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Should Investors Buy a Troubled General Motors?

July 24, 2014 | About:
rusticnomad

rusticnomad

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General Motors (GM) is in trouble this year. The automaker's shares have dropped as various controversies and investigations have surrounded it. In comparison, arch rival Ford (F) is doing great this year, with shares up in excess of 10%.

General Motors' woes are a result of a recall of 20 million vehicles, after finding that broken ignition switches leading to deaths and injuries of its customers. President Mary Barra has been at the Congress hearings, and events like these have harmed the auto giant. In any case, looking past this smoke, is there any risk that General Motors may enhance in the long run? In simpler words, should investors exploit General Motors' weakness on the Street to add more shares to their portfolios?

Enhancing quality control

GM is attempting to repair the damage, and the primary objectives behind its recall are to fix the fault as fast as possible so that the organization can win back the full trust and certainty of its customers, regulators, and different stakeholders.

In spite of the fact that the late recalls by the organization have spread negative sentiments and slowed its growth in the United States, the company still continues to be optimistic about 2014 because its new products are performing well. The U.S. customer service survey by JD Power has positioned each of the four GM brands over the industry average in 2014.

GM has also simplified its item improvement structure to uproot side loads and unpredictability. In January 2013, it propelled a comprehensive system to retool its item quality and toughness approval process.

Also, GM has made a Speak up for Safety program that was introduced in May. Speak up for Safety recognizes worker ideas that could make its vehicles safer. It also plans to remember them for speaking up when they see something that could affect customer safety. The system is designed to incorporate a worldwide 24/7 hotline and a micro site devoted to vehicle safety. This is relied upon to give an immediate access to GM safety organizations and its problems-following system to ensure a closed-circle reporting and survey process.

GM also introduced key changes in the way it develops vehicles. Going ahead, the global vehicle designing association will consist of worldwide vehicle components, a sub-systems group, and a worldwide item respectability group. The principle objective behind this is to enhance cross-systems joining and convey more consistent performance across vehicle programs and ensure practical safety and agreeability of all its vehicles.

Conventional sales numbers

Despite the negative attention that GM is confronting, its sales numbers are not too bad. For instance, amid the first quarter, GM delivered conveyed 2.4 million vehicles as far and wide as possible, an increase of 2%. Sales of GM in Europe increased, and it also achieved record sales in China. However, the organization did see weakness in North and South America. As a result, the worldwide piece of the overall industry of GM was 11.1% in the first quarter, a decrease of two-tenths of a point, from the year-prior quarter.

However, GM picked up one tenth of market share in China, driven by the development of the Cadillac brand and the success of the Buick and Wuling brand. So, GM is making progress in a key developing market like China.

Buick and Wuling performed well as Cadillac sales multiplied. Sales development at Chevrolet is relied upon to quicken with the presentation of a Trax Crossover, which will be released this quarter. The Trax is considered to be an essential item offering, with Crossover and SUV demand in China anticipated to grow at around 10% yearly to reach about 7 million units by 2020.

The Trax can help GM pick-up in developing markets

Then again, GM will confront stiff rivalry from Ford in this business sector. Ford as of now has a head start in the crossover market with its Ecosport SUV. In 2013, Ford's sales in China increased, primarily fueled by the Ecosport SUV, which sold close to 60,000 units. Also, Ford has also made a huge stamp in a key developing market such as India with the Ecosport SUV, selling more than 50,000 units last year. Ford needed to close bookings for the vehicle because of huge order backlog.

Presently, Ford has as of late started bookings for the Ecosport again. In any case, the organization has also increased prices of the same in India, and this may prompt a drop in sales and prevalence of the SUV. As such, if GM launches the Trax in India as anticipated, it may have the capacity to get off to a decent start by gaining by Ford's price increase.

So, there's a likelihood that General Motors will have the capacity to enhance its sales in developing markets such as China and India further by presenting the Trax crossover. Also, from a valuation perspective, General Motors looks like a decent purchase at this moment.

Conclusion

GM trades at a trailing P/E degree of 19, which is more than Ford's P/E of 10. Nonetheless, on a forward P/E basis, GM is a better purchase at a P/E of 7.7, while Ford has a P/E of 8.7. Additionally, GM's PEG of 0.53 is superior to Ford's 1.00. At last, as per analysts, GM's earnings are expected to grow at a CAGR of 22% for the next five years as compared to Ford’s 12.6%.


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Comments

noaventador
Noaventador - 4 months ago

Doesn't matter, GM's up by 190K% according to this https://www.youtube.com/watch?v=gXBVsOjcjVI. Ford is GARBAGE! FACT.

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