Tantamount to some of the most innovative automobile creations ever to be conceptualized, General Motors (GM, Financial) has always held a leading market reputation among automobile manufacturers in North America and across the world. With robust sales potential across the U.S. and significant growth in the Chinese market, the Detroit auto manufacturer continues to rebound from the brim of bankruptcy a few years ago – performing well through strong sales and affordable share prices in the stock market.
GM’s 2014 fortunes being hurt…
However, the company isn’t without its troubles. Throughout 2014, GM reached a whopping 2,430 recalls for faulty ignition engine switches, based on information received from lawyer Kenneth Feinberg, who is administering the entire recall and compensation program. With nearly 260 death claims knocking on its door, the automaker was compelled to set up a compensation program to reimburse eligible claims. The company set aside $400 million for payback claims, making it clear that it has its work cut out to recover this volume in the upcoming years.
The company has also had to develop an exigency plan for the Takata-manufactured air bags in case vehicle recalls amplify – it has already had to repair millions of faulty vehicles globally. With GM having perhaps its worst year in history, is there any reason to expect a turnaround for this troubled auto manufacturer?
The forward approach – what’s in store for GM?
Despite such a tumultuous year, GM still enjoyed a strong balance sheet and positive cash flow. Experts predict that the share price of GM remains stable with the current price trading around $33 in the last week of December 2014 – recovering from its 52-week low of $28.83. In the third quarter of 2014, the company announced a respectable dividend of $0.30 per share, demonstrating its strong sales and better earnings power. The company reported $0.97 earnings per share, beating the consensus estimates of many stock analysts by $0.02.
Instituted in design and manufacturing, the automaker has produced a strong operating performance in 2014. The company has managed to improve its operating profit impressively, since its low in 2012 and remains close to reaching its objective of 10%. Despite the share price falling over 14% amid recalls, it remains clear that the company is firmly rooted in delivering a strong financial performance – thanks primarily to its market reputation built over the years, resulting a continuing trend of consumer’s still eager to purchase GM cars.
Flourishing truck business leading at forefront
It’s fairly obvious that full-size trucks are at the forefront of GM’s profits. The company was blessed with a complete year of its closest competitor Ford (F, Financial) selling outdated models – it’s hardly a secret that new products sell better, so GM’s latest designs Chevrolet Silverado and GMC Sierra trucks witnessed a healthy sale period in the year. With this, GM was able to deliver strong pricing power and market leadership for 2014 – a positive consequence that the company was desperately searching for.
Strongly competitive pricing rode on the piggyback of successful full-sized trucks and SUV sales to give the company a viable edge over its competitors. But that doesn’t mean that GM should rest easy in the future. Ford is planning to accelerate production for it’s next-gen vehicles to hit the streets next year. Depending on its success, it could take a massive piece of GM’s existing market share – running interference with the company’s current pricing power.
Expanding beyond U.S.
While GM is attempting to reach its 10% operating margin, skeptics believe that North America alone is unlikely to help the company achieve its goal. Detroit’s automaker is in a strong position to expand its profitability in the Chinese market. GM still remains one of two foreign auto manufacturing companies that are dominant in this country. The company is also expecting to break even its business in Europe in 2015 – evidence of the fact that the company is slowly relying on external consumer markets for its profits.
In summary
On an average, in the existing fiscal year, stock analysts expect GM to post earnings of $2.64 per share. While the year 2014 has proved to be costly for the company, there’s no reason why these erstwhile hits should affect the company’s forward-moving share price. On an average, analysts have given General Motors a “hold” rating with an average price target set at $38.57 – good news for the company. With strong planning for the upcoming year, investors will do well to stay bullish on GM.
