Annual Meeting Highlights Long-Term Negatives for GM
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Despite the recent positive news, there has been some concern about General Motors (NYSE: GM), especially considering the negativity surrounding its annual shareholder meeting. Should investors closely monitor the actions of General Motors? Is the stock more vulnerable than it appears when looking at the bigger picture?
General Motors recently received and responded to complaints at its annual shareholder meeting. Shareholders were unhappy with the low stock price and the lack of dividends, and CEO Dan Akerson attempted to address these concerns. He believes the company’s main issues are losses in Europe, its global pension liability, and the uncertain economy. He also noted that the company is working to solve these problems by negotiating with European unions and seeking to reduce its pension liability.
All this difficulty may seem odd, however, when considering how automotive sales jumped last month. Notably, General Motors sales rose by 21% in China, which is a critical country for the company. The company has been doing well in many ways, which makes it a little surprising that there were so many issues brought up at the shareholder meeting. The good sales in China may help make up for its lack of success in Europe. The fact that there was still concern from shareholders, however, simply demonstrates the importance of the issues in Europe for the company.
General Motors has not been passive on the situation in Europe, as it is currently looking to close Bochum—one of its German plants—in order to cut losses in the area. This plant has high costs, manufactures older models, and sells its cars in cheaper markets. Some note that no automaker has closed an assembly plant in Germany since World War II, and union contracts would prohibit this from happening until the end of 2014. One may hope that talks with German unions will help General Motors deal with this, but shareholders should consider this delay when thinking about the long-term strength of the company.
General Motors has been in the news for other positive reasons though, as it is one of several companies that will receive project funding from the U.S. Department of Energy. In comparison to the other companies, however, this may not be such big news for General Motors. While the Department of Energy will award $2.7 million to General Motors, it will award $3.7 million to Delphi Automotive (NYSE: DLPH) and $10.5 million to Ford Motor (NYSE: F). This is also part of a larger initiative, as the Department of Energy has invested $54.3 million nationwide. The financial aspect of this is relatively small, but it does show confidence and support from the government. This helps reassure investors and consumers that the companies are being constructive in beneficial ways. Since the amount is smallest for General Motors, however, I believe this will have a neutral impact on the stock, although I expect Ford and Delphi stock to be rising.
In addition to this funding, General Motors has been in the news for making its Ecotec engine available for purchase online. This is one of its most popular engines, so it should bring in some additional revenue for the company. In comparison to other developments, however, this is quite minor will have a very limited stock on General Motors stock.
Another development from General Motors is being overshadowed by the competition as well. Honda (NYSE: HMC) recently announced that the Environmental Protection Agency has recently awarded a “118 miles-per-gallon equivalency” to Honda’s new Fit electric vehicle. This is better than the efforts from Ford and Nissan. General Motors has also improved the efficiency of its Chevrolet Volt, but this will only have a minor effect on General Motors stock because of Honda’s continued progress. Since Honda is becoming even stronger in the electric vehicle industry, however, Honda stock will likely go up.
Another competitor is moving forward by establishing a strong reputation for itself. Toyota (NYSE: TM) has shown great support for nonprofits throughout the year, and it has continued to do this by announcing the first twenty-five winners of its “100 Cars for Good” program. This is a program that awards cars to nonprofits, and as a result, it shows Toyota’s philanthropic side. This will result in a positive image of the company, so this will give it a slight edge in the industry and should benefit Toyota stock.
Ford has also begun to generate more hype for its 2013 F-150, as it revealed the truck to a select group in Texas. The company focused specifically on agricultural professionals for this launch, which seems like a wise move. Ford even noted that the farming community has been an important part of its business with the F-Series trucks. The vehicle will not be on sale until fall, but the excitement should bring good things for the company and the stock.
General Motors is taking actions to resolve its issues, but it will certainly be a long-term struggle for the company. Its positive stories in recent news, furthermore, have not been significant, especially when comparing it to other companies. Honda is marching forward in the electric car industry, and Ford is gaining government support and unveiling its new vehicles. Toyota is improving its reputation, and Delphi is gaining some government support as well. General Motors needs something bigger to give it an edge as it works through its current issues. Its recent success in sales is significant, but this is not enough to offset the problems addressed at the shareholder meeting. I would expect this stock to be decreasing until something larger happens for the company.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
