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General Motors Company
August 21, 2024
FOLLOW-UP
September 26, 2024 | Total Return: -1.75%
ORIGINAL ARTICLE
FREE & PREMIUM
General Motors Company
Ticker: GM.NYSE
Addition to:
✅ SENSU Watchlist
Addition Date: August 21, 2024
Price per Share: 46.75 USD
TABLE OF CONTENTS
THE COMPANY
As I reflect on General Motors, I'm struck by the company's enduring legacy in shaping the American automotive landscape. Founded in 1908 by William C. Durant, GM quickly established itself as a powerhouse in the burgeoning auto industry. Durant's vision was to create a holding company that would bring together various car manufacturers under one umbrella, allowing for economies of scale and shared resources.
The early years of GM saw rapid expansion through acquisitions. Buick, Oldsmobile, Cadillac, and Chevrolet were all brought into the fold, each targeting different segments of the market. This multi-brand strategy became a hallmark of GM's business model, allowing the company to cater to a wide range of consumers with varying preferences and budgets.
One of the most significant innovations in GM's early days was the introduction of annual model changes. This concept, pioneered by GM's head of design Harley Earl in the 1920s, revolutionized the industry by creating a sense of novelty and desire among consumers. It's fascinating to think about how this strategy, which we now take for granted, was once a groundbreaking idea that helped fuel the growth of the entire automotive sector.
The Great Depression posed significant challenges for GM, as it did for most businesses. However, under the leadership of Alfred P. Sloan, the company not only survived but thrived. Sloan's decentralized management structure, which gave each division considerable autonomy while maintaining central financial control, proved to be a highly effective organizational model.
GM's role in World War II is particularly noteworthy. The company's factories were converted to produce military vehicles, aircraft engines, and other war materiel. This period demonstrated GM's industrial might and adaptability, traits that would serve it well in the postwar boom years.
The 1950s and 1960s were golden decades for GM. The company's market share in the U.S. peaked at around 50% in the 1960s, an astonishing figure that reflects its dominance of the domestic market. Iconic vehicles like the Chevrolet Corvette and Camaro were introduced during this era, cementing GM's place in American popular culture.
However, the 1970s brought new challenges. The oil crisis and increasing competition from foreign automakers, particularly Japanese companies, began to erode GM's market position. The company's size and bureaucratic structure, once strengths, became liabilities as it struggled to adapt to changing consumer preferences and market conditions.
In recent decades, GM has faced numerous challenges, including financial difficulties, changing consumer preferences, and the need to adapt to new technologies. Yet, through it all, the company has remained a significant player in the global automotive industry.
What I find particularly intriguing about GM's business model is its diversification across different market segments and its global reach. From economy cars to luxury vehicles, from commercial trucks to electric vehicles, GM's portfolio spans a wide range. This diversity has allowed the company to weather various economic cycles and market shifts.
Moreover, GM's investments in research and development have kept it at the forefront of automotive technology. From early innovations like the electric self-starter to more recent advancements in electric and autonomous vehicles, GM has consistently pushed the boundaries of what's possible in automotive engineering.
STOCK PRICE
The dynamic background color reflects overall market valuation, allowing you to quickly assess both stock-specific trends and market conditions at a glance.
Why logarithmic? It displays percentage changes uniformly, making price movements easily comparable across different ranges. A 100% increase appears the same whether from $10 to $20 or $100 to $200.
FINANCIAL ANALYSIS
⭐⭐⭐ Quality Score | ⭐⭐⭐⭐⭐ Value Score | ⭐⭐⭐⭐⭐ Growth Score |
GM's valuation metrics paint an intriguing picture of a potentially undervalued company undergoing a significant transformation. The remarkably low P/E ratio of 5.02 and P/B ratio of 0.81 (down from 1.42 in 2021) suggest the stock may be trading well below its intrinsic value. This is further supported by the high current earnings yield of 19.93%, which has nearly doubled since 2021, indicating substantially improved profitability.
Price-to-Book Ratio
Earnings Yield
While the negative EV/FCF ratio of -23.85 might raise eyebrows, it's crucial to view this in the context of GM's ambitious transition to electric vehicles. This shift requires substantial upfront investments that are likely impacting free cash flow in the short term. The low EV/(EBITDA-Capex) ratio of 3.30 further underscores the company's potential undervaluation.
Capital efficiency appears to be on an upward trajectory, with impressive 3-year and 5-year ROIIC figures of 19.12% and 17.83% respectively. This marks a significant improvement from the 10-year ROIIC of 4.2%, suggesting management has enhanced its capital allocation strategies in recent years.
10-Years | 5-Years | 3-Years | |
|---|---|---|---|
ROIIC | 4.2% | 17.83% | 19.12% |
Ranking | 52.85% | 74% | 67.92% |
Perhaps most tellingly, GM's management seems to share the view that the stock is undervalued. The company has implemented a substantial share buyback program, with a buyback ratio of 21.43%. This has led to a significant reduction in shares outstanding, from 1,454 million in Q4 2022 to 1,162 million in Q1 2024.
Taken together, these metrics paint a picture of a company that appears undervalued by traditional measures, is improving its profitability and capital efficiency, and is investing heavily in its future while also returning capital to shareholders.
MANAGEMENT ANALYSIS
Meet the CEO: Mary Barra
Mary Barra has served as CEO of General Motors since 2014, becoming the first woman to lead a major global automaker. With over 40 years of experience at GM, Barra worked her way up from a co-op student to the top leadership role. Her tenure as CEO has been marked by bold moves to transform GM for the future, including a major push into electric vehicles and autonomous driving technology.
Barra is known for her no-nonsense leadership style and focus on accountability. She famously told employees to speak up about safety issues, saying "No more crappy cars." This cultural shift helped GM navigate the ignition switch recall crisis early in her tenure.
An interesting fact about Barra is that her father worked for 39 years as a die maker at GM's Pontiac plant. Growing up in a GM family gave her a deep understanding of the company's history and importance to American manufacturing. Barra has leveraged this perspective to guide GM's evolution while maintaining its core values.
Meet the Employees: Reviews
Many employees praise GM for offering good benefits, competitive compensation, and a generally positive work-life balance. The company is seen as providing ample opportunities for learning and growth, with access to cutting-edge technologies and projects. Employees frequently mention supportive coworkers and a collaborative environment. GM is also commended for its efforts in diversity and inclusion, as well as its focus on innovation in the automotive industry. The company's 401(k) match and bonus structure are highlighted as particularly attractive.
A recurring theme in negative feedback is dissatisfaction with senior leadership. Many employees express frustration with what they perceive as poor decision-making, lack of transparency, and frequent organizational changes that create instability. There are concerns about job security, especially following recent layoffs and office closures. Some employees feel that GM is struggling to transition from a traditional automotive company to a more tech-oriented one, leading to cultural clashes and strategic confusion. The push for return-to-office policies has been unpopular among many employees who prefer remote work. There are also mentions of bureaucracy slowing down progress and innovation.
“Senior Leadership has been trying to hire in the right person to change the trajectory of the company on the IT and strategy side... Now they hire an Apple guy who so far has only been working to bring in people he knows from silicon valley. He appears to not really have a plan other than using this experience as an internship to learn from Mary Barra.”
“Trust in senior leadership is gone. CIO/CFO stated early 2023 there will be no layoffs. One month later over 500 employees terminated. Nine days later, voluntary separation program announced. Last month an entire IT physical location shut down with no notice, impacting almost 1,000 employees.”
MOST SIGNIFICANT MOATS
GM's strongest moat is its powerful brand portfolio, including iconic names like Chevrolet, Cadillac, and GMC. These brands have deep roots in American culture and inspire strong customer loyalty, especially for trucks and SUVs. Many buyers have an emotional connection to GM vehicles, passed down through generations. This brand strength allows GM to command premium pricing and retain customers over time, which is crucial in the competitive auto industry.
As one of the world's largest automakers, GM benefits enormously from its massive scale. This allows the company to spread fixed costs over millions of vehicles, negotiate better deals with suppliers, and invest heavily in research and development. GM's century of manufacturing experience also gives it an edge in efficiently producing high-quality vehicles at scale. This know-how is especially valuable as the industry transitions to electric vehicles, where GM can leverage its existing facilities and workforce.
GM's extensive network of dealerships across North America provides a significant competitive advantage. These dealers not only sell vehicles but also provide service, parts, and a local presence in communities. This network is difficult and expensive for new entrants to replicate. It gives GM a direct line to customers, valuable market intelligence, and a steady stream of high-margin service revenue.
MOST SIGNIFICANT RISKS
Risk: GM is investing heavily in transitioning to electric vehicles, but consumer adoption and infrastructure development remain uncertain.
Impact: If EV adoption is slower than expected or GM falls behind competitors, it could negatively impact sales and profitability. Significant investments may not pay off as anticipated.
Mitigating Factor: GM is developing a broad EV portfolio across price points and vehicle types. It's also investing in battery technology and charging infrastructure to support adoption.
Risk: Economic downturns, rising interest rates, or reduced consumer spending could hurt vehicle sales.
Impact: Lower sales volumes and revenues, potentially leading to reduced profitability and cash flow.
Mitigating Factor: GM maintains a diverse product lineup across brands and price points to appeal to different consumer segments. It also has cost-cutting measures it can implement if needed.
Risk: Shortages of key components like semiconductors or raw materials could disrupt production.
Impact: Production delays, increased costs, and potential loss of sales if vehicles can't be completed.
Mitigating Factor: GM is working to secure more robust and diverse supply chains, including bringing more production in-house or closer to its manufacturing facilities.
CATALYSTS FOR GROWTH
GM is investing heavily in its EV transition, with plans to have annual EV capacity of 1 million units in North America by the end of 2025. As GM launches more EV models and scales up production, this could boost investor confidence in the company's future growth prospects.
GM expects EV margins to improve in 2024. If the company can demonstrate progress in making its EV business profitable, this would likely be viewed very positively by the market.
GM announced a $2 billion cost reduction program to be implemented by the end of 2024. Successful execution of these cost-cutting measures could enhance profitability and margins.
Disclaimer: The information provided in this newsletter is for educational and informational purposes only and does not constitute financial, investment, or legal advice. The content is solely the opinion of the author, who is not a qualified financial advisor, investment professional, or legal expert. All investments involve risk, and past performance does not guarantee future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author of this newsletter is not liable for any losses or damages arising from the use of the information provided. This newsletter is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to local law or regulation.
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