Is General Motors about to get hit with some bad news?
Most of the news about GM in recent days has been IPO-related: We've learned that the company (or, more accurately, the U.S. government and other shareholders) expects to sell about 24% of its shares when it returns to the NYSE in a few weeks.
Those shares are expected to be priced between $26 and $29, which would give GM a valuation around $50 billion, roughly comparable to that of rival Ford (NYSE: F).
GM's lead underwriters JPMorgan (NYSE: JPM) and Morgan Stanley (NYSE: MS) will surely have plenty of arguments to justify that valuation, but some might find it surprising. After all, Ford is the world's most profitable automaker at the moment -- but GM's sales still outpace the Blue Oval's by a significant margin, especially when GM's Chinese-market dominance is taken into account. GM's still the home-market leader as well, but Ford's U.S. sales have been growing steadily, with the company racking up market share gains in 23 of the past 24 months.
GM's U.S. sales, on the other hand, have been slipping. For potential investors, that's a trend that deserves a closer look.
Is it about to get worse?
GM's sales in China are a big deal in terms of numbers and influence, but less of a big deal in terms of their bottom-line impact: Those sales are made via joint ventures, so while GM has the contractual right to count the sales as its own, the profits from the sales are split.
As with Ford, the big bucks for GM are still made here in the U.S., and GM's share of the home-market pie has been slipping in recent months. October's results will be released on Wednesday afternoon, but analysts are predicting another rough month for the General: Bloomberg reports that analysts expect a 6.3% year-over-year decline.
How bad is that? I expect that GM will trot out its now-standard PR spin: The company had eight brands last year and only four now. And I'm sure they'll be able to point to model- and brand-specific gains (look for a lot of Buick-related talking points).
But the simple truth is this: GM's sales are slipping at home, just as it's about to launch its IPO.
Guess who's gaining
It won't surprise too many people to hear that Ford is expected to post yet another big sales gain. Edmunds.com expects a 17.7% increase, which should be good for yet another bump in the company's U.S. market share. Those sales aren't all coming out of GM's hide -- Toyota (NYSE: TM) is expected to take another market share hit as well, though its key rival Honda (NYSE: HMC) should see some gains -- but Ford is surely winning some former GM loyalists and doing so at premium prices.
Ford's turnaround has been an amazing story, and lately there have been some good reasons to think that GM might be headed in the same direction. New CEO Dan Akerson is a smart, high-tempo leader who sees his job as a patriotic duty, CFO Chris Liddell has reversed years of internal financial ineptitude, and GM's product and marketing teams are showing impressive signs of life.
The real problem with the new GM
So what's the real story here? I think there's an often-overlooked issue: GM's product line is still full of holes. Several of the company's mainstays are overdue for replacement, and those replacements are still a year or more away. Compare the dated Chevy Impala with the spiffy new Ford Taurus, or the even-more-dated Cadillac DTS with, well, anything. While there are more and more bright spots in the company's lineup, there are still too many older, less-competitive models.
That's not the fault of current management; it's just a function of GM's recent history. Lots of development programs, including some for critical models like the company's pickups and full-size SUVs, were ratcheted down or put on hold entirely during GM's slide toward bankruptcy. It takes a long time to develop a new vehicle, often three years or more. As a result, it'll take a few years before the company's tempo of new-model introductions catches up to Ford's.
GM, in other words, is still very much in recovery mode and will be for many months. New models like the acclaimed Cadillac SRX, and, yes, the Chevy Volt show what the company at its best is able to achieve. Can they keep doing it? Signs are promising, but watch this space closely.
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