Must-know: Omega Advisors exits position in General Motors

Market Realist

Overview: Omega Advisors discloses new positions in 1Q14 (Part 6 of 6)

(Continued from Part 5)

Omega Advisors and General Motors

Leon G. Cooperman’s Omega Advisors added new positions in Dollar General (DG), ADT Corp. (ADT), and Time Warner Cable (TWC). Top positions sold were T-Mobile U.S. (TMUS) and General Motors (GM).

Omega Advisors disposed a 0.61% position in General Motors Company (GM) in 1Q14. Last month, we reported that Greenlight Capital exited its position in GM while Soros and Berkshire reduced their stakes in the automaker.

GM designs, builds, and sells cars, crossovers, and trucks. It’s the largest U.S.-based automobile manufacturer and the second largest automobile manufacturer globally. It operates via four automotive segments: GM North America (GMNA), GM Europe (GME), GM International Operations (GMIO), and GM South America (GMSA). Its total worldwide retail vehicle sales were 9.7 million for 2013.

General Motors sees profits decline over a product recall

For 1Q14, the Detroit automaker missed revenue estimates, but beat on earnings. GM posted $37.4 billion in first quarter revenue—up 1.4% from the same quarter the year before. However, profits plunged 86%, as the company was impacted by a $1.3 billion charge over a major product recall. The company also saw $0.3 billion in restructuring costs.

GM has seen an investigation by U.S. safety regulators, Congress, the U.S. Securities and Exchange Commission (or SEC) ,and the Department of Justice over a massive recall of seven million vehicles worldwide, mainly because of faulty ignition switches that have been linked to at least 13 deaths. GM said in its SEC filing that approximately 2.6 million vehicles were recalled to repair ignition switches that could result in a loss of electrical power under certain circumstances, preventing front airbags from deploying in the event of a crash. The recall was also to fix ignition lock cylinders that may allow removal of the ignition key while the engine is running, leading to possible rollaway or crash. It recently recalled more than 50,000 luxury SUVs to fix a faulty software error that can lead to an “inaccurate fuel gauge,” news reports noted. The automaker will also pay a $35 million fine as part of an agreement with the National Highway Traffic Safety Administration (or NHTSA). Since the ignition switch recall, GM also announced a number of initiatives aimed at improving the safety of GM vehicles.

GM sees signs of improvement in Europe

In 1Q14, GMNA retail vehicle sales decreased 2% compared to the sales figure from 1Q13. Combined Chevrolet, Buick, and Cadillac passenger car sales increased 2%. Truck sales, which include pickups, vans, and large SUVs, decreased 5%. GM’s losses in Europe widened to $284 million from $152 million in the same quarter last year on restructuring expenses. However, the company said it’s encouraged by improving customer sentiment and economic growth in the United Kingdom and the Eurozone. GM said it expects to achieve breakeven results by mid-decade. The company noted that its European operations continue to show signs of improvement underscored by its first Opel and Vauxhall market share increase in 14 years, in 2013. GM also saw a Venezuela currency devaluation charge of $400 million. Its financial unit, GM Financial, saw revenues go up 103.2%, to $1.1 billion during the quarter.

U.S. auto sales achieve 13% growth in May

GM said last week that dealers delivered 284,694 vehicles in the U.S. in May—up 13% compared to a year ago, “marking the company’s best May in seven years and its best total sales since August 2008.” Retail sales grew 10% while fleet sales were up 21%. GM expects to increase its total market share year-over-year (or YoY). It noted that “fleet deliveries in May exceeded expectations due to the timing of rental customer deliveries, and May will likely represent the company’s highest fleet volume month of 2014. Last year, June was GM’s highest volume fleet month. As a result, GM expects that June, 2014, year-over-year fleet sales will be down sharply.”

International sales driven by China

Although international operations revenues were down in 1Q14, GM said the company and its joint ventures sold a May record 276,109 vehicles in China. Sales increased 9.2% from the same month last year. For the first five months of 2014 as a whole, GM and its joint ventures sold a record 1,473,484 vehicles in China—an increase of 10.7% YoY. In 1Q14, GM estimated a market share of 15.2% in China and sold 919,000 vehicles—a 12.6% increase over the comparable period last year. GM said its global market share was 11.1% in 1Q14, which is down two-tenths of a point from a year ago.

GM forecasted a modest global industry growth in 2014 driven by the U.S., China, and Europe. Based on this outlook and the introduction of key vehicles globally, the company expects its total earnings, before adjusted earnings before interest, taxes, depreciation, and amortization (or EBIDTA), to modestly improve. GM said it expects that adjusted EBIDTA margins will be similar to last year. Apart from new vehicle launches, GM announced plans to open four additional plants in China through 2015, enabling production of up to five million units annually.

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