Current shareholders should hold General Motors (GM) long-term. Interested investors could consider the remainder of 2012 for opportune entry points as most automakers are facing tough sales in Europe's struggling economy and dwindling consumer demand. Aside from headwinds in Europe, GM is dealing with pending litigation and a sizable recall of various older models. The recent earnings release showed declining revenues, but, the August sales report showed record sales and high increases across the majority of GM's portfolio. GM is in the midst of building new proving grounds in China, while it's discovered an innovative way to cut costs in production as well. GM faces some headwinds in the near term, but its long-term outlook is still promising.
Ford (F), Toyota (TM) and Honda (HMC) are the most comparable major automakers to General Motors. GM's 8.3 price-to-earnings ratio is lower than Toyota's 16.9 and Honda's 13.9. Both Toyota and GM have price-to-book ratios around 0.9, Honda is closer to 1.0 and Ford is close to 2.2. GM's 0.24 price-to-sales ratio is the lowest among the automakers, Ford's 0.24 is the next lowest; both Honda and Toyota are close to 0.50.
GM's $2.80 EPS is higher than Ford's $2.24 EPS, Honda's is around $4.42 and Toyota's around $4.64. GM's 15.3% ROE and 3.1% profit margin are higher than Toyota and Honda's respective ratios. Ford's 158% ROE, 4.6% operating margin and 13.2% profit margin are the highest among the automakers. GM's float short and short ratios are currently the highest among the automakers. GM's 0.36 debt-to-equity ratio is the lowest among these major automakers; Toyota's is around 1.12, Honda's around 0.90 and Ford's is around 5.36.
GM's average daily volume is around 8.3 million shares; this is higher than Toyota and Honda, both of which average under 500,000. GM's relative volume is around 1.02; this is the lowest among these major automakers. GM's 6.8% stock growth this month is the highest among the automakers, its stock is up 12.2% YTD through late September. GM"s stock has increased 8.3% in the past year and around 16.7% since its last earnings release.
GM recently reported sales of 240,520 vehicles in August, a 10% increase, YOY and 3.7% increase YTD. GM's retail sales increased 11%, YOY and fleet sales increased 6%, YOY. GM partially credits advertising during the Olympic Games, exuding confidence and transforming the product line up for the uptick in sales. Around 70% of the GM brand is being redesigned in 2012 through 2013. The new 2013 Malibu and Cadillac ATS are currently launching in dealerships.
Passenger car sales increased 25%, YOY and Equinox sales set a record by increasing 22%, YOY. The Chevrolet Spark, Sonic Cruze and Volt all set new sales monthly sales in August 2012. Spark sales nearly doubled from the old sales record in July 2012. The Cruz edged out its old April 2011 record by over 800 additional units sold. Cadillac sales were up 11%, YOY from increasing demand for the SRX crossover.
GM's recent earnings release showed that second quarter total net sales and revenue was $37.6 billion, decreasing 4.5%, YOY. Cost of sales totaled $32.67 billion, decreasing 3.3%, YOY. Net income decreased to $1.9 billion from $3.03 billion, YOY. GM North America (GMNA) revenue totaled $22.9 billion, decreasing 1%, YOY. GM Europe (GME) second quarter revenue totaled $5.89 billion, decreasing 21%, YOY. GM International Operations (GMIO) totaled $6.94 billion, increasing 8.5%, YOY and GM South America (GMSA) revenue totaled $4.17 billion, decreasing 4.2%, YOY. Gross margin from the automotive segments totaled $4.44 billion, decreasing 15.3%, YOY.
More than 71% of GM second quarter sales volume came from outside the US. Over 32% of GM's sales volume comes from GMNA; GM's 17.1% market share in North America is the largest among the major automakers. GME accounts for 18.3% of GM's total sales volume, its 8.5% market share is the fourth largest in the region. The GMIO segment accounts for 38.3% of GM's total sales, its 9.3% market share is the second-largest in the region; China accounted for 79.1% of the volume in the GMIO segment. GMSA accounts for 10.8% of GM's total sales volume, its 18.2% market share is the largest in the region; Brazil accounts for 57.7% of the volume in the GMSA segment.
Europe's struggling car industry is a significant problem for all of the major automakers. Thus far, no one is turning a profit in this region lately. Almost every major automaker has to offer significant discounts simply to get the autos off the lot; sales across Europe could decline to a 17 year-low in 2012. GM has totaled $16.8 billion in losses in Europe since 1999; it lost $617 million here in the first half of 2012. Germany is the best economy in the region and they are currently offering discounts over 12% below the retail price for vehicles. Peugeot (PEUGY) has offered discounts of up to 30%. Many automakers are cutting jobs and closing plants; improvement in the region isn't expected until 2014. Peugeot expects the European car market do contract by 8% by 2013.
A current suit between creditors and hedge funds regarding GM's bankruptcy claim in 2009 could cost the automaker over $900 million if the creditors win out. If GM does absorb the liabilities regarding the lock-up dispute, it could set precedent for additional claims and its balance sheet and shareholders will be negatively impacted.
GM also recently had to recall over 420,000 vehicles, including Saturn models from 2007 to 2010 and Malibu models from 2008 to 2010 that have faulty transmission shift cables. The faulty cables could cause vehicles in park to disengage and roll to collisions when unattended. GM is also raising its prices in India alongside other major automakers due to higher input and freight costs alongside currency fluctuations. These are all scenario that create near term headwinds for GM and are currently keeping its price from appreciating in the market.
GM recently developed a spot-welding technique that allows aluminum to replace steel in certain aspects of production to help improve fuel economy in the near future. There are also reports that both Ford and GM are working together to develop nine and ten speed transmission in order to improve fuel economy. GM also recently opened a proving ground in China that will allow it to test 67 different driving conditions and up to 140 vehicles at a time.
The near term is dismal, but GM will prosper long-term as it mitigates its exposure in Europe and capitalizes on its market share in Asia.