The Automotive industry is one of the World`s most important economic sectors in terms of revenue generation. The industry is dominated by companies from around the world especially those in the developed countries like Japan, United States, China and England. There are enormous numbers of automobiles sold across the globe and especially in the underdeveloped countries where it's the primary mode of transport. In 2007, there were a possible 806 million cars and light trucks on the roads around the world, which indicates the impact of the industry around the world. Boston Consulting Group predicts that by 2014, a third of the world demand for automotives will lie in the BRIC countries, which stands for Brazil, Russia, India and China. These are the highly ranked countries in purchase of automotives. According to a J.D power study, the emerging markets for automotive accounted for 51% of the global light vehicle sales in 2010 and the trend has continually increased in the consecutive years.
The figure below indicates the trend in the units of cars and commercial vehicles from the year 2000 to 2012.
Source: Boston consulting Group (January)
The industry has developed over time and the most recent innovations have resulted in further product differentiation and market segments. However, this has not been without hurdles especially the new entrants and the ever existent research to keep abreast with the changing technology and customer preferences. There has also been a large influence from environmentalists to manufacture automobiles that are environment friendly. The emerging new entrants producing relatively lower priced automobiles, which often have a shorter life span, has tarnished the industry`s image. The global financial crisis also affected the industry negatively; profit margins went down as production costs rose. The industry is still maneuvering through the hurdles and there are signs of recovery and even improved performance.
General Motors (NYSE:GM) is one of the leading automotive companies in the world. It is an American Multinational corporation with Headquarters in Detriot, Mich., with branches in 37 countries around the world. GM produces the following brands and provides services in its various branches; Chevrolet, Buick, GMC, Cadillac, Baojun, Holden, Isuzu, Jie Fang, Opel, Vauxhall and Wuling. The corporation made a move to shed several brands as a way to concentrating on the more profitable product lines. In 2010, GM had an IPO, which has since remained among the world`s top 5 largest IPOs to date. During this period, the government had intervened to salvage the corporation from complete collapse from the poor performance in the preceding years. Profitable operations resumed in 2010, with an adequate capital base to produce new brands that keep the firm a step ahead in the industry.
GM produces automobiles in all the categories, ranging from luxury vehicles, commercial, light and heavy vehicles. This has placed it strategically in the industry because it has a product for every market segment. GM produces some of the world`s leading brands like Chevrolet and Isuzu. The ability to produce various brands to suit different customer needs serves as a competitive edge against its competitors. The CEO of GM, Dan Akerson leads by the notion that GM wins when the customers say they win too. This has resulted in the firm operating under certain statutes to make the notion bind. GM operates under some canons that are intended to continually place it at the top of the list in the automotive industry. Safety and quality, customer retention through creating confidence and loyalty, innovation, investing in the best opportunities to reward the shareholders awesomely and being on the move to make a positive difference in the industry.
GM Financial analysis
A quick review of the income statement of GM from the FY09 to FY12, reveals that the corporation has been on an upward revenue trend indicating increased sales through the period. However, it is also important to note that the expenses have also been on an upward trend since FY09 at $11,747 million to $12,231 million in FY12. The net income recorded in the period has therefore decreased through the period as a result of rising production costs and other expenses.
Cost of Goods Sold
Selling General & Admin Expenses, Total
Other Operating Expenses
OTHER OPERATING EXPENSES, TOTAL
Interest and Investment Income
Other Non-Operating Expenses, Total
Other Non-Operating Income (Expenses)
Merger & Restructuring Charges
Impairment of Goodwill
Gain (Loss) on Sale of Investments
Gain (Loss) on Sale of Assets
Other Unusual Items, Total
EBT, INCLUDING UNUSUAL ITEMS
Income Tax Expense
Minority Interest in Earnings
Earnings from Continuing Operations
NET INCOME TO COMMON INCLUDING
GM`s balance sheet through the FY09 to Fy12 reveals a consistent rise in the current assets from $59,247 million in FY09 to $69,996 million in FY12. The current liabilities have also risen through the years from $52435 million in FY09 to $53,992 million in FY12. However the margin has maintained a comfortable current ratio, which is a fair operating level for the corporation.
Cash and Equivalents
TOTAL CASH AND SHORT TERM INVESTMENTS
Finance Division Loans and Leases, Current
Finance Division Other Current Assets
Other Current Assets
TOTAL CURRENT ASSETS
NET PROPERTY PLANT AND EQUIPMENT
Finance Division Loans and Leases, Long Term
Finance Division Other Long-Term Assets
Other Long-Term Assets
LIABILITIES & EQUITY
Current Portion of Long-Term Debt/Capital Lease
Finance Division Debt, Current
Finance Division Other Current Liabilities
Other Current Liabilities
TOTAL CURRENT LIABILITIES
Finance Division Debt, Non-Current
Finance Division Other Non-Current Liabilities
Other Liabilities, Total
TOTAL PREFERRED EQUITY
Additional Paid in Capital
Comprehensive Income and Other
TOTAL COMMON EQUITY
TOTAL LIABILITIES AND EQUITY
Source: Bloomberg Business week (2013)
Government Ownership and Perks
After the bankruptcy, GM emerged as a structurally different entity in 2009, with the government holding a majority of the company's shares. The majority of the TARP loans made to GM were converted into an initial 60.8% government ownership stake in New GM. The post restructuring IPO, in November 2010, helped in reducing the government ownership in the entity. With the U.S. government's sale of GM stock in December 2012, private investors owned the majority of New GM stock for the first time since the bankruptcy.
The recent move to make an IPO has helped the corporation to realize profitable operations and investors are advised to invest in the corporation as the trend will be sustained in the long run. The continued differentiation of brands keeps the corporation abreast in the industry and the intended expansion by opening up more branches in other countries is a sure strategy to raise the sales and profit margin higher. The risk involved in investing in GM is relatively low considering that the firm`s recent moves have seen it rise in performance for the last four years and the trend is likely to continue for a long period if the industry does not suffer a major disruption.
At the end, I would like to mention the remarks of a report [pdf] by Congressional Research Services:
"The nominal amount of its assistance for GM that the government has yet to recover is $19.1 billion (counting recoupment of principal and income received, as shown in the Appendix). As the government's entire holding in GM is now in the form of common shares, its ability to recoup that sum will depend solely upon GM's share price, which in turn depends heavily on investor perceptions of GM's future profitability. GM's shares would need to approach the $80 per share mark for the government to recoup the entire nominal amount of TARP assistance, well above the share price at any time since GM reemerged as a publicly traded company."