By on October 18, 2012

GM’s stock is still considered a “Buy” in the eyes of much of Wall Street,  but analysts say that more changes are needed to accelerate the pace of growth in the post-Bailout era.

Ben Klayman of Reuters spoke with a number of analysts at major investment firms had a number of suggestions for GM; trim middle management, hire new employees from outside sources and rid itself of the insular, rigid culture that plagued the old GM. Europe remains a focal point for criticism, with the PSA-GM alliance, and its write-down by GM, being a point of criticism. And let’s not forget Opel either. Klayman reports that letting go of Opel would do a lot for its share price

Last month, Morgan Stanley analyst Adam Jonas, who rates GM’s stock “overweight,” suggested the company should divest its Opel business in Europe, which he said would boost GM’s shares more than 50 percent.

The Treasury’s exit is cited as a pre-condition for some investors, who won’t purchase GM stock until the government is no longer involved.

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36 Comments on “Despite “Buy” Ratings, Wall Street Frustrated By GM...”


  • avatar

    Maybe it’s time to raid the brain trust at Opel, send them to Korea/Australia/Detroit and dump what’s left.

    As far as the insular, rigid culture…good luck getting rid of that. One can always hope…

    • 0 avatar
      tatracitroensaab

      would it be legal or possible to just spin off Opel?

      • 0 avatar
        Pch101

        “would it be legal or possible to just spin off Opel?”

        Presumably, that is the goal of any deal that involves PSA. And kudos to the current management; that’s actually a pretty good idea.

    • 0 avatar
      Dr.Nick

      Spinning off Opel seems like it would be spinning off a bunch of weight to allow it to sink free of the main ship. A spun off Opel would not have any hope at all in the current and forseeable economic climate in Europe.

      • 0 avatar
        tatracitroensaab

        lol of course – a spun off opel would wither away immediately, and GM could push Chevy into Europe. Chevy factories could be in poor countries (Romania, Morocco, etc.) and all would work out. I’m not sure about the legality of this plan. also would GM have to buy back the intellectual property of Opel?

  • avatar
    ExPatBrit

    Let’s trust Wall Street analysts, what could possibly go wrong?

  • avatar
    el scotto

    Overweight (O): The stock’s total return is expected to exceed the average total return of the analyst’s industry (or industry team’s) coverage universe, on a risk-adjusted basis, over the next 12-18 months. https://www.morganstanleyclientserv.com/FreeContent/FreeContentFixedWidth.aspx?F=/researchdisclosures/mssb_mssbresearch_disclosures.html

  • avatar
    Pch101

    Anecdote alert: I once worked for a company that was acquired by a publicly traded firm. Following the acquisition, I obtained a copy of a proprietary analysis that was prepared by one of the major trading houses; this was the sort of report that is provided only to high net worth investors.

    The report was so flawed and inaccurate at just about every point that I couldn’t stop laughing while I was reading it. Whoever wrote it didn’t understand our industry or the acquired company at all, and in the process, they completely overvalued the acquisition deal. And sure enough, that awesome acquisition became the beginning of the end for the fortunes of the firm that acquired us.

    Most stock analysis from the brokerages isn’t worth a damn. It’s especially bad for industries such as automotive because it’s a low-growth mature segment that will not attract the best and brightest among the analyst crowd. (The creme de la creme will gravitate toward more dynamic sectors that are more visible to their superiors.)

    The bond guys are usually more ahead of the curve. GM bonds were being downgraded to junk long before the company filed bankruptcy. The rating agencies have caught a lot of flack lately (and deservedly so), but regardless, I would still take a bond analyst over ten equity analysts any day of the week.

    • 0 avatar
      rodface

      I’m curious, what industry did you work in (if not auto)? Do you feel that the nature of the business had anything to do with the flawed assessment, or are pulled-from-the-ass valuations the norm in all sectors?

      • 0 avatar
        dude500

        Pch101, I’ve had a sense from reading your past comments that you have some financial analysis background (in particular, you tend to be pretty insightful on how the markets work). So now I’m even more curious about your industry and your thoughts on GM =)

      • 0 avatar
        Pch101

        I’ll avoid discussing my industry, but I also work in a mature industry that is just somewhat less boring (from a stock analysts’ perspective) than automotive. (I’m not in tech or the type of stuff that gets analysts excited.)

        In my opinion, there are a few basic issues:

        -The goals of brokers and their associated investment banks are to encourage the buying and selling of stock, and to earn fees from IPO’s and M&A. So they don’t tend to dig very hard into what’s wrong with a company, since they generally want to cast markets in a positive light.

        -A lot of basic research is done by fairly fresh undergrads or new MBAs. They may have gone to good schools, but they probably don’t have much real world experience.

        -The head researcher probably doesn’t have industry experience or a whole lot of insight, either. The guy who ends up doing automotive could have ended up doing the research on children’s clothing or paper products or whatever other boring sector, but he somehow ended up falling into this.

        -It’s easier for analysts to offer opinions that go with the grain than against the grain. It’s usually safer for one’s job to be wrong but with the crowd, then it is to be right but against the crowd. They don’t want to be stars, they just want to avoid being fired.

        At this moment, we seem to have had a bit of a backlash as a result of the financial crisis. It’s currently in vogue to be pessimistic. They probably overshoot to the downside now, just as they used to overshoot to the upside in the past (and will overshoot to the upside again when optimism comes back into fashion.) Most analysts are followers, not leaders.

        GM’s a pretty mediocre company, in my opinion. It’s neither a star nor a complete failure; it’s pretty fair-to-middling. The stock itself isn’t very exciting, but it does have the advantage of being tied to what are now mediocre earnings, i.e. if GM could improve its margins, then the stock could be in for a bit of a pop as the economy improves. Not that I would suggest buying it — the upside rewards are probably not that great, even in a best case scenario — but you could probably buy worst things at the moment.

      • 0 avatar
        dude500

        Very interesting, thanks for the insight Pch101. Particularly since I get the impression you know the difference between research and banking, and have likely interacted with both from an issuer’s view.

    • 0 avatar
      dude500

      Pch101, I’ve had a sense from reading your past comments that you have some financial analysis background (in particular, you tend to be pretty insightful on how the markets work). So now I’m even more curious about your industry and your thoughts on GM =)

    • 0 avatar
      TomHend

      Excellent post and point

    • 0 avatar
      Felix Hoenikker

      Pch101,

      I know first hand of what you write about acquisitions. But, it’s worse than you write, I worked for a company that would acquire smaller companies in tha same industry and still mange to screw up and overpay so much that it was laughable to technical literati. Afterward, we would be sent in to fix up the mess that they business geniuses bought.

  • avatar
    Halftruth

    Wall Street frustrated by GM? Big deal.. what about the rest of us frustrated/fed up with the Wall Street Casino? Please..

  • avatar
    2012JKU

    GM – poor management, poor marketing, poor products. They didn’t learn anything post-bailout.

  • avatar
    Dave M.

    Their products are certainly miles ahead of where they were 10 years.

    But after reading about his management style, distain of all things GM, and managerial selection ability, Akerson has got to go. Just read DeLorenzo this week….

  • avatar
    sideshowtom98

    GM’s products may be miles ahead of where they were 10 years ago, but then so is every other car manufacturers products. In comparison, GM’s products remain about the same on a competitive basis. It is too bad the company was not put through a non political bankruptcy, we could have had a much better result. But since it was not, we will have to wait for the next bankruptcy for any real systemic changes.

  • avatar
    wsn

    “GM’s stock is still considered a “Buy” in the eyes of much of Wall Street”

    At $25 per share now, it’s clear that GM is NOT considered a buy in the eyes of much of Wall Street.

    People say certain things to please the administration. But they didn’t actually mean it with their own money, or even with their clients’ money.

  • avatar
    2drsedanman

    “who won’t purchase GM stock until the government is no longer involved.” Same reason I wouldn’t purchase anything they make.

  • avatar

    Return to Greatness and Extra Mile would increase sales substantially, make the taxpayers whole, and securely fund the VEBA but GM management refuses to accept advice from a “salesman”. shame really.

    • 0 avatar
      sunridge place

      AARP Discounts!
      Let GM Employees lease a new car every month!
      If a rebate changes in 30 days after you buy a car, we’ll give you a refund!

      That will solve everything!

      Where’s that 15% market share you predicted by years end?

      • 0 avatar

        does it make more sense to offer up to $2,000 to competitive leaseholders?

        employee leases are good business but not every month, you know that.

        30 day guarantee would be extremely beneficial, ask any dealer.

        no plan as all the answers, it’s a matter of direction and leadership (see Jim Leyland)

        15 was a monthly call not YTD, btw, hope I’m wrong.

        what else you got?

        Buickman

      • 0 avatar
        sunridge place

        Yes..it does make more sense to have cash available to dealers to get people out of competitive leases instead of floating cash to AARP members. Selling Buicks in the past might make you think differently.

        Only when dumbass dealers tell people about the competitive lease offers does it cause problems. GM sure as hell doesn’t advertise it…its your dealer buddies who run an ad with a monthly payment and an ** with the rules in the fine print and piss people off.

        As far as the rebates after the sale, you’re too used to selling to GM Employees and their family members who bitch and whine about every dollar when they buy a car and then cry like babies if the cash goes up $500 a few weeks later.

        Cruze/Camaro/Sonic/Equinox/Terrain etc all sell quite well without customer rebates…but god forbid the EVA goes up a few bucks the next month and its an employee. You know damn well the rebates are much lower and more consistent now than in the past. Sixty day programs and they really don’t change dramatically cycle to cycle.

        You are arguing points from 4+ years ago once again.

        Hey, if GM follows the Jim Leyland way, they would underachieve most of the year and barely scrape by, then get hot in December and increase market share!

      • 0 avatar

        you sir are confusing the issues even when you’re not off base.

        “dumbass” dealers is a dumbass statement, franchisees are our partners and it’s our responsibility to provide effective leadership rather than invalid and derogatory accusations.

        perhaps you’re not familiar with “fast start” bonuses, SFE, EBE, in addition to other weekly, if not daily, changes.

        as announced years ago, only the first twenty steps of RTG were revealed, and only for openers. if you’re gonna criticize, please pay attention.

        criticizing Leyland at this juncture certainly doesn’t add validity to your argument.

        “God” should be capitalized IMO.

      • 0 avatar
        sunridge place

        You brought Leyland up as an example…I was kind of joking if you didn’t get the comparison to the Tigers performance this year and GM’s.

        You lecturing someone about name-calling is rather amusing.

        Please give us a recent example of a daily or weekly change on a dealership bonus program.

      • 0 avatar

        yes I have been guilty of accusations and nicknames from Red Ink Rick and his Board of Bystanders on down but you’ve never seen me target the dealers.

        sorry I missed your attempt at humor, my bad.

        daily or recent change? how about the announcement that aunts and uncles, nieces and nephews qualify for GMS that was rescinded the next day? beyond that it’s still the same “Hurry before it’s over” distress merchandising that has significantly contributed to rendering our products undesirable.

      • 0 avatar
        sunridge place

        I have no idea if this is true…but somehow GM announced that uncles, aunts, nephews etc were eligible for GMS…then it was changed the next day and THAT is hurting sales for GM?

        Come on. You used a lot of fancy names about programs that change every day or every week recently and that is what you reference?

        Please…tell us about recent programs that lead to the distress sales.

        The past? 72 hour sales around the 4th of July that lasted 9 days? Yep. Bonus cash certificates awarded on the basis of the amount of aged inventory? Yep. As you know, there was more crap like that back in the day and you had a post on your website that was one of the funniest things I’ve read around those programs. I don’t see the ‘distress’ sales now.

        Now? An incentive program the gives bonuses to dealerships based upon volume? Uhh…that’s so wrong? How shocking….a company paying bonuses for hitting or exceeding a sales target?

        On my gosh…lets not do that! You seemed to indicate that those programs were being jerked around and you give a random example about extended family members of GM somehow being included and then excluded from GMS as your best recent example?

      • 0 avatar

        I’ll grant you that the incentives don’t change as rapidly as they have over the past and give credit to Mark Reuss for stabilizing the announcements. still, we have returned to the holiday bonuses and end of the month pushes that have conditioned customers to wait and caused hesitation in their decision making. that’s the reason the 30 day guarantee makes so much sense and virtually everyone agrees it would help sales.

        usually we find ourselves slow as the month begins, somewhat busier mid month, then crazy busy EOM. were we able to spread the volume more evenly across time the customers would get better service, satisfaction would rise, and salespeople would be able to perform their job functions smoother and more effectively. most importantly though, buyers would feel confident in doing business now and our image would improve.

        this is just one area where better marketing would benefit GM, there are many, many more…

        btw, I welcome your criticisms. it’s been the input from literally hundreds of knowledgable folks like you that have made Return to Greatness such a strong plan.

  • avatar
    Dimwit

    Does anyone know what GM’s market share is? It was a big deal when it sank to 18%, what is it now?

    The thing is, GM is a market darling compared to Ford. Wall St. abhors Ford because of the tiered system of shares. Anything that the St. pontificates about should be a warning to run.

  • avatar
    hubcap

    “Despite “Buy” Ratings, Wall Street Frustrated By GM”

    I’d wager most Americans and for that matter the world is frustrated with Wall Street shenanigans and the proclivity of Congress and the Executive to kneel down before their pay masters and accept whatever happens to slide past their lips and down their throats.


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