Happy birthday, Chevy: Carmaker turns 100

General Motors shares are underperforming as Chevrolet, its biggest division, celebrates its centennial.

By TheStreet Staff Nov 3, 2011 2:48PM

By Ted Reed, TheStreetTheStreet


As Chevrolet celebrated its 100th birthday Thursday, parent company General Motors (GM) must be said to have aged well after surviving a serious illness in its 98th year.


GM, which has been promoting the centennial for much of the year, marked the day with an announcement that Chevrolet sold its 1 millionth Cruze this week.


Clearly, Cruze is a symbol of what is right with the automaker. It's a somewhat unanticipated success that reflects the effort to more firmly establish GM as a truly global company with common vehicles, as well as a company with U.S. labor costs low enough to allow it to manufacture a successful compact car in its home country.

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That, in turn, reflects the success of GM's 2009 bankruptcy restructuring, perhaps also the greatest success of the Obama administration, which used the process to force change and better financial health on a stubborn and bloated organization.


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At the same time, close association with the Obama administration, which is closely allied with the United Auto Workers, has made GM a part of our nation's acerbic political climate, no doubt more than it would like to be.


Interestingly, Secretary of State Hillary Clinton, perhaps the country's most popular politician, paid a visit last month to GM's Uzbekistan plant and GM issued a brief press release.


Rather than overanalyze, it is best to simply point out that Uzbekistan is the fifth-biggest Chevrolet market in the world, after the U.S., Brazil, China and Canada. One of GM's biggest pluses is its truly global reach, which includes its being the No. 1 automaker in China, the world's biggest auto market.


Despite the positives, it cannot be said that all is right with GM.


To begin with, the performance of the company's shares has been a vast disappointment. GM went public on Nov. 18, 2010, but it is not clear whether the company will celebrate that anniversary quite so enthusiastically.


The IPO price was $33 and GM opened at $35. Since the opening, shares have fallen 33%. Shares closed Wednesday at $23.20.


Meanwhile, the Standard & Poor's 500 Stock Index opened Nov. 18, 2010, at 1,184, and has gained 4% over the same period.


It is not clear what investors know that does not seem apparent. Many analysts feel that GM is seriously undervalued. But investors are not, ultimately, stupid. Rather, it seems fair to point out that the GM offering was priced during a time when giddiness still surrounded Alan Mulally's transformation of Ford (F), accomplished without the crutch of bankruptcy. Obviously, GM was priced with an eye towards Ford's price, which was high at the time and headed higher.


Ford shares opened Nov. 18, 2010, at $16.77. They ran up to $18.97 in January before starting a decline. At Wednesday close, they traded at $11.15. Like GM shares, Ford shares are down 33% since the GM IPO.


During the past year, GM's U.S. sales have generally been strong, reflecting a gradual recovery in the global auto industry as well as limited inventories at key Japanese competitors Toyota (TM) and Honda (HMC). In October, as those inventories began to be restored, GM sales grew only 2%, as opposed to 8% industry growth.


Of course, sales are not profits. On GM's October sales call, Don Johnson, vice president of U.S. sales operations, noted that "as we look at transition from (2011) to (2012), we didn't have same number of 11s as everybody else." Rather, because 80% of GM October car sales were 2012 models, a relatively high proportion, the company may not have been selling 2011 model cars as aggressively as its competitors. About 50% of truck sales were 2012 models.


GM's recent financial performance will become clearer next Wednesday when the company reports third-quarter earnings. Analysts are looking for earnings of 96 cents a share. For the full year, analysts are looking for $4.28 a share, compared with $3.11 in the same period a year earlier.


S&P Capital IQ analyst Efraim Levy is among those who believes GM is undervalued. He has a strong buy on the shares.


"Despite economic concerns, we see U.S. auto sales driving higher as pent up demand and aging vehicles spur sales," Levy said, in a recent report.

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