GM’s Stock Spurred By Credit Rating Upgrade, Strong Auto Sales

September 17th, 2012 by Trefis Team
-1.18%
Downside
45.62
Market
45.08
Trefis
GM: General Motors logo
GM
General Motors

It has been a good few days for General Motors (NYSE:GM). The stock has gained more than 15% in the last two weeks on recent good news involving strong auto sales in August and credit rating upgrades from Fitch and then from Toronto-based DBRS. [1] That means the automaker will be able to borrow at lower rates which will reduce its interest expense, and the upgrades also signal that its outlook has improved.

GM’s Brazilian sales in August are up 28% over the previous month as the automaker sold a total of 75,872 vehicles in the month. In total, vehicle sales rose 15% over the previous month to reach a total of 420,100 units. Brazil’s government reduced auto taxes in May to spur the economy after vehicle sales growth turned red in the first five months of the year. The tax cuts were earlier scheduled to end in August, but the government has decided to extend them by another two months. [2] The sales should help boost GM’s South American operations whose margins had eroded in the first half of the year.

See full analysis for General Motors

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GM continued its strong performance in the U.S. as its August sales surged 10% to 240,520 vehicles helped by Chevrolet Cruze, Chevrolet Equinox and Chevrolet Impala, which grew 19%, 22% and 28% respectively. Moreover, the automaker is investing $220 million in two of its factories in Ohio to produce the new Cruze compact car. [3] Cruze is GM’s second best selling vehicle in the U.S. in the first eight months of the year with 154,813 units sold. [4]

Similarly, in China, GM and its joint ventures sold a total of 220,996 vehicles in August, up 7.3% y-o-y. GM China is the most important division for the automaker and contributes around 38% to the stock price as per our estimates.

We currently have a Trefis price estimate of $24.90 for General Motors’s stock, which is in line with the current market price.

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Notes:
  1. Toronto agency upgrades GM credit rating, September 15, 2012, freep.com [↩]
  2. Brazil Auto Sales Hit Record; Forecast of 2012 Growth Returns, September 4, 2012, foxbusiness.com [↩]
  3. General Motors investing $220M in 2 plants to build new Chevrolet Cruze compact car, August 24, 2012, economictimes.com [↩]
  4. U.S. auto sales, wsj.com [↩]