‘New GM’ turns corner to head in the right direction

SINCE the thenGeneral Motors president Charles Wilson first said so in 1953, the proclamation that “what is good for America is good for GM and vice versa” has been held out as the last word in corporate arrogance. The comment became a fine stick with which to beat the Yankee ‘military/industrial complex’, but was always unfair to Wilson because its use was so seriously out of context.

At the time the GM boss was being publicly interviewed for the job of US defence secretary and the interviewer asked if, when in charge of the department, he would ever make decisions adverse to GM? He replied that the interests of the US would come first but ‘for years I always thought that what was good for America’ etc. Any corporate arrogance at the famous corporation disappeared abruptly five decades later when it went bust, a fate that wasn’t a complete surprise to insiders like the former CEO of GM in Ireland, Arnold O’Byrne, whose memoir ‘Shenanigans’ had many revealing insights into how things got done at GM.

A ‘new GM’ was formed seven years ago after acquiring most of the assets (and some liabilities) of old GM and floating on the NYSE. Its rebirth cost the US taxpayer $10bn (€8.5bn). Today the reborn company has been making waves with sales last year of a hefty $166bn (€141bn), pretax profits of a significant $9.8bn (€8.3bn) and a worldwide staff numbering 180,000, which excludes European employees. Investors, however, have not found the revived GM especially exciting until recently.

Lack of attention in solving faulty vehicles resulted in the recall of millions of cars. There have been other product investigations along with a major fine by the US authorities. An unsettling management shake-up is another reason why investors have chosen to give GM shares a wide berth. Investors were a bit more pleased when they saw the group exiting its loss-making European business.

It has opted to sell its Opel and Vauxhall business to Peugeot for $1.4bn (€1.2bn). It will also receive an extra $950m (€806m) for its European finance operation from both Peugeot and BNP Paribas bank. The deal allows GM to avoid concerns over Brexit and diesel emissions problems and concentrate instead on the profitable Chinese and US markets.

In China, GM uses the multi-brand strategy led by Buick, Cadillac and its local brand Baojun, which saw it sell four million vehicles last year. The company is very familiar with the statecontrolled market, given that it has 20 years’ experience in China and several joint venture partnerships with companies close to the Chinese government. Air pollution is a major concern to the Chinese today and is driving GM to accelerate the introduction of a new range of electric and hybrid cars. Of some concern is that while the overall Chinese industry increased 13pc last year, GM’s market share of 14pc declined. Some experts would not be surprised if Chinese-made GM cars and trucks eventually go on sale in Europe.

The company’s most profitable market is the US.

Last year it shifted 1.7 million cars and 1.3 million trucks, for total sales of $119bn (€101bn). In the last few years GM has reduced its dependence on low-margin fleet sales while at the same time increasing both margins and market share. This has been driven by the success of its SUVs and truck sales. A potential high-profit business for the company is carsharing. A city based service, it rents cars by the hour.

GM’s revenue at $166bn (€141bn) increased by 10pc in the last three years. However, its pretax profits at $9.8bn (€8.3bn) have doubled in the same period. Its big share buyback programme ($2.5bn) last year helped the group double its earnings per share in the last two years. Analysts expect its European disposals should support further share buybacks and increase its dividends. GM shares have been erratic in the last few years and today trade at $45.25 (€38.39), just below its all-time high of $46. They are also on a low earnings multiple of seven. The new auto era of driverless and electric cars should be kind to GM and the shares are worth a punt.

Today the reborn company has been making waves