GENERAL MTRS CO COM (GM)
Some GM bonds became GM common stock when the company emerged out of bankruptcy. We became “involuntary shareholders” of the new GM when some of the GMAC bonds were converted from debt to equity. There is a long bumpy test track to GM’s long-term success. American restructuring has made the company hugely profitable in the U.S. Sales of light trucks are going screamingly well. They build great products. Even the oft-maligned “Volt” if you see one up close, is an exceptional vehicle.
Their European divisions are still a boat anchor. Europe’s financial woes, combined with government problems in idling or closing plants make Opel and Vauxhall more net liabilities over the next few years until Europe can right its economy.
The restructuring has given them a much easier way of funding $32B in pension obligations, though and they’ve moved more than $6.4B into their voluntary funding. Share appreciation will help reduce their debt load with VEBA, the stakeholders with the pensions, as they sell off their shares to pay the costs of retirees.
The government stake in GM needs to be bought back from the Treasury. They invested a 7% stake in Peugeot as part of a cost-restructuring of parts supply for their European divisions, which we understand. Confidence will be boosted when they retire the Treasury’s huge stake in GM. That’s a political football waiting for after the election, to avoid politicizing GM and dragging the damaging “Government Motors” mantra in to cover Mitt Romney’s “let them die” remarks. Even though you would think it would be good for Mr. Obama to say that GM was repaying the Treasury, anything negative, as we’ve seen outweighs its intellectual positives with the minions of Rush.
The long-term prospects, though, for GM, which is doing very well at least with American consumers, look bright in a few years. Warren Buffet’s investment of 10M shares for Berkshire Hathaway (BRK.B) is a good sign, as its’ not cheerleading; it’s a sound analysis of GM’s bottom line projected forward. GM Financial will slowly rebuild their mighty vehicle financing division. Right now shares are trading at their historic (albeit short history) lows. We’re not taking a huge position, but we will bring it up a bit. BUY.
The Genius Guide to Value Investing 