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  • The Daily Musing: GM, Its Bailout, The Aftershock 1 comment
    May 18, 2010 12:43 PM | about stocks: GMA, GM, F, DDAIF
    This is a free preview of a mini-story I send to my members each day on Phil's Stock World. I send this through alerts to my members. Check out today's story and alerts...

    As some of you may have read a couple weeks ago, General Motors paid back their direct loans they received from the USA and Canada with payments of $4.7 billion and $1.1 billion going to each nation, respectively. It appeared to be the first step in the right direction for a company that has struggled significantly over the past decade. The GM crisis of 2009 was catastrophic and required not only these direct loans, but the government taking a 75% stake in the company to keep it afloat - even though the government is predicted to lose billions on the deal.

    Yet, even more recently, as of yesterday, GM announced that the company made a profit for the first quarter with some exciting numbers for future growth. The company made over $4 billion in revenue and actually maintained some free cash flow just above $1 billion. This is terrific news for any company because free cash flow is extremely important to new investments, of which GM needs a lot. Yet, the profit is the first right step. Isn’t it? Is GM actually coming back? What? GM MADE $1.2 BILLION???!??!?!

    When I saw that GM had made a profit I was confused…shocked…just sort of like what this…I’m confused. Yet, the company has seen growth in its Asian and South American markets. They have cut off some of the non-profitable parts of the company (Saturn, Pontiac, and Hummer), and they have reinvested into the primo-American lines (Chevy, GM, and Buick). They actually have identified the areas of their business that make money and are investing into them…its amazing. 

    The company, though, still has a number of issues. For one, they still have the infamous Opel line, which lost $500 million in the first quarter. The company says they are cutting its capacity by 20%, but as Joe Phillippi, president of AutoTrends Consulting comments, "Fixing Opel is like catching a falling knife. You’re trying to restructure a company faced with a market that is soft and headed for turmoil." Further, while the company has redefined its image, especially with Buick. We have to wonder are they selling cars that people are going to want?

    As Ed Whitacre comments, "we…buil(t) the fuel-efficient Chevy Cruze, which has been a hit in every region where it has been introduced. An eco version of the Cruze, with a 40 miles-per-gallon highway rating, will customers the fuel economy of a hybrid without the price tag."

    The Cruze has been a hit. It will be offered across all markets. It is supposed to be sheik enough for Europe and Asia, which means it will be high quality in the states. Edmunds and US News have wrote pretty rave reviews about it. The company is introducing the Volt. They have reinvented the LaCrosse and Lucerne on the Buick line. The Lacrosse received rave reviews, has been a top seller, and is actually, according to Insideline.com, a better deal than a Lexus ES350. 

    The company has abandoned the SUV. They got the message. They have started to redefine themselves, and it looks up for GM. While I personally am an Audi S5 and Aston Martin V12 Vanquish kind of guy, I do see the company working hard to improve their lineup. They have gotten a lot of criticism, but I think that GM is taking the right steps.

    The government agrees. At one point after the $40 billion takeover of 75% of GM’s assets, the CBO predicted that Americans would lose $31 billion on that investment into GM. Their latest numbers have that number down to $8 billion. This is all dependent on an IPO that is predicted to come late this year or next year and old GM bonds. If the company continues to improve at the same rate (and they have to in order to compete), then they I think they have a shot of becoming a name not to be laughed at but taken seriously.

    The key for me is content. The company is improving now, but they have to. In two to three years, are they still improving at this rate. Are they always redefining themselves for the better? The old GM just got content with producing the same cars for years. That cannot happen again.

    What do you think? Do you think GM is back? Do you think GM has what it takes?



    Disclosure: none
    Themes: cars, gm, bailout Stocks: GMA, GM, F, DDAIF
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  • seekingtruth1066
    , contributor
    Comments (1029) | Send Message
     
    The Chevy Cruz will be a hit. Will it outsell the 17,000 Corollas and the 18,000 Civics that are pumped into the market each month? This remains to be seen.
    7 Nov 2010, 07:50 AM Reply Like
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