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Investment Overview for General Motors (NYSE:GM)
GM is the second largest automaker in the world in terms of the number of vehicles sold, selling 9.9 million units in 2014.
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 has been a luxury auto brand since 1902. In recent years, Cadillac has witnessed a renaissance led by engineering and advanced technology.
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 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 is a global automotive brand, with annual sales of about 4 million vehicles in more than 130 countries. In the U.S., 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.
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. In 2012, the momentum continued as 14.5 million vehicles were sold during the year. The U.S. automotive industry continued its show of strong growth in 2013 and 2014 as well, growing at a rate of 7.9% and 6.1%, respectively. The same trend is expected to continue in 2015, although the rate of growth is expected to slow. The robust sales growth could translate into better revenue realization for GM in the U.S., which is one of the biggest markets for the company.
Going forward, the growth in the U.S. automotive industry will be the most decisive factor for the company in maintaining top line growth.
Total Cars Sold in China:
According to statistics and analysis of the China Association of Automobile Manufacturers (CAAM), new car sales in China are expected to grow to 30 million by 2020, compared to 20 million in 2014. The automotive market in China has more than doubled in size, within a span of 3-4 years. With approximately 87 cars per 1,000 people in China, there is definitely an enormous opportunity to be tapped in China.
GM's decade old presence in the form of different JVs might provide significant upside for the company.
Total Vehicles Sold in Europe: Vehicle sales in Europe declined from 14.9 million in 2007 to 12.1 million in 2014. Automakers were left with a cumulative annual production capacity of 18.4 million vehicles a year in excess of the demand in Europe. Sales have since picked up recently, with new car sales having been on the rise for the last couple of years in Europe. As the European economy recovers, U.K. and Germany are expected to drive the auto market in Europe. In 2014, car sales in Western Europe grew by 5%, the best result since 2009.
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. By the first quarter of 2015, the number of retail sales financed through GM's financing division have grown to 28% compared to 18.9% in the first quarter of 2014. This has made GM Finance the third biggest business segment for the company. The percentage of retail sales financed through GM Finance is only expected to grow in the future.
International vehicle market 3.5x larger than the North American vehicle market:
2014 vehicle sales in North America are estimated at 20.24 million. In comparison, there were approximately 3.5x as many vehicle sales (around 67 million) internationally. We estimate that GM will be able to maintain its global market share to approximately 11.4% 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), new car sales in China are expected to grow to 30 million by 2020, compared to 20 million in 2014. The automotive market in China has more than doubled in size within a span of 3-4 years. With approximately 87 cars per 1,000 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. By the first quarter of 2015, the number of retail sales financed through GM's financing division has grown to 28% compared to 18.9% in the first quarter of 2014. This has made GM Finance the third biggest business segment for the company. The percentage of retail sales financed through GM Finance is only expected to grow in the future. We expect GM Financial to grow significantly and to contribute more to GM's overall revenues over our forecast horizon.
GM has focused its resources in the U.S. 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 has increased volume of vehicles produced from common global architectures to more than 50% of their total volumes in 2014, from less than 17% in 2012. This has resulted 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.
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