For the last two decades, the Motley Fool has been working hard to help you invest better. This September, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.
In that spirit, I'd like to introduce you to the basics of a company that almost everyone knows about, but few know well: General Motors (NYSE: GM).
One of America's most successful, and maddening, companies
We should get this out of the way up front: Few American companies generate such... mixed emotions as Detroit's 800-pound gorilla. On one level, GM looks like (and is) a massively successful enterprise; it was the world's largest-selling automaker last year, an enormous global concern with big profits, an outsized presence in the world's two most important auto markets, minimal debt, and over $30 billion in cash on hand at the end of last quarter.
On the other hand, it's General *@#$^% Motors! For decades, GM has been the poster child for inept big company management, squandering a commanding market position with blunder after blunder. Worse in the eyes of many, it got a huge government bailout in 2009 that still has many taxpayers rankled. Even now, despite having arguably the strongest management team it has had in decades, GM often seems to take one step backward for every one-and-a-half steps forward. It's a company that often seems like its own worst enemy.
For investors, that makes GM a conundrum. It's a hugely successful company with iconic brands and enough global scale to compete with anybody, but -- so far -- it hasn't quite been able to take itself to the next level. More to the point, GM hasn't been able to harness its enormous size and scale effectively in the way that its biggest peers, Toyota (NYSE: TM) and Volkswagen (OTC: VLKAY), have done, or in the way that (considerably smaller) Ford (NYSE: F) has been doing so well recently.
That makes evaluating GM's prospects a challenge. If it can duplicate Ford's success, it'll be huge, but that remains a big if. Despite its solid balance sheet, GM is still a work in progress, arguably even a turnaround in progress. It'll be another couple of years before its products are all fresh and current, and a few years more before it's able to take full advantage of its global scale, the way Ford is doing -- and that's the best case. Only then will we really know where GM stands.
Like I said, for investors looking at the stock today, it's a conundrum. On the one hand, for all of its potential at the moment, GM might well shoot itself in the foot again. On the other hand, if it succeeds in following in Ford's turnaround footsteps, GM could be a steal at current prices.
Let's take a look under the hood to see what I mean.
The world's largest automaker, but maybe not for long
GM was a money-losing mess for most of the last decade, but it famously got a giant "do-over" in 2009 courtesy of Presidents Bush and Obama and the U.S. Bankruptcy Court. Since then, GM has had a string of solid profit reports and decent sales growth in key global markets. Its senior management team is mostly new since the bankruptcy, and signs suggest that it's the best group the company has had in many years. That bodes well for GM's prospects -- but, at the same time, changing the culture of a company that was so sick for so long isn't a simple job.
Still, GM already has a lot going for it, as I said above; it was the world's largest-selling automaker in 2011. It currently holds the No. 1 market position in the world's two biggest automotive markets, China and the U.S. (yes, in that order). Last year was the most profitable year in GM's 103-year history. Its latest products have been very good, which bodes well for those key products still to come -- and for GM's margins down the road.
On the other hand, it'll likely lose the sales crown to Toyota in 2012 -- and VW isn't far behind. Its operations in Europe, crushed by a stagnant economy, are bleeding money with no end in sight. Sales in China remain strong, but that's not as big a contributor to the company's bottom line as you'd think -- GM's profits are split with the joint-venture partners required by Chinese law. And its U.S. market share has been slipping, which is a problem that may have contributed to the recent ouster of GM's marketing chief.
The upshot: Stumbling toward success?
Here's the takeaway: Old GM is largely gone, and in its place is a company that has the potential to be the global auto powerhouse, if it can manage to harness that potential. GM has a lot going for it, but there are good reasons to be skeptical, and a lot of problems that still need to be addressed.
Speaking as an investor, I think GM is likely to be successful, and to reward investors who buy the stock here. I own GM stock myself, and currently plan to hold it for at least a few more years. But, it's likely to be a wild ride between here and there, as GM continues to be both one of America's most successful, and most maddening, companies.
GM's stock has risen a bit recently, but it's still hovering near its post-bankruptcy low. But, if Akerson can harness GM's potential and get the Feds to exit honorably, GM's stock could have significant upside over the next couple of years as new products hit showrooms and improvements continue around the world. However, investors need to stay attuned to fluctuating demand and the ability of automakers like GM and Ford to respond in unison. Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.
