General Motors (GM 0.48%) has made phenomenal improvements over the past several years. Its vehicles' quality and design have improved, costs have dropped, and management has capitalized on opportunities throughout the world. However, General Motors is still at the mercy of global demand. In this article, we'll determine whether GM is a better investment than its peers.
Regional breakdown
The table below shows GM's wholesale vehicle sales for the second quarters of 2012 and 2013. Wholesale sales data is GM's largest revenue component -- and therefore, its most important:
| Sales Region |
2012 |
2013 |
|---|---|---|
|
North & Central America and the Caribbean |
760,000 |
809,000 |
|
Western Europe |
290,000 |
276,000 |
|
Asia, the Middle East, Africa, and Eastern Europe |
295,000 |
268,000 |
|
South America |
265,000 |
278,000 |
|
TOTAL |
1,631,000 |
1,610,000 |
Source: GM 10-Q for Q2 2012 and 2013.
As you can see, there has been a slight decline in total sales. While North and South America have been strong, sales in GM's other regions have weakened.
Now let's take a look at year-over-year market-share movement for the second quarter, based on General Motors' estimates.
| Sales Region |
2012 |
2013 |
|---|---|---|
|
North & Central American and the Caribbean |
17% |
17.2% |
|
Western Europe |
8.5% |
8.4% |
|
Asia, the Middle East, Africa, and Eastern Europe |
9.3% |
9.4% |
|
South America |
18.2% |
17.2% |
Source: GM 10-Q for Q2 2012 and 2013.
Important updates
General Motors made another strategic move this past April, limiting costs over the next seven years by finalizing labor-agreement deals in Germany and Spain. You want to see this kind of long-term approach from any management team you invest in. General Motors also plans on ending vehicle production at Bochum, Germany by the end of next year, which will reduce headcount and further cut costs.
On the negative side, General Motors had halted production at a plant in St. Petersburg, Russia, due to slowing demand. It has recently resumed production, but the shutdown was two weeks longer than normal, and a weakening demand environment doesn't sound good.
General Motors isn't the only company seeing slowing demand in Russia. Ford (F -1.92%) is also cutting production in the country because of slowing demand, especially for compact cars. The Association of European Business in Russia has stated that the auto market there has cooled, according to a Dow Jones report on Nasdaq.com.
If you're considering an investment in Ford, as opposed to General Motors, consider that they tend to trade closely together.
However, Ford does yield 2.5%, whereas Toyota (TM 0.60%) yields 1.1%, and General Motors offers no yield.
You might have noticed that Toyota is the weakest performer on that one-year chart. But the chart doesn't show that Toyota has been the top performer year-to-date. Japanese Prime Minister Shinzo Abe's monetary stimulus policy, better known as Abenomics, has hurt the yen and driven stocks higher, similar to what we saw in the United States coming out of The Great Recession. This trend should help Toyota exports.
Toyota recently reported a strong first quarter, doubling its net profit and upping its full-year net income forecast by 8%. Furthermore, Toyota increased its global market share to 11.5% from 11.4% year-over-year. All above factors considered, Toyota might present a better investment opportunity than General Motors right now.
Conclusion
General Motors, and Ford, cannot be run much better than they're being run at the moment. At the same time, industry trends are more powerful than strong management teams. Therefore, I wouldn't recommend General Motors at this point in time. However, this is an ever-changing industry, and this story could always shift in the near future.
