How could Government Motors have any earnings when they have millions of cars and trucks being recalled?
You’d have to be nuts to go anywhere near GM stock.
One of my professors explained “The Rational Man Theory” of investing to me. Then he said to disregard it because nobody uses it.
GM will be around until the next recession. Then they will collapse again. And given the financial bubble the Fed has been blowing, it will be a hard one.
GM is basically dead to me, both as an investor and a consumer.
Unfortunately, as a taxpayer, I still have to bail out their sorry arse.
Well if Mark is correct, it’s a slam dunk to buy thousands of puts and we’ll all be as rich as Soros and Buffet.
Looking at their cash flow statement for the last 10 quarters they have been operating around 430 billion in cash (average is ($30.015 billion) so the $29 billion isn’t out of line and not near the lowest in that span ($27.0 billion in Jun 13).
The debt issuance is $9B issued and $7 billion repaid.
I usually look at free cash flow which for the quarter was ($1.9) B but the Dec 12 and mar 13 quarters were around the same. 1 quarter does not a trend make.
Here’s DB’s take:
The issue for the stock, however, is that the macro data points are not especially supportive
North American New and Used Vehicle pricing has begun to moderate a bit, even in segments with relatively high capacity utilization (such as pickup trucks). This concern was underscored by the fact that GM experienced a $200 MM yoy decline in contribution margins during the quarter (yoy chg. in price, mix, and content costs), which mitigates confidence in GM’s forecast of improved contribution margins next year. And while GM’s Q3 results remain quite strong in China, we are concerned that slowing Industry growth and macro headwinds may derail GM’s expectations.
Ultimately, upside for GM’s shares is contingent on the company’s shareholders becoming more convinced that free cash flow is sustainable, and being sent their way.
But even in the best case scenario, a free cash flow inflection may be 2 years away. Currently, cash flow is being masked by $1.7 bn of cash recall costs, $1.0 bn of cash restructuring, and $300+ million on litigation. Next year we expect an additional $800+ MM being spent on recalls, $400 MM+ on restructuring, $400-$600 MM likely to be directed at the Victim Fund, $1-$2 bn potentially being consumed by Justice Dept. fines, and $400+ MM potentially being consumed by litigation. If all goes well, GM’s free cash flow generative power ($5-$7 bn/yr) may come through in 2016. But that is quite far for an Auto Investor…especially considering the macroeconomic, regulatory, and technology risks that the Industry now faces.
Maybe because they are killing their customers.
Buy the rumor, sell the news.
This all started when they moved the DIMMER switch from the floor to the steering column. Dam Unions.
if recalls were products, GM would be having banner earnings the last couple years.