General Motors (
) sells its vehicles globally under four core brands - Cadillac,
GMC, Buick and Chevrolet. Of GM's total 2010 vehicle sales
volume, 74% was generated outside the United States, including 43%
from emerging markets, such as Brazil, Russia, India and China.
GM's operations outside North America contribute more than 50% to
GM's total stock value by our estimates, and an increased focus on
Russia can yield significant upside to GM's stock value. GM
competes with players like Toyota (
), Honda (
), Ford (
(ETR:DAI), Volkswagen (ETR:VOW) and Hyundai (SEO:005380).
We have a price estimate of $45 for GM stock
, roughly 45% ahead of the current market price.
Russian Automotive Industry
In Russia, the total industry sales volume of vehicles was about
2 million units in 2010 - an increase of 31% from 2009, largely due
to government stimulus. Before that, industry sales volumes had
fallen nearly 50% from about 3 million units in 2008 to 1.5 million
units in 2009 as a result of the economic crisis.
Russia is becoming an increasingly important automotive market.
GM enjoyed a market share of 11% in 2008, although this has
declined steadily to 8% in 2010. In comparison, Ford's Russian
market share was just under 5% in 2010. We believe that the Russian
automotive industry is poised for significant growth and that GM is
well-positioned to exploit the opportunity to improve its market
New Automotive Industrial Regime to Aid Auto Market
Russia introduced a new automotive industrial regime in
February 2011 to lower import duties on automotive components for
the next eight years for qualified automotive manufacturers.
The qualification criteria in order to participate in this regime
- Assembly capacity of 350,000 vehicles annually within the
next three years.
- Substantial localization of component supply, including
engines, stampings and other components.
- Establishment of a research and development center.
GM Increasing Production in Russia
In March 2011, GM announced a joint venture with Russia's
Avtotor to produce at least 300,000 cars per year in Russia, using
60% local components. This will enable GM to qualify for
reduced import duties and, therefore, offer competitive pricing for
its products and increase sales.
GM to Benefit from Expanding Russian Auto Market
Continued growth in the Russian auto market could put Russia in
position to surpass Germany (the largest auto market in Europe) in
sales volume. GM's focused global marketing strategy, better
performance since its bankruptcy in 2009 and participation in the
Automotive Industrial Regime will help it grow its market share in
Russia and other international markets.
To illustrate GM stock's sensitivity to the company's
international market share, we estimate that an increase in this
metric of 0.15% each year beyond our base forecasts would imply a
stock value of about $49.50, a 9% upside to
our $45 price estimate
You can test this scenario, and others, by dragging the trend
line in the interactive chart above.
See our full analysis and $45 price estimate for GM