GM shares find mar­ket mojo

There’s re­al­iza­tion that ‘New GM’ may be real as they re­gain cred­i­bil­ity

The Detroit News - - Front Page -

Wall Street’s neg­a­tive tide on Gen­eral Mo­tors Co. fi­nally may be turn­ing. For most of the eight years since Detroit’s No. 1 au­tomaker emerged from fed­er­ally in­duced bankruptcy, shares in GM traded in a nar­row range bound­ing its 2010 ini­tial pub­lic of­fer­ing price of $33. De­spite sev­eral years of record prof­itabil­ity, they opened this year at $35.99.

Mov­ing that price higher — by re­gain­ing cred­i­bil­ity with wary in­vestors and mak­ing smart bets on the mo­bil­ity fu­ture — is a cor­ner­stone of Chair­man Mary Barra’s push to make GM the in­dus­try’s most valu­able au­tomaker. The tar­get re­mains, math­e­mat­i­cally speak­ing, far off.

Still, GM is start­ing to get credit for three things, judg­ing by a run-up in its shares this year that crosstown ri­val Ford Mo­tor Co. has yet to see: a con­tin­u­ing re­struc­tur­ing fo­cused on build­ing longterm share­holder value, and ex­it­ing low­mar­gin busi­nesses that con­sume cap­i­tal and de­liver mea­ger prof­its, if any.

And, third, a fast-de­vel­op­ing strat­egy to de­liver elec­tric self-driv­ing ve­hi­cles and mo­bil­ity ser­vices to the world’s lead­ing mar­kets (China and the United States) that may be a smarter bet — and may hit those mar­kets sooner — than many of GM’s ri­vals, in­clud­ing Sil­i­con Val­ley dar­ling Tesla Inc.

“We con­tinue to be sur­prised by the per­for­mance of GM’s au­ton­o­mous ve­hi­cle unit,” UBS an­a­lyst Colin Lan­gan wrote this week in a note to clients, pre­dict­ing GM shares are on track to hit $50. “It’s dou­bling its AV fleet and ex­pects to ac­cu­mu­late more than 1 mil­lion miles

per month by 2018, giv­ing them a com­pet­i­tive edge.”

The re­al­iza­tion that the so­called “New GM” ac­tu­ally may be for real is start­ing to dawn on an­a­lysts and in­vestors paid to be skep­ti­cal, to ask hard ques­tions and to be smart. GM shares are up 25 per­cent so far this year, clos­ing Thurs­day at $44.89, and Deutsche Bank pre­dicts shares could soon hit $51 apiece.

Mak­ing hard calls helps. On Thurs­day, GM idled pro­duc­tion of a car plant be­cause de­mand for the sedans it builds at Detroit-Ham­tramck As­sem­bly is plum­met­ing amid strong sales for pick­ups and SUVs. That’s nuts-and-bolts recog­ni­tion that com­par­a­tively low gas prices and ex­panded of­fer­ings in trucks and SUVs are fun­da­men­tally re­shap­ing the U.S. mar­ket.

GM is break­ing with its beall-things-to-all-peo­ple past. It bolted Rus­sia, a mar­ket it care­fully cul­ti­vated in the late 1990s and early 2000s; ended pro­duc­tion in Aus­tralia, left South Africa and ex­ited In­dia, on track to be the world’s No. 2 mar­ket; sold its Euro­pean op­er­a­tions, in­clud­ing its Opel and Vaux­hall brands, to PSA Groupe SA of France.

Its rein­vest­ment in Cadil­lac, cou­pled with the move to a new head­quar­ters in New York’s SoHo neigh­bor­hood, ef­fec­tively cre­ates a plat­form to show­case self-driv­ing tech­nolo­gies on pricier mod­els its cus­tomers could af­ford. It also po­si­tions the lux­ury brand for a par­tial spin-off that could be equal parts pre­mium auto and au­ton­o­mous ve­hi­cle play.

GM’s “shared mo­bil­ity” strat­egy, ex­em­pli­fied by its Maven car-shar­ing busi­ness and its stake in Lyft Tech­nolo­gies Inc., con­tin­ues to make progress. Its OnS­tar sys­tem al­ready is con­nected to 12 mil­lion ve­hi­cles. And its in­vest­ment in Cruise Au­to­ma­tion, a self-driv­ing start-up, is ac­cel­er­at­ing its bid to be first to mar­ket with au­ton­o­mous ve­hi­cles GM builds it­self.

And the au­tomaker’s North Amer­i­can body-on-frame SUV busi­ness, chiefly its Sub­ur­ban, Ta­hoe and Yukon, cou­pled with its full-size pickup busi­ness, ac­counts for $33 per share of GM’s mar­ket value, Mor­gan Stan­ley said in a re­cent parts” eval­u­a­tion.

Add Barra & Co.’s bias for grow­ing prof­itabil­ity over defending mar­ket share — a re­ver­sal of the Old GM value sys­tem — and in­vestors are be­gin­ning to see a com­pany that could be far more ca­pa­ble of cre­at­ing value than com­peti­tors con­trolled by in­dus­trial fam­i­lies (think Ford, Fiat Chrysler’s Agnel­lis or BMW’s Quandts) or govern­ment (Volk­swa­gen and Ger­many’s state of Lower Sax­ony).

“We be­lieve GM’s share­holder struc­ture (its lack of a govern­ment, fam­ily or strate­gic block­ing mi­nor­ity) is unique among the global auto in­dus­try and makes the topic of strate­gic al­ter­na­tives a po­ten­tially more rel­e­vant con­sid­er­a­tion for man­age­ment or the board,” Mor­gan Stan­ley wrote last month.

More, it’s a com­pany less bur­dened by its his­tor­i­cal an­chors and more mo­ti­vated by the huge, costly mis­takes of its past. And driven by the need to prove some­thing — to com­peti­tors, to skep­tics and to it­self.

“sum-of-the- Daniel.Howes@de­troit­news.com

(313) 222-2106 Daniel Howes’ col­umn runs Tues­days, Thurs­days and Fri­days.

Fol­low him on Twit­ter @DanielHowes_TDN, lis­ten to his Satur­day pod­casts, or catch him 3 and 10 p.m. Thurs­days on Michi­gan

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DANIEL HOWES

Daniel Mears / Detroit News

GM shares are up 25 per­cent so far this year, clos­ing Thurs­day at $44.89, and Deutsche Bank pre­dicts shares could soon hit $51 apiece.

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