General Motors (
) is scheduled to announce its Q4 and full year results on February
14. The automaker's stock had a strong run at the start of 2012 but
dipped to as low as $19 over concerns about its burgeoning European
losses. However, the stock has risen again in the last six months
as it consolidates its North American and Chinese operations while
carrying on with its restructuring in Europe. The U.S. government's
decision to eventually sell its stake in the company at $27.50 per
share also buoyed the stock price recently.
Solid On Home Turf
Overall, GM has had a solid year in North America with sales up
4% in the U.S. in 2012. It will be looking to improve its
profitability though since its North American operating margins of
7.5-8% currently trail Ford's margins of 10.5-11%. Furthermore, we
might see some weakness this quarter since GM was struggling with
soaring inventory levels and had to resort to huge incentives to
clear its stockpile.
On the bright side, 2013 could see the situation turning around
as the automaker plans to introduce a total of 13 new or refreshed
models under the Chevrolet brand. The refreshed models,
including newer versions of Silverado and GMC Sierra, could help
lift pricing and eventually improve margins.
The Dragon Sizzles
China accounts for more than 30% of the automaker's global
sales. In fact, GM now sells more vehicles in China than it does in
the U.S. In 2012, it sold 2.8 million vehicles in the country, up
11% year-on-year. One of the reasons why GM is successful in
China is because it has a strong portfolio of entry-level and low
The automaker already has a China specific brand called Baojun
under which it sells two models, the Baojun 630 which
starts from $10,000 and the Le Chi that costs $6,400 upwards. It
also has an array of microvans under the SAIC-GM-Wuling JV as well.
GM is present in China through 10 joint ventures although
the SAIC-GM-Wuling JV accounts for almost half of the
GM also opened a new factory capable of producing 400,000
vehicles annually in the second half of 2012. At the same
time, it is building another $1 billion plant in Southwest China
which will raise its capacity by another 400,000 units by 2015.
China is the most important contributor to GM's stock price, as per
See full analysis for General Motors
Europe Is A Concern
GM is struggling in Europe. It has already lost more than a
billion dollars in the first three quarters of 2012 and expects the
full year losses to top $1.5 billion. Even the company admitted
that it is not likely to become profitable before the middle of the
decade. The automobile industry in Europe is plagued with
overcapacity, but the labor unions and governments won't allow the
automakers to shut down plants with surplus capacity.
For now, GM has reached an agreement to close down its Bochum
plant in Germany but that will not happen before 2016. GM had
also purchased a 7% stake in French automaker Peugeot PSA as part
of a strategic alliance in which the two companies had
initially hoped to save $2 billion annually in shared R&D costs
and share technological platforms. But that move doesn't seem to be
yielding the desired dividends with GM's growing discontent after
Peugeot accepted the government bailout which will prevent any
French job cuts.
Ford announced its Q4 results last month and its European losses
exceeded the company's previous estimate. There haven't really been
any indications that the automobile market has begun to
improve. Thus, considerable work still needs to be done by GM
in order to turn around its European operations.
We have a near
$27 price estimate for General Motors
, which is about 5% below the current market price.
How a Company's Products Impact its Stock Price at Trefis