Appaloosa Management increases position in General Motors
Overview: Appaloosa Management’s 2Q14 positions (Part 7 of 7)
Appaloosa Management and General Motors
David Tepper’s Appaloosa Management added positions in Mohawk Industries (MHK) and Weatherford International (WFT). It sold positions in Qualcomm Inc. (QCOM) and JPMorgan Chase (JPM). During the quarter, it increased positions in Facebook Inc. (or FB) and General Motors (GM).
Appaloosa Management added to its position in General Motors Co. (GM) last quarter. Currently, it accounts for 6.71%—up from 3.08%—of Appaloosa’s total first quarter portfolio.
Despite the issues related vehicle recalls, the company continued to be a hedge fund favorite. Berkshire Hathaway also increased its position in GM.
General Motors (GM) designs, builds, and sells cars, crossovers, and trucks. It’s the largest U.S.-based automobile manufacturer. It’s the second largest automobile manufacturer in the world. It operates through four automotive segments—GM North America (or GMNA), GM Europe (or GME), GM International Operations (or GMIO), and GM South America (or GMSA). Its total worldwide retail vehicle sales were 9.7 million for 2013.
Profits plunge ~80% due to recall
In 2Q13, GM’s net income fell $1 billion to $200 million. The diluted earnings per share (or EPS) came in at $0.11. This reflected recall-related expenses and special charges. It had an adjusted earnings before interest and taxes (or EBIT) of $1.4 billion. The adjusted EBIT included the impact of $1.2 billion in recall-related costs and $0.2 billion in restructuring costs. Net revenue in 2Q14 was $39.6 billion—compared to $39.1 billion in 2Q13.
The company has been investigated by U.S. safety regulators, Congress, the Securities and Exchange Commission (or SEC), and the Department of Justice. The investigations are because of a massive vehicle recall. Vehicles were recalled because of faulty ignition switches. The faulty switches have been linked to at least 13 deaths.
GM said it announced recalls of ~29 million vehicles. It recorded recall-related charges of ~$2.5 billion in the six months ending June 30, 2014. It also announced that it created a compensation program. The program is related to the faulty ignition switches. It recorded a charge of $400 million in the six months ending June 30, 2014.
GM to curtail production at Russian plant
Recent reports noted that the GM lowered car production at its plant in Russia. A GM spokesperson said that “In view of the current business situation in Russia and the lower sales volumes since the start of the year, we are taking a close look at our plans. As part of this, we are also reviewing the timing of our expansion plans at the GM Auto Plant in St. Petersburg.”
The plant manufactures the Chevrolet Cruze, Opel Astra, and Chevrolet Trailblazer models. In its quarterly filing, GM said that it believes the Chinese market is important for its global growth strategy. GM is employing a multi-brand strategy. The strategy is led by its Buick and Chevrolet brands.
To learn more about investing in GM, read the Market Realist series A must-know investor’s guide to General Motors Company (GM).
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