February 24th, 2009

I know it may seem silly to seriously consider buying GM-shares at this time, but a company that has lost so much value in such a short time should at least be reviewed... maybe the selling is overdone. Since october 2007 GM has lost about 95% of the mcap, and this means that to get back to that level GM would have to go up almost 2000%!

Could they fall further? The mcap today is not more than about $1bn, which isn't alot for a company with huge holdings (assets valued at about $30bn) and (still) huge sales of cars. The problem isn't that people aren't buying cars, the problem is that growth is shrinking... there's a big difference there. US-deliveries of vehicles in january was 129,227, down 49% from a year ago. That is a big drop, but they're still selling cars. Obviously they are going to have to change alot of things, for example the latest reported profit margin stood at -13.24%! But, hard economic times could be a great thing for a company like GM, the shake-up might bring in some new people and force management to do some long needed restructuring and re-thinking.
The latest reported balance sheet showed a total cash-holding of $15.9bn and a total debt of $45.16bn. Since the company is in a very shaky position I'm not going to bother trying to analyze the cash-flow or profitability. But what we can fairly easily see is that if GM does make it through the next few years without too great losses and if they are able to adjust properly it could easily make a stellar rise when things start turning around.
Although Bush-Obama have been very willing to throw away hundreds of billions to corrupt and incompetent bankers who in no way deserve it, maybe there is a chance that GM could also see some bail-out money, and not just a building up of loans. If they do get money this way that would obviously make things easier for the company. I strongly doubt that GM will fail, it is simply too big and has a too large productivity to be allowed to fail, not only for political reasons, but for sound economic reasons - they are selling lots of cars and they have a huge operation going, the right people with the right ideas could easily turn it into a money-making machine in a couple of years.

So, should one buy GM-shares today? I think that it is likely that the profit margin will improve somewhat over the coming year, even if sales keep falling and everything looks very bleak. Management is forced to do whatever they can to stop the company from bleeding right now. This could mean a number of things, maybe huge lay-offs and selling of assets and shutting down of research, but eventually I think they will turn it around.
Basically, if you were to buy today you would have to go through some really shaky times, but then you'd be on first row to watch the rocket take off whenever that might happen. And how much further could they really fall? Right now they're so cheap that anyone with a billion to spare could buy the whole thing... would you buy GM if you had a billion bucks? yes, maybe I would; I could turn one of their huge factories into my private luxury-villa.

edit: I'm sorry, I wrote the article a little too quickly and forgot to mention that the net tangible assets are actually -$60bn. This changes the picture, but I still think that considering the profits that the company has shown in the past it can get back to similar levels... however it won't be easy. If profitability came back to the levels of a few years ago, then that negative asset could turn positive in a few years.