General Motors Company (NYSE:GM)
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The Company is engaged in the worldwide development, production, and marketing of cars, trucks, and parts.
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The Company is engaged in the worldwide development, production, and marketing of cars, trucks, and parts.
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Took this idea from Einhorn's Q3 letter:"GM is being priced by the market as a cyclical company trading at less than 6x this year's earnings. While some may see it as normal to value cyclicals at low multiples of peak earnings, we believe that 2011 is not a peak and, in fact, is below mid-cycle. Prior to the crisis, U.S. auto sales ran between 15 and 19 million units for many years. While sales have boucned from both a return to mid-cycle volumes, which we estimate to be 15 million units, and from a coming major refresh of its North American product portfolio. The market appears focused on GM's "legacy liabilities." However, the new GM does not have pension and healthcare liabilities that are likely to over-run the company. Instead, GM sits with $33 billion of gross chas which represents nearly its entire current market capitalization. We see potential for GM to begin to return capital to shareholders over the next year. While we are cognizant of the various investment risks that include near-term global economic weakness and the government ownership overhang, we think these concerns are more than priced in at current levels and see significant upside even if the U.S. experiences a very slow "new normal" type of economic recovery."He adds that they established a position at an average price of $25.78/share.Einhorn is the master of special situations and I tend to agree with his reasoning here. Thumbs up to GM
"According to an industry research report by TrueCar.com, light vehicle sales in the U.S. (including cars, trucks and sports utility vehicles/SUVs) during 2011 is likely to reach its three-year high at nearly 12.8 million vehicles."
According to TrueCar, General Motors (NYSE:GM - News) will continue to be the industry leader in December with an 18.9% market share followed by Ford with 16.5% and Toyota with 14.1%.
Source: http://finance.yahoo.com/news/Auto-Sales-Reach-3-Year-High-zacks-1382373165.html?x=0
It seems as if the market is looking at those 12.8 million vehicles sold in 2011 and kind of shrugging its shoulders as if it is unsustainable and therefore gives it a "peak earnings" multiple of only 4.43X ttm earnings.
So the question is whether the market is right, or whether Einhorn is right. Does the 2011 vehicle sales number represent peak unit sales that are worth a "peak earnings multiple" of only 4.43X? Or, is Einhorn right by looking at the long-term picture and saying this is below mid-cyle?
I took the average number of vehicle sales per year from 1990-2010 and the average was just under 15 million vehicles (14.974 mm). That's likely the same number Einhorn is looking at when he says he estimates mid-cycle to be 15 mm units. More on this later, but it does seem as if the market's peak earnings multiple of 4.43X is hardly justified..
Source of vehicle sales from 1990-2010 used in the above post: http://www.bts.gov/publications/national_transportation_statistics/html/table_01_17.html
When GM repays the TARP plus interest then and only then will it be back to $0.00 in value. Currently the true value of GM is around $-50 Billion, and no plan to repay any of it. As an investor (with my own money) I would NEVER put my money in a company that is in this kind of position. Just in comparison to FORD since the IPO of GM: Ford has appreciated 3.00 while GM has lost 6+ (per share amounts), Ford has paid dividends 6 times, GM none, Ford has a management team that will fight the union to produce a cost effective vehicle, GM is run by a union that has no idea what cost cutting even is. Ford is plowing back profits into the company, GM is giving workers a misc. bonus for working at the plant at the time. With all of this I wait to hear your justifications for advising people that GM is a good investment.
There seems to be a misunderstanding of GM's relationship to TARP and the government. GM does not 'owe' any money to the govt. The US Treasury owns a significant ownership stake in the company. That stake IS the payment to TARP. The government will recover their money by selling the shares at some point in the future. Whether they make or lose money on the bailout will depend on the price they get.
Agree, very long-term bullish on GM
XMF, do you know what percentage of GM's $30+B cash on hand is held abroad? I assume it's not much, but haven't yet found the information.
U.S. auto sales are the big banana. But this company sells a ton in Europe and China (JVs) too. There is a much better argument that it IS at the peak of the cycle in China. And there is an argument that Europe (already bad) is just heading downward. In fact in China they just had all-time-record sales of GM vehicles, at a bit over an annualized pace of 3 million cars. Agree on the thesis as to U.S. vehicles. And in China the "peak"-ness is offset by the fact that, man, it's only 3 million cars in China, versus 12 mill in the U.S., and there is a long way to grow there.
-- Debbie Downer