Can China, Government Grants Keep GM on Track?
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General Motors (NYSE: GM) is one of a number of companies that have received grants from the U.S. Department of Energy specifically for the purpose of improving the energy efficiency of advanced manufacturing technologies.
With the $2.7 million grant, General Motors plans to focus on the doors of its cars. First, it wants to experiment with die-casting processes in the creation of its doors. This could reduce the amount of energy that is used in the making of vehicle doors by as much as 50%, significant savings indeed. In addition, the company plans to develop lighter doors for its cars. This will meet the conditional requirements of the grant in that the fuel efficiency of the cars to which the doors are attached will be significantly improved. However, it could take as long as 10 years before this research is completed and the vehicles with the new, light-weight doors reach the market.
The fact that General Motors is one of the companies that the government has selected to give money to shows that it is a leader in innovation in the private sector. General Motors could have potentially funded the project itself. However, because the government sees it as a good investment, it will now be able to channel its own resources into other profitable ventures.
General Motors has also increased its focus on the Chinese market. China is still one of the fastest growing emerging markets and could be a major source of revenue in the very near future. For one thing, the company's subsidiary, Opel (a European brand that has been struggling lately), recently decided to increase its sales plans in China. The amount of cars that Opel sells will be small in comparison to the amount that General Motors is capable of selling on its own in that country. However, I still feel that it is a good strategic move to turn Opel's fortunes around. In addition to this, General Motors is making its presence felt in China through its OnStar system which is essentially a voice-activated navigation system. General Motors said that OnStar recently reached some significant milestones in China. I believe that a focus on this market will be of great benefit to the company moving forward.
Competitors Toyota (TM) and Honda (HMC) are under close scrutiny at present, and the attention isn't good either. Basically, the suggestions is that certain automobile models offered by each company are faulty in ways that may compromise the safety of those using the automobiles as a means of transport. The vehicles under scrutiny are: the RAV4, the GMC Acadia and Saturn Outlooks from Toyota, and the Pilot SUVs from Honda. The investigation into these allegations is underway and will result in a major recall for both companies should it be shown that these vehicles are not in fact safe to drive.
Rumors abound that General Motors competitor Volkswagen (VLKAY.PK) is interested in acquiring Navistar International (NAV), a trucking company that has fallen on hard times. The primary reason why Volkswagen may wish to do this is probably to close the gap between the company and its main competitor, Daimler (DAI). However, at this point in time the reports have not been confirmed by Volkswagen. In addition, the company will have to deal with investor Carl Icahn should it choose to acquire Navistar, as he is a controlling power in the business.
Serious competitor Ford (NYSE: F) sold its Jaguar Land Rover brand to Tata (NYSE: TTM) a few years ago, a move that caused Tata investors to worry. The car company is better known for producing small and cheap cars, and the Land Rover brand was struggling, running at a loss. However, due in large part to the Jaguar brand, Tata has experienced a marked increase in profits. The demand for the Jaguar Land Rover is ever increasing; as it turns out this was a good move for the company which is now competing at a whole new level.
Ford is frequently able to find innovative ways of making its products more attractive to consumers. Most recently the company introduced in-car voice control over the MOG smartphone app via the SYNC app. Essentially this gives Ford drivers access to on-demand music which they can activate using only their voices. In the modern world, people have become more and more interested in gadgets such as these. People want life to be more streamlined and convenient. Ford appears to be aware of these "wants" and is trying to make its cars more attractive as a result.
Improving efficiency will help General Motors advance as a leader in the automotive industry. In addition, it seems to have the right idea in terms of capitalizing on the fast-growing Asian market, especially that of China. I feel that in the long run this stock will impress. With sales rising again, the road ahead looks good for most automobile companies, but it seems General Motors may have a smoother ride. Keep an eye on its ability to cut energy costs and on its investments abroad, but both of these endeavors should be fruitful without much risk.
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