General Motors (NYSE:GM) announced December 2015 U.S. vehicle sales of 290K, up 5.7% from the same month in 2014, and capping its 2015 total at 3.1 million vehicles, up 5% from 2014. Despite several other automakers and the industry as a whole missing market expectations, GM beat the 5% gain expected by Edmunds. The key to the impressive December was the rapid growth in Crossover sales (Equinox, Traverse, Encore, Acadia) with Chevrolet crossover deliveries up 20 percent, the 13th consecutive monthly year-over-year increase. In addition to posting the best December since 2006, GM's average transaction price remained steady at $38,902.
In addition to strong U.S. vehicle sales, GM China showed that new vehicle sales growth in China is outpacing the U.S. The foreign GM subsidiary reported sales of 445K, up 14% from the same month in 2014, and capped its 2015 total at 3.6 million vehicles, up 5.2% from 2014. The increases in China were largely due to SUV sales, which account for 13% of all sales for the subsidiary, doubling in 2015. GM has put a large emphasis in China by introducing 12 new and refreshed models as well as expanding its manufacturing and R&D initiatives in the growing country. While the Chinese economy has been a thorn in the side of many investors, it is exciting to see GM building a sustainable growth platform in this region.
Based on these results and the company's forecasts, management announced an increase to its expected 2016 earnings per share range to between $5.25 and $5.75, up from the prior outlook of $5.00 to $5.50. Additionally, the company expects improved EBIT-adjusted, EBIT-adjusted margin, and automotive adjusted free cash flow. The keys to meeting these expectations will be a continued concentration on its product, growing sales global (as well as specifically in the very important Chinese market), and continue to grow the GM Financial business. While these raised expectations are certainly good news to investors, the company also announced an increase to the repurchase program and dividend.
While the company showed above 5% growth in the U.S. and China in 2015, and management has continued to show a commitment to the shareholder, there are certainly threats as the calendar turns towards 2016. First, analysts and executives foresee another record in 2016, but at a slower rate of growth and at the expense of transaction prices as automakers rely on discounts in a competitive environment. Fearful to the investor, the slowing growth and rising incentives will likely lead to industry-wide profit reduction. This is further evident in the recent report that the level of channel stuffing by automakers is at its highest level since August of 2008, which confirms the likelihood of the aforementioned discounting. GM currently sits at 61 days supply, which is much lower than one of its main competitors-Fiat (NYSE:FCAU) at 81 days. The days supply and average transaction price will certainly be in focus as 2016 kicks off.
Second, while the company is expecting to continue its penetration of the Chinese automaker market, it is certainly no guarantee. Overall automobile sales in China rose 4.7% to 24.6 million total units in 2015, which marked the slowest pace of sales growth since 2012. Third, the company continues to face lawsuits and recalls as a result of a faulty ignition switch, which came long after GM learned of the ignition switch defect. This type of uncertainty and negative press will likely weigh on the company's stock price going forward.
In addition to uncertainty around law suits, the entire industry is currently facing an unknown future with companies like Tesla, Google, Apple, and car sharing platforms threatening to disrupt the current market landscape. GM has certainly attempted to stay on the forefront of the expected innovation through its partnership with Lyft. While I'm not here to predict the future of automobiles, any type of technology innovation and threats of new entrances is not good news for a current market leader. It is important for GM to stay ahead of the curve.
Despite the threats going forward of new entrants, new technology, and a slowing Chinese and U.S. automobile market, I do believe GM is positioned for a solid year as none of these threats are likely to impact the results for 2016. The U.S. and Chinese sales reports have certainly been encouraging as well as the increased guidance offered by management. Additionally, with the dividend increase and additions to the share repurchase program, management has proven they are committed to returning value to the shareholder. While there are certainly going to be bumps along the road, I believe GM is a safe investment given its high dividend yield and the current state of the U.S. and Chinese automobile market. While I would not recommend it as a high growth stock, I certainly feel it will return value going forward.
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