General Motors (NYSE:GM) is at something of a crossroads. On the one hand, GM has come a long way since the bad old days: It has minimal debt, over $30 billion in cash, and a rapidly improving product line.
Yet big problems remain. Many of its vehicles still lag competitors. It's burning huge sums in Europe. Its margins are dwarfed by those of its biggest regional rivals – Ford (NYSE:F) in the U.S., Volkswagen (NASDAQOTH:VLKAY) in China.
Is GM's stock a buy, or something to avoid? I created a premium report on GM to help investors understand if GM is likely to follow Ford and return to glory – or crash and burn again under the weight of its long-standing problems.
Below is an excerpt from the report, laying out 3 areas that anyone investing in GM must watch. We hope you enjoy it.
An area that GM investors must watch
GM's recovery is still an unfolding story. While there are likely to be important developments on many fronts in the coming months and years, anyone considering an investment in GM would be well-advised to pay close attention to three areas in particular, including this one: Europe.
Why GM investors must watch Europe
Like most automakers doing business in the region, GM has been posting significant losses on its European operations — over $15 billion since 1999. The industry's problem is structural: Too many auto factories, not enough auto sales. This mismatch has been exacerbated by difficult economic conditions in many European nations, which have put significant downward pressure on new car sales. That in turn has led many automakers to discount heavily, eroding margins.
GM's European subsidiary, Opel, is a seriously ill company. In many ways, Opel's problems resemble those of pre-bankruptcy GM: too much production capacity, too-rich deals with labor unions, and eroding market share.
Reducing fixed costs by closing factories would do much to improve Opel's prospects, just as capacity reductions were key in turning around GM's North American operation. But labor-friendly rules in Western European countries such as Germany and France limit GM's ability to close plants. A solution that involves closing one or more factories could take several years to implement, with GM accruing significant losses in the interim.
There have been hints that a creative solution could emerge, possibly involving French automaker PSA Peugeot Citroen (NASDAQOTH:PUGOY), with which GM has a parts-sharing alliance. Watch this situation closely.
Looking for more guidance?
That was just a sample of The Motley Fool's new premium report on GM. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.
Fool contributor John Rosevear owns shares of Ford and General Motors Company. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.