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Why Did General Motors Drop?

ValueAnalyst profile picture


  • General Motors stock has dropped by nearly 20% in recent months.
  • This article discusses several items that may have led to the precipitous decline.
  • The dividend is safe, for now, but investors should take a closer look.

On October 16, I published Should You Sell GM? in which I rated the company Sell. Since then, General Motors (NYSE:GM) stock has reversed all of its nearly 25% increase in September and October of last year:

What Is Happening?

There are several key reasons why the stock has recently underperformed:

  1. Autonomous driving developments;
  2. Institutional sales;
  3. Steel and aluminum tariffs;
  4. Interest rates; and
  5. Company-specific news.

Let's review these items.

Autonomous Driving

In a previous article, I illustrated how the surge in GM's stock had coincided with a series of positive news and analyst commentary on GM's "lead" in autonomous driving, following which I explained why GM may not in fact have a lead in the race to a solution that is sustainable and profitable in the longer term.

Subsequently on February 19, I explained how Tesla's (TSLA) approach to autonomous driving differs from those of others including General Motors, and included Elon's Musk's key comment during Tesla's most recent earnings call:

They're going to have a whole bunch of expensive equipment, most of which makes the car expensive, ugly and unnecessary. And I think they will find themselves at a competitive disadvantage.

I recommend that readers review the "hardware heavy" vs. "hardware light" comparison illustrated in that article, as market participants may now be shifting their focus from "who will get to full autonomy first?" to "who will create a profitable business model sustainable in the longer term?"

Institutional Sales

Recent filings show that two-thirds of the company's top 15 institutional investors, including Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B), have recently lowered their respective positions in General Motors:

Source: NASDAQ

As I always say, for every seller, there is a buyer, but a net sale from top investors to the extent illustrated above should at least be pointed

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This article was written by

ValueAnalyst profile picture
You'll never see me write a long bio listing all of my credentials and degrees or refer to myself in the third person. I love discussing ideas and I appreciate it when people can play devil's advocate without resorting to personal attacks. In short, I employ a long-only, long-horizon, focused value style, guided by thorough bottom-up research and backed by years of accounting and finance experience. When people ask me "what do you do?" I assume they mean for fun.

Analyst’s Disclosure: I am/we are long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (44)

#CloudsOFLie profile picture
I sold GM around 45 and just picked up my new shares at 37 and change...not bad huh
#CloudsOFLie profile picture
GM's dividend was around 5%+ when i first bought it...not sure why 4% wouldn't be safe...

Also they have a PE under 7
Flex68 profile picture
"This article discusses several items that may have led to the precipitous decline.

On October 16, I published Should You Sell GM? in which I rated the company Sell. Since then, General Motors (GM) stock has reversed all of its nearly 25% increase in September and October of last year"

So, ValueAnalyst......take out your 'fear-mongering' (i.e., "precipitous decline" of "nearly 20%"), and you're saying the stock is still up by more than 5% from August '17 levels.....

During a seasonal downturn period, that is fast coming to an end......

And rating the company's generous 4+% dividend as "safe" due to it being well-covered via positive cash flow.....

Yeah, I'll take that !
well at least the author is no longer insisting gm is cash flow negative.
Go to the Nasdaq.com site and look up GM. Then click on institutional holdings. This shows net activity for Q4:

Increased positions 89,346,401 shares
Decreased positions 104,287,628 shares
Held positions( (no change) 850,268,555 shares
Total Institutional shares held 1,043,902,584

Net for the quarter, Institutions sold about 15 million shares, with 10 million being that of Berkshire/Warren Buffet, who still owns 50 million shares. He sold 16.6%. Aside from Berkshire, net sales activity on a float of 1.4 billion outstanding shares, only 5 million shares net were sold by institutions! This activity is not meaningful.

GM had a good run in Q4, and we should expect some holders to take some profits.
How does the sale by the pension fund "dilute" current shareholders? Total number of outstanding shares doesn't rise at all. Is GM still cash flow negative?
William777 profile picture
Dear Author,

You are not focused on Value. You need to change your name. As a value stock GM is awesome. P/E of 6. ROE and Yield are great. The future is so bright I hafta wear shades...
ValueAnalyst profile picture
Ok. Don't forget to wear your shades while watching P/E surge when E plunges later this year.
ValueAnalyst, Marketplace Contributor
Comments (4955) |+ Follow |Send Message |Mute

Author’s reply » Ok. Don't forget to wear your shades while watching P/E surge when E plunges later this year.
Is that before or after Tesla joins the S&P 500?
#CloudsOFLie profile picture
They have been talking about plunging E for years now...yet forward PE is even lower...
RickJensen profile picture
How quickly the gm bulls have gone under cover when it comes to the share price. The price jumped because Mary and a bunch of analysts got together and pumped it up based on "promises". That only fools people for so long.

Results matter, promises broken are remembered. Remember Mary said gm would have AV out there in quarters, not years like everyone else. The clock is ticking on the tax breaks and the BK advantage, the AV promise was really a bad idea.

They are still building lead sleds for PUs. They have had great results with SUVs and Crossovers. But they are losing out on PUs and F is coming with one heck of a model with the new Navigator. (Not to mention the Ranger).

Both F and gm really have to main markets the US and China. But now gm hasn't really got any secondary markets, F does, and when expansion comes, gm will be exporting/importing stale cars and not be in the neighborhood selling fresh bread.
You conveniently did not mention that in the second half of 2018 GM is introducing a complete redesign of their full size pickup trucks for their Chevy and GMC brands. The full size pickup truck is critical for North American vehicle sales.
RickJensen profile picture
"conveniently did not mention"
No, it just doesn't affect the point, it hasn't happened and there in no way to judge something that ain't there. (Unlike both the existing Navigator and Ranger already in place)

We shall see. Just like gm AVs that will be ready in "quarters and not years". We are in our 2nd of 3 quarters.
I guess you missed the Cadillac CT6 commercial on TV. Cadillac has a highway / freeway AV now.
IqbNaf profile picture
Since the cost impact of tariff would be felt by all car companies, they may go for an increase in price which they are doing constantly by bringing in new models.The car is a necessity for most and as such the sale would not decrease, The take home pay has been on rise and so do the population. I am long on GM.
"Nonetheless, rising costs are never a good thing in an industry with razor-thin profit margins."

First time that we agree on something ValueAnalyst. Yet, you are long Tesla....
I bought more GM in the selloff with a 3-5 year horizon GM is absurdly cheap. Their buyback and dividend are going to continue to deliver for shareholders. In addition GM is a much more forward looking company than F and I wouldn’t even invest my enemies money in TSLA.
ValueAnalyst profile picture
How do you explain the wave of sales from top institutional investors?
"How do you explain the wave of sales from top institutional investors?"

OK, look down the tube from the other end - in turn, how do you explain the wave of prior purchases by top institutional investors?

The reasons for their purchases remain largely intact. Purchases and sales will fluctuate, especially when much of the basis for the price increase in Sept/Oct was speculation regarding GM's work in autonomous driving, and I've seen nothing to change my views on GM's prospective lead in that field.

I say "prospective" because developments in that field are rapid, generally confidential/secret, and speculative.

Betting on a company's ability to develop, and then bring to market, and then make a significant profit on, cutting edge technology, is simply that - a bet.

I'm betting that GM will not only do well, but do significantly better than competitors. They appear to have the technology, the manufacturing infrastructure, the international presence (China), and a persuasive, potentially profitable, business model.

It's a good bet. Between now and 2019, when GM will deploy AV/EV ride service at volume (who else is doing that?), the share price will fluctuate, as various investors place their bets.


I look forward to having a similar discussion a year from now....
almost all of the big auto companies stock are absurdly cheap , auto stocks have been a horrible trade for several years
For Value, GM Beats Tesla by a Mile

stuck profile picture
More like 320 miles. Or when ever the charge runs out.

Tesla is running on fumes.
More than fumes. Wait till the debt is due !
D.Graves profile picture
I have been on the comment sections on some Tesla articles, those investors fight anything negative said or implied.

Even owners that i interact with thru work, are all hyped up on these vehicles, but they certainly have money and can afford one, i find it almost appears to be either a prestige thing, or they are truly green.

I must admit i have seen these vehicles apart, they do have a nice simple design, not over engineered, replacement prices for parts are priced very reasonable, not like other high end vehicles, getting the parts quickly, well that's another story.

Long GM and Ford.
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