall sales volume while out-performing General Motors Company (NYSE:GM) when it comes to profits.
The automaker recently announced a 200 million share buyback plan. Even considering the buy back, GM’s balance sheet continues to remain strong, with pro forma excess cash of $17.5bn. With the strong liquidity and cash balance, GM still has the balance sheet flexibility, which it can use toward pension, Europe restructuring, acquisitions, or potentially on further buybacks.
Another positive for the company is the sale of the government’s stake. This will provide a modest mid-term boost to GM, as potential GM customers (perhaps importantly for pickups) who may have been alienated by government involvement will now have a clearer path to purchase a GM vehicle.
As per a report from Barclays PLC (LON:BARC) (NYSE:BCS), General Motors Company (NYSE:GM) which earlier was ineligible for addition to the S&P 500 up until now, due to the fact that it is just short of the required minimum 50% float, is a leading candidate to be included in the index whenever an opportunity for inclusion arises.
General Motors Company (NYSE:GM) is undergoing a major transformation. Led by Akerson, the automaker is taking major steps to decrease complexity, bring international operations into the black, and make a world-class luxury brand out of Cadillac. All of these initiatives should accumulate GM billions of dollars, while ensuring better products that are more popular and carry higher margins. The new and more promising product portfolio of the automaker will enhance its pricing power and reduce dependence on discounts. However, the improvements are of the long-term nature, with international programs likely to take years (at least until 2015), while Cadillac may take even few more years to come into action.
What’s conceivably most imperative is for General Motors Company (NYSE:GM) to keep on getting the product right. However, once GM completes its platform and power plant consolidation, and builds a proper IT department that can help the company with real decision making power, all the other things will fall into place. There is a potential near term risk but the long term opportunity in the stock cannot be denied.