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Investment Overview for General Motors (NYSE:GM)
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GM is the second largest automaker in the world, in terms of the number of vehicles sold, selling more than 9.5 million units in 2012.
GM commenced operations on July 10, 2009 after it completed the acquisition of substantially all the assets and certain liabilities of Old GM through a 363 Sale under the Bankruptcy Code. In the second half of 2010, the company achieved profitability.
GM seeks to distinguish its vehicles through superior design, quality, reliability, telematics (wireless voice and data),infotainment and safety within their respective vehicle segments. Its business is diversified across products and geographic markets, with operations and sales in over 120 countries. GM assembles its passenger cars, crossover vehicles, light trucks, sport utility vehicles, vans and other vehicles in 71 assembly facilities worldwide and has 88 additional global manufacturing facilities.
GM is now focusing its resources upon four core brands:
- Cadillac:
Cadillac has been a luxury auto brand since 1902. In recent years, Cadillac has engineered a renaissance led by engineering and advanced technology.
- GMC:
GMC has built trucks since 1902, and is one of the industry's healthiest brands. Today GMC is evolving to offer more fuel-efficient trucks and crossovers, including the Terrain small SUV and Acadia crossover. GMC is the only manufacturer offering three full-size hybrid trucks.
- Buick:
Buick is a modern brand with premium vehicles. A new compact sedan and small crossover will join the portfolio in the next few years. Buick’s sales continue to increase in North America, and it remains a best-selling brand in China, with continuing record growth.
- Chevrolet:
Chevrolet is a global automotive brand, with annual sales of about 4 million vehicles in more than 130 countries. In the US, the Chevrolet portfolio includes: cars, such as Corvette and Camaro; pickups and SUVs, such as Silverado and Suburban; and passenger cars and crossovers, such as Malibu, Equinox and Traverse.
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Total Cars Sold US:
The U.S. automotive market showed strong signs of resilience in 2011 and registered a 10% growth in vehicle sales to reach approximately 13 million. The momentum continued into 2012 as the automotive market totaled 14.5 million units. In 2013 and beyond, the market is expected to consolidate and reach the pre-recessionary levels. Robust sales growth could translate into better revenue realization for GM in the U.S., which is the most critical market for the company.
Going forward, the growth in the U.S. automotive industry would be the most decisive factor for the company to maintain growth in the top line.
Total Cars Sold in China:
According to statistics and analysis of the China Association of Automobile Manufacturers (CAAM), China registered automobile sales of approximately 19.5 million in 2012, an increase of 4.5% from a year earlier. The automotive market in China has more than doubled in size within a span of 3-4 years. With approximately 87 cars per thousand people in China, there is definitely an enormous opportunity to be tapped in China.
GM's decade old presence in the forms of different JVs might provide significant upside for the company.
Total Vehicles Sold in Europe: Europe has been going through the toughest times since the adoption of a single currency in 1999 and the crisis that started from Greece has spread through other peripheral countries as well. The economy is still in distress and governments across the Europe are adopting austerity measures to ride through the situation which is not going to help the industry either. Although, the severity of the economic distress will be different for different economies, the overall trend in sales as well as production, is expected to be a declining one.
A worsening situation in Europe could prove to be a major dampener for the company.
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China, where GM operates through joint ventures, is the most valuable division of the company. This is closely followed by its U.S. operations.
After GM sold its majority stake in Ally financial, GM lacked any captive financial division to finance its vehicle leases and loans. GM acquired Americredit in October 2010 and renamed it as GM Financial. We expect GM’s vehicle lease business to grow and become increasingly more valuable as GM Financial finances auto loans and leases to sub-prime customers.
International vehicle market 4x larger than the North American vehicle market:
2012 vehicle sales in North America are estimated at 17 million. In comparison, there were approximately 4x as many vehicle sales (around 65 million) internationally. We estimate that GM will be able to maintain its global market share to approximately 8.3% and continue to grow in North America.
China to be a major driver of growth for GM
According to statistics and analysis of the China Association of Automobile Manufacturers (CAAM), China registered automobile sales of approximately 19.5 million in 2012, an increase of 4.5% from a year earlier. The automotive market in China has more than doubled in size within a span of 3-4 years. With approximately 87 cars per thousand people in China, there is definitely an enormous opportunity to be tapped in China. The country is expected to become an increasingly important market for vehicle sales for GM. The company is already looking at expanding its joint venture opportunities in China.
GM’s vehicle financing and lease business to grow
GM vehicle lease business had become very limited since 2008 when GM agreed to reduce its ownership in Ally Financial to less than 10%.
In October 2010, GM acquired AmeriCredit, an independent automobile finance company, for $3.5 billion, and renamed it as GM Financial. GM Financial aims to offer increased availability of leasing and sub-prime financing for its customers throughout economic cycles and expanding its vehicles lease and loans portfolio. We expect GM Financial to grow significantly and to contribute more to GM's overall revenues over our forecast horizon.
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Brand rationalization
GM has focused its resources in the US on four key brands: Chevrolet, Cadillac, Buick and GMC. As a result, GM completed the sale of Saab in February 2010 and the sale of Saab Automobile GB (Saab GB) in May 2010. It has ceased production of the Pontiac, Saturn, and HUMMER brands and continues the wind-down process of the related dealers.
Opel/Vauxhall restructuring plan in Europe
GM plans to continue to invest in capital, engineering and innovative fuel efficient powertrain technologies including an extended-range of electric vehicles and battery electric vehicles. The plans also include aggressive capacity reductions including headcount reductions. The restructuring plan will lower GM's vehicle manufacturing costs, through manufacturing rationalization, headcount reductions, labor cost concessions from the remaining workforce and selling, general and administrative efficiency initiatives.
Consumer preference for smaller cars
Continued consumer preference for smaller, more fuel-efficient cars, due to increasing oil prices and global environment legislation might result in an unfavorable mix of sales that might drive down average car prices.
Increased competition from regional and global automobile manufacturers in fast growing emerging markets
As the size of the automobile market in emerging countries continues to increase, additional competitors, both international and domestic, will seek to enter these markets and existing market participants will act aggressively to increase their market share. Increased competition may result in price reductions, reduced margins and GM’s inability to gain or hold market share.
In response, GM aims to pursue local and regional solutions to meet specific market requirements, while aiming to improve share in important markets, including South Korea, South Africa, Russia, India and the ASEAN region.
Concentrated design and engineering resources on fewer brands and architectures
GM plans to increase the volume of vehicles produced from common global architectures to more than 50% of their total volumes in 2014 from less than 17% today. This initiative will result in greater investment per architecture and brand and will increase GM’s product development and manufacturing flexibility, thereby allowing it to maintain a steady schedule of important new product launches in the future.
Global architectures and consolidated product development activities will result in reduced material and engineering costs
Global architectures (that is, vehicle characteristics and dimensions supporting common sets of major vehicle underbody components and subsystems) allows GM to streamline its product development and manufacturing processes. GM has consolidated its product development activities under one global development leadership team with a centralized budget. This allows GM to design and engineer the vehicles globally while balancing cost efficient production locations and proximity to the end customer. This has resulted in reduced material and engineering costs.
Continued investment in a portfolio of technologies
GM is focusing on the following to address market needs:
- Continue to increase the fuel efficiency of its cars and trucks
- Develop alternative fuel vehicles
- Invest significantly in hybrid and electric technologies
- Invest significantly in plug-in electric vehicle technology
- Continue development of hydrogen fuel cell technology
- OnStar in-vehicle safety, security and communications service
GM’s continued investment in technologies that support energy diversity and energy efficiency as well as in safety, telematics and infotainment technology, will drive higher vehicle sales.
Trefis Forecast Rationale for Total Vehicles Sold in China
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${forecast} represents the total number of vehicles sold by automobile industry in China, which is the fastest growing global market by volume of vehicles sold.
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${forecast} has been booming with total industry vehicle sales increasing from 9.1 million in 2008 to 18.7 million in 2011. The figure rose to 19.5 million in 2012. This increase in ${forecast} was largely because China was able to side-step the global recession and continue its rapid economic growth. China also benefited from effective government economic stimulus packages.
However, the rate of expansion has slowed down in the last couple of years. With Chinese economy not expected to replicate its previous growth rates, we expect a more moderate growth in the country's auto market in the coming years.
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Trefis considered the following factors for its forecast:
- Continued growth of Chinese economy
- China is the fastest growing economy in the world. Due to the recession its economy pulled back slightly from the pre-recession rates of growth. It is expected to continue its growth as the global economy recovers as well. This economic growth will help sustain the rapidly growing automobile market as well over the Trefis forecast period.
- The automotive market in China has more than doubled in size within a span of 3-4 years. Though the growth in 2011 was way below the incredible growth of 45.5% and 32.4% achieved in 2009 and 2010 respectively, China is well and truly on its way to becoming the leading automotive market pushing the U.S. to the second place.
- According to KPMG, China is slated to be the world’s biggest market for auto sales and exports by 2025. With approximately 52 cars per thousand people in China, there is definitely an enormous opportunity to be tapped in China.
- Improved options for customers
- As the size of the Chinese market continues to increase, additional competitors, both international and domestic, will seek to enter the Chinese market and existing market participants will act aggressively to increase their market share. This will lead to larger product offering for customers and will stimulate further growth in the Chinese market.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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