If you bought General Motors (GM) stock last December 2012, your investment would have nearly doubled as the stock price last December 18, 2012 closed at $25.49 while the stock price hit $40.04 on Dec 13, 2013. The company prides itself as one of the leading designers, manufacturers, and sellers of trucks, crossovers, cars as well as automobile parts across the globe. It works through various distribution channels and serves customers including commercial fleet customers and governments. The gradual stock appreciation is a major win for this American automaker company which also recently announced the induction of its first female CEO, Marry Barra. Barra will be replacing Dan Akerson who will be stepping down in January 2014.
The revenue for the company grew by almost 2 billion in the third quarter of 2013 versus 2012, driven primarily by favorable customer demand for the Chevrolet brand. However, the company still recorded a lower net income due to a significant outlay under special items and other incremental expenses. The special items cover the Venezuela currency devaluation, buy-back of Korea shares, Goodwill impairment charges, and insurance expenses. For December 2013, the price/earnings is recorded at 12.2 which is lower compared to the industry average of 13.0.
Going Through the Grind
General Motors has made major decisions this year which will impact its bottom line not only in 2014 but even beyond. The decision to sell the remaining 8.5% of its stake in Ally's Financial is expected to boost the company's profitability by $0.5 billion in the last quarter of 2013. Ally's Financial, the lending arm of General Motors was sold for $0.9 billion just last week. The decision was made after careful analysis of the company's contribution to the overall business result which proved to be dismal. While the funds previously tied to Ally Financial can now be used to support other initiatives affecting core operations, Ally Financial will continue to provide financing to General Motors customers and dealers in the United States.
Another strategic move for the company is the sell-off of the remaining 7% stake in PSA Peugeot to institutional investors via private placement. The sell-off will not affect the alliance between the two companies as they will continue to utilize PSA platforms in developing existing and new product lines. The synergy of the two companies' technology and financial capability is estimated to grow to about $1.2 billion by 2018.
Lastly, the company has announced its plan to cease its manufacturing operations in Australia by 2017. The appreciation of the Australian dollar versus the US dollar alone from $0.50 in 2001 to $1.10 in 2013 increased any cost component including labor and energy cost in the country by as much as 65%. This, coupled with a relatively small local market, supported the decision to completely relocate its manufacturing activity. A national sales company will be created in Australia and New Zealand to continue supporting the local market and soften the impact of the 2900 jobs which will be taken out of Australia in the next four years.
A Brighter Future Lies Ahead for General Motors
The company is currently at execution phase. The key decisions it is making at this time will have repercussions in the coming years. Mary Barra is known to be an advocate of streamlining General Motors product lines across the globe and has been known to push General Motors to create high quality cars. The equity divestiture for Ally Financial and PSA Peugeot will have immediate gains in this quarter but the value of the divestiture will still transcend in the coming years as the company is able to reinvest its cash to its core operations. The returns from moving manufacturing operations out of Australia will still be realized in the next 10-15 years.
General Motors results for the past year were not impressive and its valuation puts it as slightly overvalued. Its balance sheet also put it at a leveraged level with a debt-equity ratio of 85.98. However, recent decisions made by the company have strong implications affecting its profitability in the coming years. As one of the "Big 3" automakers with a market capitalization of 57.56B, the company has greater room for expansion and growth potential which it is just starting to capitalize.