2/13/2012 7:57 PM ET|
Is GM really off to the races?
General Motors roared into 2012 on news it was again the world's No. 1 carmaker. Thursday's earnings report may tell investors whether it can stay there.
I think General Motors -- and GM shareholders -- will get reintroduced to reality with the company's Thursday earnings report.
Investors have been surprised to find that just two years after emerging from bankruptcy, General Motors (GM, news) has returned to its traditional position as the world's largest carmaker. In 2011, General Motors sold 9 million cars to take back the title it lost to Toyota Motor (TM, news) in 2008.
The good news helped propel GM shares to a 25.8% gain for 2012 through Feb. 10. That compares with a 6.98% gain for the Standard & Poor's 500 Index ($INX) for the same period.
But now the shiny new car that GM built -- with financing from U.S. taxpayers, courtesy of the Obama administration -- has to perform. The showroom gloss is gone. Investors will want to know how long it will take the new GM to go from zero to 60 -- and if the engine will blow out halfway down the track.
Mere survival is no longer good enough -- especially now that investors have bid up the value of that survival by 26%.
The outlook for 2012 is key
We'll see what this Little Deuce Coupe has under the hood -- not in the company's numbers for the fourth quarter of 2011 but in GM's guidance for 2012 and in its earnings conference call.
For the last quarter of 2011, Wall Street is looking for 42 cents a share, and I think GM's got a good chance to report a 10% surprise at 46 cents (and lay rubber in all four gears). Much of that performance, though, even the surprise, is built into the recent run-up in the stock price. (The range of analyst estimates for the fourth quarter has a huge spread from $1.08 down to 24 cents a share.)
The big challenge will come later this year. That's when the company faces its big Jan and Dean moment -- "But I'll throw you one better if you've got the nerve / Let's race all the way to Dead Man's Curve."
Is GM up to climbing to the top of the global car industry and staying there, or is this simply a company that will sink back into the pack after staging its impressive return from the dead?
I've got a list of questions for the company longer than the Little Old Lady from Pasadena's drag down Colorado Boulevard. I don't expect convincing answers to all of them on Thursday, but I do think investors will be looking for a plan that starts to whittle down these uncertainties.
I'd divide my questions into two lists -- company-specific and industrywide.
Questions the company must answer
When it comes to company-specific questions, I want to know what GM plans to do to fix some longstanding problems.
How will GM fix its European operations? Europe has been a black hole for GM, sucking up profits that the company made in North America and China long before the company's bankruptcy. The company set a goal of EBIT (earnings before interest and taxes) break-even in Europe for the third quarter of 2011 -- and didn't make it. For the quarter, GM's European operations showed an EBIT loss of $292 million. That was an encouraging improvement from the $559 EBIT loss in the third quarter of 2010. But all this was before the euro debt crisis started to crush European economic growth.
With Europe headed into a recession, it's not reasonable to think GM can produce a profit there in 2012. But I'm looking for a long-term plan for after the recession.
Is the pension problem under control? GM's bankruptcy let the company take a whack at its labor costs, including health care and pensions. But the company still faces big pension liabilities in the years ahead. Lower interest rates and a faltering stock market have reduced the returns the company can reasonably expect over the next few years. Investors will be looking to see how much of a reduction the company makes in its expected rate of return for its pension plans and how much the company will have to contribute to make up for the shortfall.
What's the picture for margins in 2012? General Motors faced rising commodity and raw-materials costs in 2011, and nothing I've seen indicates that costs will fall in 2012. At its last analyst day, the company said it thought it could use efficiencies to cut costs and raise margins. Investors would like to see the details.
Is GM developing a truck (and crossover) problem? In January, GM saw vehicle sales fall by 28% from December and about 11,000 vehicles short of the 178,896 sold in January 2011. Total sales for passenger cars climbed 3% from January 2011, led by Chevrolet car sales. Truck sales fell by 6%, and crossover sales declined by 18%. Buick sales fell by 23%, and Cadillac sales dropped by 29%.
GM's undoubted success in making the Chevy brand competitive with cars from Toyota and Korean brands with models such as the Malibu, Cruze and Sonic will be a Pyrrhic victory if sales of vehicles with higher profit margins dip. GM has planned a major effort to expand Cadillac sales in 2012, with production this spring of a new technology-packed CTX luxury sedan. An all-new ATS compact luxury sedan was unveiled in January. The CTX and ATS will bookend the brand's core CTS models. Investors will be listening hard on the conference call to know how the Cadillac effort is shaping up.
More from MoneyShow.com:
VIDEO ON MSN MONEY
What GM and needs to do is make a cheaper automobile. I was shopping last night on-line and the MSRP of a new well equipped 3/4 ton truck is $45,000.00 I still believe that if a manufacturer would make lower priced vehicle thier sales would skyrocket. In the 1970's you could buy a pickup with mats on the floor, a stick shift on the column and a 6 cylinder engine that got you to work and back and hauled your fishing boat on Saturday. Today the trucks are too plush and it costs. Yes it's nice to have power seats and navigation systems but is it necessary fo the normal guy?
jjmciny, I feel the same way. In 2001, we got a 2002 Chevy 1500 4x4 for about $23k. It's just a base model work truck.
But now when I go to car lots and look around, you can't find any base model work trucks anymore. All the dealers carry now are big crew cab $40,000 boats.
Even a Ranger 4x4 is $27k or $28k now. Wtf? They used to be the epitome of economical work trucks.
But people seem to be buying them! That's who I blame. Us. Apparently this is that wealth gap people talk about in the news. My family brings home $70k a year but after savings/retirement comes out of it, we can't afford these big $4X,XXX trucks.
But SOMEBODY keeps buying them. Maybe none of us learned our lessons in 2008 and we're all just jumping right back into debt up to our eyeballs. Maybe it's the 1%. Who knows, but my next vehicle's gonna have to be a Focus, Fiesta or Cruze. The old Chevy will stay around as a deer camp truck until it falls apart I suppose. Fine by me, it's the best truck I've ever had.
I do not care what GM does. I am the person who goes to visit my great uncle each week in a tiny old apartment building where he now lives because he could no longer keep his life long home since his pension was taken away from him by Obama. Where is health insurance was taken away by Obama. Where all his *retirement shares in GM* were turned to SHI^ by Obama.
And he is one of THOUSANDS. If GM has a profit it is off of these elderly retired workers backs who were shoved aside for the union.
If GM was the last car maker on the planet I'd finally get all that walking in my Dr. recommends because I won't even ride in a GM trash box let alone buy one.
I bet Grandma and Grandpa can't wait to run out and buy GM stocks and bonds. Again.
How many of their sales were to the government under the Government Motors program? Can they survive without the government's help?
The good news helped propel GM shares to a 25.8% gain for 2012 …
Let’s not forget the fact that investors who bought the IPO at $33 way back in 2010 are still trying to get about 25% of their money back, which by the way is the 25% that the U.S. Treasury in collaboration with Wall Street jacked up the price in the eleventh hour before the IPO.
GM's path to "off to the races" has been orchestrated by Obamaruptcy, not the elements of "free enterprise: Here's how:
- Bondholder's/creditors fleeced of $30B, which translates into basically wiping out interest expense to be charged against future income.
- Enhanced "cash flow" per the above
- More free cash to invest in R&D, and support the highest rebate / marketing incentives per vehicle sold in the auto industry in 2011.
- Tax carryover $45B (loses from "old GM"), who ever heard of a bankrupt company allowed to carry over losses to a newly formed company? This will advantage GM for years and disadvantage Ford.
Obamaruptcy had nothing to do with saving the car industry, all about salvaging Obama's UAW voter base, which by the way was given 17% of GM by the "King."
Anyone believing GM would have "gone out of business" w/o the bailout has bought into Obama's lies. At the very least, private equity would have rescued Chevrolet which represents approx. 70% of GM's business.
Glad to see I'm not the only person to realize this entire article is Major BS. Guvment Motors are clearly NOT the number one Auto Maker. They have not taken care of the widows and widowers of pensioneers whom they stomped on at the beginning of their reorganization. Until they pay the public back ALL the money and FIX all the Widows and Widower problems, I've got NOTHING for GM.
Having had cars and trucks from most American and Japanese as well as a few British and German manufacturers I can state that I have never gotten a bad deal buying American!!! Can't say the same for The rice burners. When the attack of errant floor mats struck Japan Motors it seemed strange that other cars didn't seem to have that problem. Today I find Toyota has been covering up and refusing to even acknowledge oil leaks going back 7 years on some models. Mitsubishi's usually can be identified by the oil smoke coming from the exhaust. I've had Nissans only 3 yrs. old that were junkyard bound and had never been abused or wrecked. If everyone bought into the false idea that anything made in America is bad and everything foreign is good then we should just sell all our industry to China. While at it the Mexicans want our land and Russia and Iran would take our military. Let's just give it all up....NOT!!!!!!!!
An American BRAND is every bit as good as the stuff that all profits go back to their home countries. I know some will think "my rice burner is made in a plant in America so it's American". Yes it is just like the Buicks made in China, but follow the money. A local product brand keeps the money local. We're sending billions of dollars to OPEC et.al. We have and idiot claiming to be a president to thank for that but if we just rejected the lib's buy foreign program just think of the Americans that would be back to work.
Skills are what rewards workers for services rendered....................NOT SOME IDIOTIC "EVERYONE DESERVES A LIVING WAGE" B/S...................THAT IS EXACTLY HOW WE HAVE WELFARE RECIPIENTS (LABELED AS "THE POOR") THAT ALREADY HAVE , A PLACE TO LIVE (SUPPLIED BY SOMEONE ELSE BUT THEMSELVES), ENERGY, (SUPPLIED BY SOMEONE ELSE BUT THEMSELVES), AND OF COURSE, FOOD (EVEN WHEN THEY ARE LEGALLY LABELED MORBIDLY OBESE) (SUPPLIED BY SOMEONE ELSE BUT THEMSELVES), CELL SERVICE (SUPPLIED BY SOMEONE ELSE BUT THEMSELVES), HEALTHCARE (SUPPLIED BY SOMEONE ELSE BUT THEMSELVES), THE USE OF THE ENTIRE INFRASTRUCTURE THAT THEY NEVER PAID TO BUILD OR TO WEAR OUT. THESE PEOPLE ARE STILL BEING COUNTED AS...POOR!
Fast food employees LIVING WAGES require them to have multiple families in a domicile, THAT IS WHAT SHOULD BE THE LIVING WAGE OF SOMEONE WHO BRINGS NOTHING BUT AN OVERFED UNSKILLED BODY TO THE WORKPLACE.....................EXACTLY LIKE THE STANDARD OPTIONS THAT COME WITH THE 2012 MODEL YEAR UAW WORKER!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market ended the Wednesday session on a mixed note with small caps displaying relative strength. The Nasdaq Composite (+0.5%) and Russell 2000 (+0.4%) registered modest gains, while the Dow Jones Industrial Average (-0.2%) and S&P 500 (+0.01%) underperformed.
Despite the mixed finish, the key indices traded higher across the board at the start of the session after the advance reading of second quarter GDP surpassed estimates (4.0% versus Briefing.com ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'