General Motors (GM) is parting with some cash, to repurchase $5 billion worth of shares and satisfy a few activist investors. But its stock is still underperforming, reflecting investor doubt about the huge automaker’s future.
Investor Harry Wilson—acting as a sort of consigliore for four hedge funds, including David Tepper’s Appaloosa Management and Kyle Bass’s Hayman Capital—had pressed GM to tap its $37 billion of cash and liquid securities to repurchase $8 billion worth of shares. GM countered with a $5 billion buyback. That seems to have satisfied Wilson, who abandoned his plan to seek a GM board seat.
GM shares bounced about 3% on news of the buyback, but the company remains a serial underperformer, as Aaron Task and I discuss in the video above. After its 2009 bankruptcy, GM went public in November 2010 at $33 a share. It’s up a mere 14% since then. The S&P 500 has risen 73% during the same time. GM has also trailed other automakers, as the following 12-month stock chart shows. (GM is red, Ford (F) is blue, Toyota (TM) is purple and Fiat Chrysler (FCAU) is pink.)
Fiat Chrysler has been the runaway winner during the last year, with sharp improvements at its Jeep brand and other divisions, including Dodge, Chrysler and Fiat, doing better. Toyota, the world’s top-selling automaker, is benefiting from strong U.S. sales and operational strength elsewhere. Ford has struggled during the last year, due partly to the slow launch of its new F-150 pickup. But Ford, of course, survived the 2008-09 recession without bankruptcy or a bailout, and is up more than 900% from its recessionary low of $1.58.
GM seems to face three main concerns:
The 2014 recall scandal still isn’t over. The worst of the recalls seem to be past, but GM still faces legal costs and possible federal prosecution and/or fines. GM has allocated about $7 billion for recall-related costs, which seems to be enough, barring unforeseen problems. But given that the whole fiasco was unforeseen, investors are leery of any further surprises.
Some car buyers won’t consider GM. The automaker still bears the stigma of “Government Motors,” on account of the $49.5 billion bailout it received in 2009. The U.S. Treasury sold the last of the GM shares it obtained in exchange for the bailout at the end of 2013. Taxpayers lost $9.3 billion on the deal.
The car business is ruthlessly competitive. GM’s vehicles earn high marks these days, and are vastly improved compared with the mediocremobiles it was churning out prior to bankruptcy. Even so, its market share—18.4% in February—will probably never return to the 20%-plus range the automaker once held. If anything, the U.S. car industry will become even tougher, with Chinese and Indian automakers probably arriving before long and upstarts like Tesla representing another threat.
GM may still reward investors. Analysts polled by S&P Capital IQ rate the stock an outperform, with a 12-month price target of $42. It would help if the near future were free of unexpected repairs.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.
