General Motors Co. (NYSE:GM) and its partners produce vehicles in 30 countries, and the company has leadership positions in the world's largest and fastest-growing automotive markets. GM, its subsidiaries and joint venture entities sell vehicles under the Chevrolet, Cadillac, Baojun, Buick, GMC, Holden, Jiefang, Opel, Vauxhall and Wuling brands.
Plagued with Product Recalls and Safety Issues
It looks like the drama of recalls will not leave General Motors alone anytime soon. On Monday, GM issued another recall for its vehicles, this time involving as many as 1.5 million vehicles for issues related to the airbags. These recalls come in addition to the 1.6 million recalls issued in the recent weeks. The company will be spending at least $300 million on fixing these issues that reportedly claimed lives of at least twelve people.
GM said there was no evidence of fatalities from ignition-related incidents in the new group of 824,000 cars being recalled — Chevrolet Cobalts and HHRs, Pontiac Solstices and G5s, and Saturn Skys for 2008 to 2010 model years.
- Warning! GuruFocus has detected 6 Warning Signs with GM. Click here to check it out.
- GM 15-Year Financial Data
- The intrinsic value of GM
- Peter Lynch Chart of GM
But it added that 90,000 of the faulty ignitions were in the 2005 to 2007 models used as replacements in cars covered in the new recall.
Since 2005, GM itself has received hundreds of consumer complaints over the problem, in which a car's ignition could suddenly move into "accessory" or "off" position, cutting off electronic systems, including airbags.
GM also separately recalled approximately 490,200 trucks and SUVs over possible problems with a six-speed automatic transmission.
That recall concerns 2014 Chevrolet Silverado 1500 and GMC Sierra 1500 pickups, 2015 Chevrolet Suburban and Tahoe and GMC Yukon and Yukon XL SUVs.
Running Out of Time
The 2014 Chevy Silverado's true purpose is to compete with Ford's (NYSE:F) F-Series trucks for buyers who are willing to spend for a highly capable truck — not to battle Ram for market share among price-sensitive customers. However, GM is running out of time to reclaim market share from Ford.
This fall, Ford is rolling out a brand-new F-150. The next-generation F-Series trucks are incorporating significantly more aluminum in the body, which will probably lead to much higher fuel efficiency while also increasing towing capacity.
GM is reportedly planning to introduce an aluminium body Silverado in the fall of 2018 — but that's a long time from now. Ford's multi-year technological lead will allow it to further solidify its leading position in the pickup market once the new F-Series trucks reach healthy stock levels next year. For the 2014 Chevy Silverado, there's no time like the present to battle Ford for high-end market share.
Since the 2014 Chevy Silverado's introduction last year, GM has continued to lose pickup market share, although it has benefited from significantly higher average transaction prices. However, Ford's new F-Series trucks are coming this fall, and they will bring significant technological advancements that GM won't be able to match for several years.
Going By the Numbers
The sales figures over the last 16 years are incredibly close when comparing Ford's F-Series versus General Motors' Silverado and Sierra combined. Consider that Ford has averaged 745,747 F-Series sales annually since 1998, which slightly edges out GM's Silverado and Sierra combined average of 744,150.
t's clear that two factors have given Ford more of a lead than usual, over the last few years. First, the fact that General Motors filed for bankruptcy and received unusual treatment during the process has definitely hurt its image. The nickname "Government Motors" will certainly outlive the government's ownership of the company, which has already come to an end. Second, GM's two trucks were long overdue for a makeover and were getting beat in sales due to the late refresh. The bad news for GM fans is that the all-new designs that hit the showroom in mid-2013 aren't taking advantage of the small window of opportunity before Ford's next-generation F-150 goes on sale later this year.
Consider recent sales, where the Silverado and Sierra should be gaining market share on the older F-150. Instead, sales of the Silverado and Sierra declined 16% and 4.6% in December, compared with an 8.4% rise for Ford's F-Series. The trend continued in January when sales of GM's two trucks declined 18.4% and 13.5%, compared to a better looking decline of 0.7% for the F-Series.
General Motors has performed well as of late, but with GM, there had been the negative stigma surrounding its largest investor, which of course is the government. Hence, while the government owned such a large stake, shares of GM remained cheaper than its peers, and the company still does not pay a dividend.
The Treasury has been selling shares at a rapid rate over the last year, and on Dec. 9 it confirmed that its remaining 31.1 million shares had been sold. Therefore, GM is no longer government owned, and has approximately $37 billion in liquidity that can be used for dividends and to make other investments.
It's clear that while the race has been close in the long run, Ford has the decisive advantage over GM's combined truck sales lately.
Investors are often well-advised to assess the quality of management rather than the price or features of a company's products in deciding where to place their investments. Good management prevails over time, while weak management and poor governance can overwhelm even good products in the fullness of time. Inadequate governance at GM makes it a poor investment longer term.