2 Underappreciated Auto Stocks

In this episode of Industry Focus: Energy, host Nick Sciple is joined by Motley Fool contributor John Rosevear, who breaks down two underappreciated automotive stocks: Magna International (MGA 0.93%) and General Motors (GM 4.37%). Find out how they have performed, what advantages they have, and more.

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This video was recorded on January 14, 2021.

Nick Sciple: Welcome to Industry Focus. I am Nick Sciple. 2020 was the year of the electric vehicle upstart, with companies like Lordstown Motors, XL Fleet, Canoe, Nikola, Highly, and Fisker, and more, all coming public via SPACs, as well as several Chinese companies coming public via traditional IPO. Tesla surged 743% in 2020 and now holds in a $800 billion market cap. But this week, though, we're looking elsewhere in the auto industry, Industry Focus listener Al wrote us into [email protected] to ask if we could do a deep dive on some more under-followed areas of the auto industry, and that's just what we're going to do this week. This week, auto specialist John Rosevear, joins the show to tell us about two of these underappreciated parts of the auto market. John, welcome back on the podcast.

John Rosevear: Great to be here, Nick, as always.

Sciple: Yeah, it's always exciting news in the auto industry, lots to talk about this week. One thing I just wanted to mention off the top before we get into the show, I got some listeners through email saying, "Hey, why didn't you talk about the college football game last week?" Some folks like it when me and Jason talk about college football a little bit, though I'd talk about Alabama winning the national championship. This week, I was just telling folks on our Fool Live recording who were watching us live, available to all Motley Fool members, about how I have been a big college football fan and I've been watching college football my whole life, and obviously, that's entertaining to me, it's something I just do for fun. But as an investor, there's always some lessons that we can get from folks who are great at what they do in their industry and I think Nick Saban is one of these folks that a lot of folks would say is the best to ever do college football coaching. I think some of the things about his process will be super useful for investors.

One of the things he always talks about it is focus on the process. Don't focus on, all right, I'm going out to win a national championship this year. I'm going to double my stock market portfolio or what have you. What are the things that I need to do to have a successful team? For my quarterback, what are the skills he needs to have, the things that he needs to focus on, the exercises he needs to do to be successful? We can do those same things as an investor, not I want to have these results, but what are the things I need to do every day to make sure I'm on the right path? Then each time you make a decision, you look back and evaluate that and see where you can improve. A lot of lessons we can learn from college football is [...] talk about that a little bit on the show. But to get into our main topic, John, I've scratched my college football itch, so we won't get any email saying I didn't talk about it.

Rosevear: I went to a hockey school, so I have nothing to contribute. [laughs]

Sciple: There you go. But yeah, so much we can learn just from our everyday life if we pay attention, as investors, people that are trying to get better every day at what they do, we can do that as well. But moving on to these under-followed areas of the auto industry. Lots to talk about there, John. What's the first company and sector you want to tell us about today?

Rosevear: Well, I want to back up a little bit and say, we're going to be talking about a couple of old school auto companies today. One big supplier on one automaker, because there's been so much interest in electric vehicles. Nick has already talked about the run that Tesla had last year. NIO, which sold 43,0000 vehicles last year, Chinese electric vehicle maker, competes with Tesla in China, has a market cap of, at least as of this morning, $95 billion, which is an awful lot for an auto company. One of the things we've been hearing from Fools is, is there any value left in the electric vehicle market? Where we've been looking is at the traditional auto companies that are likely to thrive and expand their bottom lines through this transition to electric connected autonomous vehicles. One of the companies I want to look at it today, because it's been making some intriguing, aggressive moves, is a company called Magna International. This is a Canadian company, U.S. traded. The stock ticker is MGA, New York Stock Exchange. This is the third largest auto industry supplier in the world. They sell all kinds of parts to automakers. Most of the world's automakers are among their clients. They've been in this business a long time. They're really good at it. Magna also does what we call contract manufacturing, where if you have a car and you don't have the factory space to build it, they have factories in Europe through their subsidiary, Magna Steyr, S-T-E-Y-R, that can build vehicles. They've done vehicles for Porsche, they've done them for Jaguar, they've done them for Mercedes [Daimler], and a bunch of other automakers, not just in Europe over the years. Among the vehicles they build is the Jaguar I-PACE, the electric crossover that came out to rave reviews a couple of years ago, that was Jaguar Land Rover's first electric vehicle. They have made a big push into this kind of thing. They want to expand that business. They're also working with a number of efforts to develop self-driving autonomous vehicles, advanced driver assist technology, among other things, they're supplying hardware infrastructure for that, the mess of cables that connects everything up, which is horrifically complicated in a car with a self-driving system or an advanced driver assist system. I cite that as just one example to note that they've staked out a number of places in this emerging field where they are going to be a dominant player, if not the dominant player. Their connections to all the world's big automakers, as well as some of the up-and-coming automakers, will help them as well.

Fisker, which is one of the start-ups that went public via a SPAC last year, based in California, former Aston Martin Chief designer has designed an electric crossover SUV that they think they can sell for around $40,000. Magna is going to build it. This is an important piece of business. They've got other negotiations under way with companies that want to enter this space, to be what you might call the Foxconn of cars. [laughs] This is a huge growth opportunity for them. They have the demonstrated expertise and facilities to do it. If you're Fisker, you can spend $1-$2 billion in a year to two years building your own factory, or you can hire Magna and they will do a lot of this for you. You will have to pay for some of the costs, of course, but it won't be as much. You will give up some margin to do that, but to get up and going, for an early stage company, this is a tremendous thing that they can provide.

Sciple: Yeah, John, you talked about some of this contract manufacturing opportunity. Just wanted to backup a little bit on just the rules suppliers make, how Magna fits in today, and where things are going in the future. You talked about how they are one of the biggest auto suppliers in the world. Can you talk about the size of the supplier network, why it exists, and why it still needs to exist in the same way in the age of electric vehicles, this transition?

Rosevear: Car makers can't make every part themselves. That business model went out the window decades ago. It's much more efficient to buy seats from a supplier that makes seats. Lear is a company that does that. They supply many automakers with seats. They are very good at making seats, which is a little bit of a secret art to making a seat that's comfortable to sit in for hours, that is safe, that incorporates the power features that people want now with motors that will last the life of a car, and so on and so forth. There are companies that have mastered some of these esoteric areas and it just makes sense for a company like General Motors to buy seats, for instance, from an outside supplier. That's true of lots of tiny little bits and pieces that you will never think of in the life of your vehicle, as well as some subsystems and so forth that are in the car, Magna does a lot of that.

They do body parts, they do powertrain parts for both internal combustion and electric. They do as I said, active driver assist systems and subsystems that can go into, for instance, a General Motors branded driver assist system may be built partly with Magna hardware and software. They do mirrors. If your rearview mirror does anything more than reflect light, it was probably built by either Gentex, which is a mirror specialist, or Magna, in fact. They do lighting, all this stuff that is not economical necessarily for an automaker to develop an engineering group and a plant to focus on when they can have Magna do it. These companies like Magna, some of their other competitors would be companies like Robert Bosch. Just looking at the list, there's a giant Japanese company called Denso that supplies most of the Japanese automakers. [...], Continental, etc., a lot of these companies you may or may not have heard of over the years. Lear, as we talked about, is a seating specialist. They worked hand-in-hand as automakers develop new vehicles, OK, we're going to have you make these parts. Here is what we want, we'll do test batches. The automaker will say we expect to sell 50,000 of these a year for five years. So, they will scale up production to match that and so forth. Just countless conversations. A company like Magna is an automaker's partner in all kinds of things. That's what to think of them. As for size, Magna does around $40 billion in sales a year, working with most of the automakers. It's not General Motors size, but this is a big company. Like I said, it's one of the suppliers that stands out for its investments and its existing momentum going into these future technologies that are suddenly not so futuristic.

Sciple: To your point, John. The auto-industry is incredibly large and global, and these are multi-timed to machines with lots of different parts in them. Some things that are very simple can be very complicated to execute on a global basis with a very, very narrow range of variability and all those sorts of things. Sometimes, instead of making all gazillion parts that go into the vehicles, sometimes it can be simpler for the automakers to outsource these to other companies that are super-focused on some of these areas. There's pros and cons to bringing things in-house, but that's the puts and takes there for these companies. You talked about the momentum for Magna, and some of these opportunities, I want to talk about this joint venture they've just announced with LG. How significant is that when it comes to this opportunity in electric vehicles and that sort of thing?

Rosevear: It's another marker they're putting down. It's another area where they can get into. They can work with LG, which is a giant South Korean supplier of batteries that has made inroads into the electric vehicle space. Among their partners are, since we've been talking about General Motors, GM. GM and LG jointly developed the batteries that are in, for instance, GM Chevy Bolt. LG manufacturers and GM own their own chemistry. What Magna can help LG do is package that into their existing automotive relationships, and into any new business where they might, for instance, like Fisker, be helping to build the vehicle. Magna is also working, just while I think of it, with Sony, the consumer electronics giant which is toying with doing its own electric car. This is another situation where Magna can bring in LG to do the battery work for that vehicle, incorporate Sony's electronics special sauce and then do the manufacturing in its own plant in Austria, or elsewhere in Europe. This is an important partnership for them that will help them when they hope for more business from both existing big automakers, as they move more into electric vehicles. Maybe some of the automakers that are a little more behind a company like General Motors, and are trying to catch up, maybe some of the smaller companies, as well as new entrants into this space, companies like Fisker, and some of the other electric vehicle start-ups that we've talked about here in the past.

Sciple: Yeah. You see this partnership with LG and Magna, from LG's perspective, plugging into this auto supply chain relationship, obviously, they want to sell more automotive batteries and those sorts of things. We've seen some of that, these autonomous vehicle makers partnering with traditional OEMs, or you have some battery makers partnering with suppliers. Do you expect we're going to see more and more of this consolidation around some of these new entrants, or folks who are new to providing services in the automotive industry partnering up with these existing players in some type of way?

Rosevear: Absolutely. It makes all the sense in the world. All of these companies have been both partners and rivals at different points. They're used to working together. As new entrants raise funds and want to spend it to make cars, Magna, LG, companies like this, even some of the established automakers who have advanced significantly with these technologies, will be very happy to help for a fee. GM does some of this on its own, in fact. What this can do is help LG open more doors, because Magna can help package its technology in ways that it knows its existing automaker clients will want, as well as when new entrants come to them and say, "Oh, my God, help. We want to build this SUV." [laughs] Magna says, "Okay, we know how to do that. We got your batteries right here from LG. We will show you how to package that and put that in. It comes with the software, the control systems. We've got motors. You can pick from these six motors, four of which might be produced by LG, and here are the performance characteristics and so on and so forth." This is how these meetings go. It's more on Magna's menu. It's more business for LG, because Magna can funnel business its way effectively, serve as almost a distributor for it, and help get its batteries and other products into more cars. We can note that this LG-Magna joint venture is already working with Jaguar Land Rover, as we said before. Magna builds Jaguar I-PACE, and is expected to build, or at least help build emerging Jaguar and Land Rover vehicles. There's an electric sedan coming, although COVID through the schedule off. A year ago, I could have told you when all [laughs] this was coming, and now it's difficult because a lot of plans got thrown up in the air last year. Some companies with big budgets were able to keep on track, but Jaguar Land Rover which is relatively small, not so much. Again, this is something they're going to offer to both established automakers who want to get more into this space, who may be feeling a little bit behind, as well as new entrants. There's going to be plenty of business here over the next few years.

Sciple: We mentioned that LG partnership with Magna, that opportunity, this idea of, hey, maybe they could be the Foxconn of cars. One thing on the other side of the coin though is, maybe Foxconn is going to try to be the Foxconn of cars [laughs]. How big of a threat could they be to what Magna and some of the other suppliers are trying to build?

Rosevear: It's been interesting. This market has certainly gotten Foxconn's attention to backing Hon Hai manufacturing company, known in the West as Foxconn Technology. It is a Taiwanese company that makes the iPhone. They have factories in Taiwan, in Mainland China, and in various other places around the world. Big contract manufacturing for electronics, they are moving more and more into electric vehicles. They recently didn't quite purchase Byton, which is a struggling Chinese EV start-up, but got into a fairly heavy partnership where Foxconn is driving the bus with them, to help build their crossover SUV called the M-Byte and electric upscale crossover SUV that will compete, they hope, with companies like NIO, Xpeng and some of the other companies we've talked about on here as well as Tesla in China.

Then just this past week, they announced a joint venture with Geely, which is one of the biggest traditional Chinese automakers, really, the only big Chinese old-school automaker that isn't or didn't come out of the state-owned business. It was a start-up in the 1980s. This is a company that owns Volvo Cars, they own Lotus Cars, the British sports car specialist, they own Proton, the Malaysian manufacturer, you've probably heard of if you've traveled in those parts of the world; Malaysia, Indonesia. These are all Geely companies. Geely sells a lot of cars under its own brand, and a couple of other brands in China. They are an impressive company and Foxconn is partnering with them to do a joint venture to share expertise and become the Foxconn of cars. This is going to challenge Magna in this space. I personally think there's plenty of room for both of them. This will be more Asia-focused, whereas Magna may be more North America and European-focused in winning these kinds of business, but there will be crossover. Again, there is plenty of room here, but that's another partnership to watch closely if this is something that's of interest to you.

Sciple: Certainly. Just to bring things back around, there's certainly going to be lots of folks trying to compete in this contract manufacturing space and the supplier space, but Magna being someone who already has a lot of these relationships in place, and a lot of shots on goal when it comes to these joint ventures and working with some other partners, should have a significant role in this market going forward. John mentioned earlier some of these valuations in the space. I was looking this morning on CapIQ from S&P, you're looking at if you buy Magna today at 11 times forward price to earnings multiples. When you compare that to some of these incredible price to sales multiples, you're paying for a lot of these companies out here today, very reasonably valued, and certainly in a position to take advantage of some of these opportunities.

Rosevear: Yeah, around 10 times earnings is what you'd expect for an auto company in good times, and we're looking at one with some growth potential. Yeah. This is definitely one place where you should put more attention, and like we said, there is value here.

Sciple: Yeah, so just know that's a forward earnings multiple, if you punch in and you see the thing that gets spread out, usually it's going to be trailing multiple. Obviously this year with COVID and all those sorts of things, lots of disruptions. Obviously, there's puts and takes when you're projecting a forward multiple, but with all those caveats it looks reasonably valued. John, let's talk about the second subsector, second company that you wanted to talk about today that's under followed in the auto space here in 2021.

Rosevear: General Motors is hardly under followed by Wall Street, but I think investors have been overlooking it for a while. That might have just started to change, but I think it's still time to get in here. Why the heck would you buy dumb old General Motors when you could buy Tesla or NIO? The answer is because GM is trading at something at much closer to a traditional automaker valuation. It'll be quite profitable once we get COVID behind us. It was quite profitable before. It actually did quite well last quarter. Again, this is another old-guard company that has already made the investments, has already acquired the technology and expertise to be very competitive as the world transitions to connected autonomous electric vehicles. GM has already got scale in the U.S., they've already got scale in China. They've got a proprietary electric vehicle whole architecture of their own that they call LTM, which is battery technology developed with LG that's a generation ahead of what's in vehicles like the Chevy Bolt. It comes with motors that are optimized.

As we say in the business, it's modular, which means you can build a small car or an SUV on it. It can be two-wheel drive, four-wheel drive, it can have one, two or three motors if you want a high-performance car on it. They can use this and use software to infuse the different characteristics of these vehicles into it and save a lot of cost, and it's all developed. It's all almost ready to go. In fact they are going to start rolling vehicles out on it. The new Hummer EV, which you might have seen some on that's going to come out later this year, is built with Altium, with this new-generation technology and there's much, much more coming. GM has also announced just this week a new brand called Bright Drop, which is how they're going to carry this EV momentum into the commercial vehicle space. They are starting with an EV commercial van, again built on Altium, as well as an electric packaged moving pellet. They developed this working with FedEx, and FedEx found that this electric thing, which goes three miles an hour and can carry up to 200 pounds, really helped their package delivery folks be more efficient, deliver more packages more quickly because they could move stuff to door steps from the truck using this thing much more easily and more safely too. Instead of lifting heavy packages all day, this will help them with that. They are rolling these out. These products, FedEx will be their first customer. They're not just, oh, we made an electric truck, but it's connected and the pallet movers are connected using the Cloud. There is a whole software platform that GM is rolling out with this that allows a fleet operator not just to monitor where everything is, but what needs service, what's breaking down, what has issues, what needs an over-the-air update that we can push using this platform? All this stuff.

This is just one piece of it. More pieces are coming. Cadillac is going to lead the brand among their retail brands into electric vehicles. There's a beautiful Cadillac SUV called the Lyriq, an electric SUV, coming next year. Several more on the way, including one they've talked about quite a bit, mostly with teases enhanced, called Celestiq, C-E-L-E-S-T-I-Q. This is an ultra high-end built-to-order electric Cadillac sedan. They're going to build about six a week, mostly by hand. In Michigan, bespoke, huge choice of interior designs and fabrics of technologies and so on and so forth. They are promising these are going to be well into six figures. One of the questions that kicks around the auto business is, OK, you've had the Tesla Model S, you're well to do, you are an affluent customer, what do you buy next to move up? Cadillac might have the answer to that question, at least for people in North America and China, an answer to that coming in a couple of years. That's a drill-down into details. To backup to the big picture here, GM is spending $27 billion on electric vehicles. They're making a huge move. A lot of the technology is already developed. This is not just talk, it was talked three years ago, but now they've done the work. It's all coming out over the next couple of years as demand grows in both the U.S. and China. There's a whole separate China play that involved several electric Buick SUVs and so on and so forth. Because GM is out in front of a lot of the other traditional automakers, they have a chance to gain share and gain bottom-line profit, improve margins as well, as they move into this. That's what makes it an intriguing investment play here.

Sciple: John, I asked earlier about suppliers. Obviously, GM is one of the significant automakers you all commonly hear him referred to as OEM, so original equipment manufacturers. Historically, this has become a pretty consolidated industry. There's Ford, GM, Chrysler [Fiat Chrysler] in the U.S., in Germany you've got Volkswagen, BMW, a few players there. Before this year, Tesla had been the only major automaker to come public in the U.S. in decades, and decades, and decades. Obviously, there was a significant change this year with all these companies coming public. Why has the industry been so consolidated historically? How do you underwrite the chances for this to change?

Rosevear: Because scale matters. This is a business where the upfront costs are huge. You'll spend $1 billion or more to build an auto factory and design the vehicle you're going to build before you ship a single car. Huge sunk costs, huge upfront costs, huge fixed costs. You got to pay for that tooling when you sell 10,000 cars or 50,000 cars this year, so scale matters. The more efficiency, the more economies of scale you can get, the better your margins. Also, if you use it wisely, the better your quality as well. Small companies have trouble getting to global quality standards because the lack of the experience and resources hinders them. We've seen that with Tesla, it has had issues over the last decade with quality, because even though they've brought in a lot of advanced manufacturing expertise, it takes time to get the scale and the expertise and the manufacturing refined to the point where you're delivering that. As you get bigger, some of that gets easier in the auto business. This is why in 1920 the U.S. had, I don't know, 30 or 40 automakers. Then by the '70s or by the '80s we had three. Now, we're seeing even further consolidation. GM and Ford will probably stand-alone, but even both of them have other major automakers as partners. GM has Honda as a partner. Ford has Volkswagen as a partner. Chrysler became Fiat Chrysler and now it's going to merge with Peugeot, which in turn is a bunch of merged French automakers to become Stellantis, this merged trans-Atlantic company. There's more and more of this going on. Again, it's because of the scale, it's because of the huge investments, they need to make to transition to these new technologies. It's done better when you do it over millions of cars rather than over thousands.

Sciple: That makes sense. We talked about this opportunity as GM is maybe a little bit ahead of some other folks, particularly in the U.S., when it comes to at least these traditional automakers. Obviously, they're not ahead of Tesla on adopting electric vehicles, but what are some threats to GM and this transition? I know one news I have seen has been this move you mentioned earlier, Cadillac becoming the flagship, EV brand having to do some negotiations with dealers along with that transition. Can you talk about that a little bit?

Rosevear: The dealers are hard. Yeah, I remember saying years ago that if Tesla could pioneer a direct-to-consumer model and bring that as the standard in autos, it would be a net win. I don't say that to batch folks who are in the dealer business at all. It's just hard with some of these dealers who like things the way they are and don't want to learn electric vehicles. They don't want to pay maybe half a million dollars to install high-speed chargers, to buy the tooling and expertise, train their people to work on this completely different technology from what they've been selling, maybe for 100 years now. A lot of dealers are family companies and maybe great grandpa was selling Buick's in 1919 and now you're selling Cadillacs and maybe some other GM vehicles. All of a sudden, this whole thing is changing. Some dealers have trouble with that. GM has been buying out some of the smaller Cadillac dealerships that just don't want to do this. They don't want to go to all electric vehicles, they don't want to develop the technical expertise and buy the expensive tools and make the investments they'll need to sell electric Cadillacs the way GM really would like them to be sold. To offer quality of service that can compete not only with Tesla, but with the luxury companies that are coming into the space. It has already been somewhat difficult for these small Cadillac dealers to compete with, for instance, BMW dealers, because there are fewer BMW dealers, so they sell more vehicles and make more money per store and they can invest in the amenities that affluent customers expect when they come to buy a car. If the Cadillac shop doesn't offer that, they have trouble attracting and retaining those affluent customers, which in turn means they all are going to have as much business at the prices they want to offer, which hurts their margins, which hurts GM's margins. This all plays together. If you want to get luxury profit margins you'd need to offer a luxury product and a luxury experience.

One thing you hear from a lot of electric vehicle advocates is that old-school dealers are a challenge and some of them will jump on board with this, because the automakers will show them how it could be profitable for them. But we're going to go through a phase of resistance and that is a challenge. GM is addressing it, Ford is looking at ways to address it. Ford has rolled out its own electric vehicle and they had dealers sign up to be partners with that. They sold it a bit differently to the dealers, but even then, Ford is a mass market brand that's hoping to offer an experience that not necessarily competes with Tesla, but draws similar buyers, people who have some money, who can spend $40,000-$50,000 on a vehicle comfortably and are willing to take a chance on an electric vehicle. This is a big challenge. Approached right it can be an opportunity, I think, but we're all still figuring out how that's going to work. That's another place that will suck time and money from somebody like GM that somebody like Tesla doesn't have to spend.

Sciple: Yeah, this dealer model is, there's pros to that. You mentioned there's already scale in place to service infrastructure, all those things. But as well, you have a consistency that you have to keep up either, makes money off of servicing on these traditional vehicles, those things. It is certainly a challenge to overcome and one of those hurdles that these traditional automakers have, that maybe these upstarts won't have to the same extent. Another one of those things that maybe folks think about is the dividend. In 2020, GM suspended the dividend, and have given a little bit of hints about when they might bring that back on board. What are you hearing about that, John? Then more importantly, we mentioned earlier they're going to be spending $27 billion on autonomous technology on an electric vehicle technology over the next couple of years. Just from a shareholder's perspective, what do you think about them just reinstating that dividend versus keeping that cash to try to deploy some of these opportunities and investments they need to make in the future?

Rosevear: Well, first of all, let's talk about timing. Mary Barra, GM CEO, said during the company's third quarter earnings call that investors should think in terms of mid-2021 for the dividend to come back, assuming that the economy doesn't take another significant downward dive between now and then. We'll get an update when they report in early February, the fourth-quarter, I'm sure. I would expect it to come in in the second half of the year. GM's dividend, they'll probably set it at a level that yields something like 3% to 4%. It's traditionally been on the rich side but not super-rich. Barra has promised to set it at a level that doesn't hold back their investments and all of these future technologies. On the one hand, there is an argument that says, hold on to the dividend, spend the money.

On the other hand, we point to the fact that their pickup trucks have been redesigned, their big SUVs have been redesigned, they were redesigned with margin in mind. GM did very well in the third quarter, having rolled out most of these products. The truck franchise, as we've talked about it forward, is going to help pay the bills for all of this, and they figured out how to do that. Pickup demand for traditional internal combustion pickups was very strong through the COVID mess in 2020. GM sold a lot of them. Now, some of that was because Ford was retooling its factories to build their new F-150. So, Ford supplies were tight, so GM got a little bit of a jump on Ford, but there's no reason to think if the economy remains reasonably strong and people are continuing to shell out serious money for vehicles, they'll be able to sell them for at least several years more. Yes, GM does have electric pickups coming, so does Ford. They are thinking of those terms, there will be more and more electric vehicles coming into these markets that hopefully will preserve GM's share and margins as they go on, but the cash flow is good.

Whether they would have a significant advantage from holding back the dividend for another few quarters, I don't know, I think we have to look at that as 2021 plays out. I won't be surprised if they decide to go ahead and reinstate the dividend anyway because there are shareholders including institutional shareholders who are looking for that, and in the way, of returning some of this wonderful cash flow to shareholders, as Barra often says, "We have to return excess cash to shareholders." Where the line is for excess, I'm hoping GM will show us, and this is something that GM is actually pretty good at, at explaining, "Okay, here's why we're allocating capital the way we are." If you are going to invest in GM, it's very good to listen to not just their earnings calls, but also some of the Wall Street presentations they do. You will learn a lot about how they think about capital. Under Barra, they have been very good at it. Historically, GM was not very good at it, we have to add that footnote, that's how they ended up in bankruptcy, but under Barra they have been very good at allocating capital. We'll watch where they draw that line, but I trust them to draw it in a place that makes sense.

Sciple: Yeah, so we will see what happens there, as we said off the top, to have one of the companies that is exposed to some of these trends paying a dividend, I think 7.7 times forward earnings, so again, producing cash flow, maybe not as exciting as from a new name, flashy perspective, but there is a real business here that's producing some significant income or cash in any event. John, last thing on GM, what's your biggest concern? What are you most worried about for this company going forward?

Rosevear: What I worry about with GM, I think is mostly that they won't be able to hang on to their market share. That there will be too many compelling new entrants, that they could fall a step behind. To be clear, I haven't seen signs of this in their recent efforts. I think they will do well, but it's easy to point to the Chevrolet Bolt, which came out and a lot of people said, "It's just a little hatchback," because GM maybe didn't do a good job of explaining what the Bolt was, which is an urban taxi, it's a runabout, it's a testbed for us to develop self-driving and so forth. But then Ford comes out with the Mustang Mach-E and everybody says, "We get that, we know what that is. " [laughs] It's a very Ford flavored take on the idea of the Tesla, an upscale, quick, fun to drive electric vehicle. Where is GM's? Well, they have a lot of things in the pipe and it's coming. What I worry about is that GM won't be able to bottle the excitement that people have around electric vehicles as well as perhaps some of the other old companies that are moving into this space. That won't put them out of business, but it might hurt growth, it might hurt margins overtime, and we'll see how this plays out.

Certainly, looking back at GM's long history, they have been able to do it very well at times in their past, we'll see what happens here. I don't worry about GM going bust on any near or intermediate term time frame, the company is in extremely good shape despite the COVID, the losses and shutdowns and so forth from COVID, they're at very solid shape. This company isn't going anywhere anytime soon and they appear to have the technology to compete and then some end to win share but it's possible it won't play out the way we all hope and I think that's the biggest risk. It's not much that somebody else will put them out of business, it is that they won't quite stay competitive in the enthusiasm race.

Sciple: We'll have to see what happens there, you said it's possible things won't play out the way we expect, I think we have never been more [laughs] aware of that than we are today, but whatever happens we will be on the show to discuss it. John, I will be looking forward to having you on again next time.

Rosevear: All right, thanks very much, Nick.

Sciple: As always, people on the program may own companies discussed on the show and the Motley Fool may have formal recommendations for or against the stocks discussed. Don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show, for John Rosevear. I'm Nick Sciple, thanks for listening and Fool on!