A Fundamental Analysis of General Motors CorporationA Fundamental Analysis of General Motors CorporationMBA 579: Advanced Financial ManagementSubmitted to: Dr. Tuncer GocmenExecutive SummaryGeneral Motors Corporation (GM), once a pillar of American manufacturing and the largest auto manufacturer in the world, recently emerged from Chapter 11 bankruptcy (Krisher, 2009). The New GM is officially named General Motors Company (Investor Information, 2009). Toyota’s sales surpassed General Motors sales in 2008 (Bunkley, 2009). This is the first time since the early 1930’s, when they passed Ford, that GM is not the industry leader (Bunkley, 2009). GM was the industry leader in sales through 2008, but the detailed look into GM’s financials show that Toyota surpassed them a few years earlier in other areas. GM has been struggling for years and this severe recession was enough to end the run for GM as world auto sales leader.
The Bottom Line: GM’s current global business is a nightmare. The company now makes nearly $250 billion (US$300 billion in the US) in profit per year and will have to continue selling more, despite a restructuring at the end of 2012. It is not surprising then that this massive collapse in profits was the single largest one in US history.
What can we do to reverse GM’s slide?
We would call on major automotive manufacturers, government entities and investors, especially Wall Street and the financial industry, to ensure that GM shares continue to flow, particularly to private equity firms.
The public should see through GM’s recent decline and look beyond its failure to meet high expectations. The GM failure isn’t a bad thing, because the company’s reputation and sales have been a source of envy to investors for more than a decade, and it has demonstrated that the company faces some difficult challenges.
The company has had some spectacular turnaround, including a massive cash outlay during 2014, with more than $500 million in assets, and a plan to bring back more than 25 years of operations. GM has had financial troubles and issues of its own since 2008, but the company has also created nearly 40,000 new jobs. Investors often refer to GM as the best-performing car brand by the automotive industry.
This year, investors have a lot of faith in the company’s future financials. It has made the switch off from a strong profitability rate this year, to what Wall Street called a strong valuation in June. The company has been a consistent story of innovation. It has had a top-notch staff since 2011. It also has a much more sophisticated technology strategy. GM has also been able to invest more in innovation and make improvements in its core business.
This year, investors were surprised by what they saw in the stock—new results that helped GM out to a new valuation and to a significant investment in GM’s capital markets.
It’s unclear just how long the decline will last. This recent report looks at the GM stock performance since April 2008 until this end. The stock has been very strong and has improved each of the last six months.
What to Do?
MMA believes that the end of the GM merger and its aftermath will lead to a significant downgrade of the stock price. It’s worth pointing out that the stock is not expected to rise by the end of 2013—and I hope that this isn’t the end of GM’s failure.  In other words, just this year GM and other automakers have raised the ante and are planning to raise even more. But as investors look at the stock, you may notice a significant turnaround.
Investors can get ahead of themselves: Investors want to buy GM stock to see it get the money they need. This could create long-term cash flows for GM investors. It could also drive the stock price down. One way to do this is to trade shares at the beginning of the year, like you often do when buying bonds.
By trading stocks in such short increments you can buy a lot of stock. It’s like buying a car, but with fewer people. The goal is to get a lot of shares in your company—by trading at a valuation that helps you maximize cash flows.
The Bottom Line: GM’s current global business is a nightmare. The company now makes nearly $250 billion (US$300 billion in the US) in profit per year and will have to continue selling more, despite a restructuring at the end of 2012. It is not surprising then that this massive collapse in profits was the single largest one in US history.
What can we do to reverse GM’s slide?
We would call on major automotive manufacturers, government entities and investors, especially Wall Street and the financial industry, to ensure that GM shares continue to flow, particularly to private equity firms.
The public should see through GM’s recent decline and look beyond its failure to meet high expectations. The GM failure isn’t a bad thing, because the company’s reputation and sales have been a source of envy to investors for more than a decade, and it has demonstrated that the company faces some difficult challenges.
The company has had some spectacular turnaround, including a massive cash outlay during 2014, with more than $500 million in assets, and a plan to bring back more than 25 years of operations. GM has had financial troubles and issues of its own since 2008, but the company has also created nearly 40,000 new jobs. Investors often refer to GM as the best-performing car brand by the automotive industry.
This year, investors have a lot of faith in the company’s future financials. It has made the switch off from a strong profitability rate this year, to what Wall Street called a strong valuation in June. The company has been a consistent story of innovation. It has had a top-notch staff since 2011. It also has a much more sophisticated technology strategy. GM has also been able to invest more in innovation and make improvements in its core business.
This year, investors were surprised by what they saw in the stock—new results that helped GM out to a new valuation and to a significant investment in GM’s capital markets.
It’s unclear just how long the decline will last. This recent report looks at the GM stock performance since April 2008 until this end. The stock has been very strong and has improved each of the last six months.
What to Do?
MMA believes that the end of the GM merger and its aftermath will lead to a significant downgrade of the stock price. It’s worth pointing out that the stock is not expected to rise by the end of 2013—and I hope that this isn’t the end of GM’s failure.  In other words, just this year GM and other automakers have raised the ante and are planning to raise even more. But as investors look at the stock, you may notice a significant turnaround.
Investors can get ahead of themselves: Investors want to buy GM stock to see it get the money they need. This could create long-term cash flows for GM investors. It could also drive the stock price down. One way to do this is to trade shares at the beginning of the year, like you often do when buying bonds.
By trading stocks in such short increments you can buy a lot of stock. It’s like buying a car, but with fewer people. The goal is to get a lot of shares in your company—by trading at a valuation that helps you maximize cash flows.
General Motors Corporation has been in serious financial trouble for years. In fact, GM has lost money for every year since 2004 (GM Annual Reports, 2003-2007). The company must restructure in order to stay competitive foreign auto makers. General Motors is hampered by high wages, retiree healthcare, and pension plans (Naughton, 2008). The average union wage is $28 per hour and that number balloons to $78 per hour when health insurance and pension are included (Naughton, 2008). The issue for General Motors has not been sales, the issue lies with a lack of productively and a business that is not streamlined like its competitors. The sales for its auto division increased from 155,831 in 2003 (in billions) to 178,199 in 2007 (GM Annual Reports, 2003 & 2007). The main problem for General Motors is profitability. This profitability issue has led to a lack of confidence from Wall Street and bailout funds from the federal government in the amount of 13.4 billion in 2008 (General Motors Corporation, 2009).
In 2005, GM had an operating loss of 4 billion and their bonds were downgraded to “junk status” (General Motors Corporation, 2009). General Motors was de-listed from the New York Stock Exchange (NYSE) (“www.gm.com/corporate/investor,” 2009). “On June 2, 2009, The NYSE informed GM that it is no longer suitable for listing on the NYSE (Investors, 2009). This was in response to GM filing for Chapter 11 bankruptcy protection (Investors, 2009). Things have changed for GM and the NYSE over the past few years. According to Brigham & Ehrhardt (2005), GM threatened to de-list in the past and the NYSE made concessions. At that point in time the GM deflection would have hurt the NYSE more than GM (Brigham & Ehrhardt, 2005).
General Motors