Knowing that General Motors Co. (GM) had been bleeding billions of dollars since the early aughts due to declining sales, the rise of raw materials and fuel costs, and paying out large pension payments, the Obama administration takes credit for saving the automaker in 2009, when the government pushed for Chapter 11bankruptcy. (President George W. Bush first lent the firm a some $13 billion bridge loan in 2008). Reconstituted in 2009, the new GM took more than $50 billion in taxpayer money to stay afloat — $67 billion if you count the funds lent to GM’s financing arm, which was bailed out and later became Ally Financial, Inc. (ALLY). Like its former parent, that company returned to profitability in 2010.
Today's version of the company bears as much resemblance to the GM of yore as New Jersey does to the original Jersey. GM is a nominally profitable company that maintains some of the assembly plants, marquees, management culture, and employees of the old GM. (For more on GM's new structure, see: Is the New General Motors Really New?)
Around the World
General Motors maintains 13 brands in 37 countries. These include its four, well-known North American names: Buick, Cadillac, Chevrolet, and GMC. The others are Holden (Australia, New Zealand), Opel (Africa, Asia, Europe), Vauxhall (U.K.), Wuling (China), Baojun (China), Jie Fang (China) and Alpheon (South Korea). It also does business via joint ventures, such as AvtoVAZ (Russia), Ghandhara Industries (Pakistan), GM Uzbekistan, General Motors India, General Motors Egypt, and Isuzu Truck South Africa. It also has a total of 10 joint ventures in China. In other locales, it operates via wholly-owned subsidiaries.
One such subsidiary, OnStar Corp., provides in-vehicle communications, security, hands-free calling, navigation, and remote diagnostics systems via subscription service. It even offers a service to make many new GM cars their WiFi hotspot. That's no small thing; for proof, see how much money providing internet service earns mobile phone and cable companies.
Cars and Trucks, Above All
In 2014, the company sold 2,935,008 vehicles in the United States, which is slightly fewer than it sold during any of its best years in the 1980s. The top-selling 2014 models were the Silverado-C/K pickup (529,755 units), the Cruze (273,060) and the Equinox (242,242, not including 105,106 for its GMC sister, the Terrain). Worldwide sales for all vehicles totaled just under 10 million units. That's a lot of cars and trucks to buyers and a lot of paychecks to auto workers (some 216,000 in 2015) and suppliers (some 2,700).
The company classifies its territories like North America, South America, Europe, and everywhere else. That last group — officially, International Operations — is GM’s biggest in terms of unit sales, at 4.4 million. North America is at 3.4 million. Profits declined across the board last year, in every region. That includes a $1.4 billion loss in Europe and a $180 million loss in South America, where it moved from the black to the red.
General Motors claims that 9-10% profit margins (by the EBIT measurement) are in its near future. That 9% would certainly be an improvement from the nominal 2% or so that the company currently enjoys, and would be treading closely to the more lucrative percentage of Toyota Motor Corp. (TM), which sells roughly the same number of vehicles but operates more efficiently (and has the tailwind of a favorable exchange rate right now).
The problem is that GM is still in recovery mode. A note to the company’s consolidated statements of comprehensive income discloses that a strong U.S. dollar hurt the company globally in recent years, costing it $473 million in 2014 alone in the form of currency translation adjustments. Add another $5 billion in net losses from defined benefit plans — the unsustainable, generous pensions that GM continues to pay out as a condition of taking the mantle of its lineal predecessor — and GM is far off Toyota's pace. Losses attributable to common stockholders topped out at over $1 billion last year.
Yet the stock price went up in that period, up 15.1% over the last three years to 8/18/15 (YTD, GM shares are less rosy at -7.28%).
Novelty Trumps Profit
GM touts its exciting new products and almost seems to worry about sales and profits later. Since its public debut in 2010, the plug-in hybrid Chevrolet Volt has sold fewer units worldwide (just 20,428 in 2014, primarily in the U.S.) than the Chevy Impala sells in the U.S. alone every six months. Does that mean that drivers aren’t interested in an electric car that can’t make it from Santa Monica to Anaheim without recharging or its battery-charging gas engine kicking in? The one that costs about $34,000 to start (not including rebates and tax credits)?
No, it means that GM needs to market the car more heavily; let people know what they’re missing. GM boasts that its 2015 versions of the Malibu and Equinox (very good, ubiquitous cars that's you're not terribly likely to notice) will “compete in two of the world’s largest vehicle segments," as if entering the race is equivalent to winning. (The Huawei MediaPad 10 competes in one of the world’s largest computing segments against the iPad, but the latter has sold a quarter-billion units, and the other is not quite there yet.)
When a company pushes down its low performers and downplays its legitimate successes (the markup on a Silverado is about $11,000; the company has two cars on Car and Driver's 10 Best list), prudent investors typically know what to do.
The Bottom Line
America is synonymous with innovation around the world, even when innovation refers to discovering new ways of keeping teetering enterprises from a bygone era viable. The original GM never got to die a natural death, either outright or one without the crutch of massive government intervention. Instead, it saw its mistakes and debts mostly forgiven, part of its future pension liabilities transferred, and even its liability for deaths related to faulty ignitions switches greatly limited. Resources that could have been spent elsewhere were spent in the service of GM’s executives, employees and its union partners in the name of job preservation.
How'd that turn out? The automaker had net income of $3.949 billion in 2014 on revenue of almost $156 billion, jobs were preserved (almost 2 million GM jobs were saved in 2009-2010 alone, according to one study), voters were made to feel they took part in an American victory and Cadillacs, Corvettes, Camaros, Canyons, and Colorados are still being manufactured and sold by trainloads. Sales were even up in 2014 despite headline-grabbing recalls. There may be the lingering question (among both liberals and conservatives for different reasons) of whether it was worth dropping so many billions into saving a failing enterprise. But one thing is certain: GM is a survivor ... and could end up thriving before long.