Is GM the Best Ride to Prosperity?
Marivic is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
General Motors (NYSE: GM) is the largest car manufacturer in the United States and the second top seller globally. For more than seven decades, the company held the crown as the world’s number one automaker until 2008, when Toyota Motor (NYSE: TM) beat its sales record.
In 2011, the American automaker regained its top selling position, after sales of the Japanese automaker went down due to natural calamities. GM CEO Daniel Akerson expected that Toyota would rebound, and he emphasized that the company will be ready to compete in a healthy market place.
As expected, Toyota regained its position in 2012, after selling 9.75 million cars compared with the 9.28 million vehicles sold by GM. Despite falling back to the second position, many believed that GM is driving in the right direction towards complete recovery from bankruptcy and government bailout.
During the fourth quarter last year, Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) increased its holding in GM by 10 million shares, bringing its total stake in the company to 25 million shares with approximately $720.74 million market value. This is an indication that Buffett has a great confidence in the company’s profitability. Is GM the best ride to prosperity?
From bankruptcy to recovery
As we all know, the American auto giant fell to its knees and filed for Chapter 11 bankruptcy protection in 2009. In its filing, GM reported $82.29 billion in assets, and $172.8 billion in liabilities. The United States Bankruptcy Court of the Southern District of New York ordered the sale of all the assets and the trade name of the company to a new entity called NGMCO Inc, later renamed General Motors Company, which received $49.5 billion funding from the United States government.
GM emerged with a competitive cost structure, strong balance sheet, and cash position. In April 2010, General Motors Company repaid $5.8 billion of its loans to the U.S. Treasury ($4.7 billion) and Export Development Canada ($C1.1 billion), ahead of schedule, due to strong sales of its vehicles. GM converted its remaining loans into equities -- the U.S. owned 60.8%, the UAW Medical Benefits Trust, and the Canada & Ontario government owned 17.5% and 11.7% stake, respectively, and the old GM held 10% stake.
In November 2010, GM succeeded in its initial public offering (IPO) and raised a total of $23.1 billion after selling more than 450 million shares at $33 per share. Its IPO is the largest recorded in history, proving that it is back on its feet to become profitable.
In 2012, GM repurchased 200 million shares from the U.S. Treasury for $5.2 billion, or $27.50 per share, which represents a 7.9% premium to the closing price of the company’s stock on Dec. 18. The Treasury Department sold more than $500 million worth of GM stocks in January & February of 2013, thus it has already recovered around $29.8 billion out of the $49.5 billion bailout money.
The government plans to sell its remaining 300 million shares in GM over the next 12 to 15 months depending on market conditions. In order for the government to recoup all of its investments in GM, it must sell its remaining stockholding for at least $72 per share. The question is, will GM’s stock price go up that high? The latest median and highest price target of analysts covering the stock is $35 and $44 per share, respectively.
Over the past 52 weeks, the stock has traded from its lowest range at $18.72 per share to its highest level at $30.68 a share. Its total returns for one year were 10.65%, compared with the total returns of Ford at 6.55%. Toyota’s stock performance is better at 23%.
GM has $38.40 billion market capitalization. In 2012, the company reported $152.3 billion revenue and $4.9 billion net income. Its fully diluted earnings per share were $2.92 per share, and adjusted EBIT was $7.9 billion. The company ended the year with strong automotive liquidity, with $37.2 billion and $26.2 billion automotive cash marketable securities. The automaker settled $28 billion of its U.S. salaried pension liability through annuitization and lump sums.
Source: GM Financial Charts
Global sales & market share
GM sold 9.28 million vehicles in 2012, compared with the 9.02 million cars it sold the previous year. The automaker has 11.5% market share globally, and its share in two of the largest markets worldwide -- the United States and China -- in the fourth quarter last year was 17.1% and 14.3%, respectively.
At present, GM has more than 212,000 employees working at its 396 facilities worldwide, and it has 21,000 dealers. Since its re-emergence, the company has managed to expand its business operations, and created thousands of jobs. The company recently announced a $1.5 billion investment in its North American facilities to introduce 20 new vehicles this year.
I believe GM is driving smoothly on the road to prosperity based on its strong sales performance not just in the United States, but also in rapidly growing markets. The company is posting outstanding sales record in China every month. In Thailand, GM recorded 139% sales growth last year. The management is focused on increasing its profitability through innovation to ensure the safety and quality of its vehicles in order to retain the loyalty of its customers, and to deliver a long-term investment value. GM will soon be able to remove the “Government Motors” stigma.
Marivic Cabural has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and General Motors. The Motley Fool owns shares of Berkshire Hathaway. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!