Is It Time to Sell GM?

GM was the biggest corporation in the world back in its heyday. And then, decades later, it went into bankruptcy during the first days of the Great Recession. GM is back on its feet but what is its future? We asked is GM a good investment in an article 7 years ago.

Despite expectations of an opening stock price for the GM IPO of $33 the stock opened at nearly $35.50. The question, “is GM a good investment,” seemed to be answered with a resounding, “yes.” The stock rose to nearly $36 within minutes until profit taking took the new General Motors stock down to below $35 by 10 am EST. The stock recovered to near $36 again before starting a steady decline throughout the day. So much for the first day after GM stock returned from the dead. For the long term investor the question is not such much the hoopla of first day IPO sales and day traders taking profits.

The question had to do with making a profit and steadily increasing intrinsic stock value for GM investors. In the days of GM dominance this had to do with making an attractive and reliable car at a time when Detroit could expect to sell more cars each and every year. Now with electric cars, self-driving cars and fewer cars in future the question is who can make this work, make a profit and return that profit to investors? In that light we asked a couple of years ago is GM back?

Is GM back? Reuters reports that GM profit tops estimates with an improved profit margin in China and strong truck sales.

And then there was the ignition switch scandal in which GM was aware for years that if someone hung a heavy key chain from the ignition switch of their cars the car could shut off while moving. There were accidents and deaths and subsequently calls of criminal charges against the GM hierarchy. That issue has blended into the background and has cost GM a pretty penny. But the long term issue is if GM can be the car maker of the future and just what the car maker of the future will look like.

CNBC notes that GM stock just took a hit.

The automaker’s stock was downgraded to “sell” from “neutral” at Goldman Sachs, which points to the current valuation and the likelihood of a downward inflection for GM earnings in 2018.

The bottom line, as always, is if the company will be making money and returning value to shareholders into the long term future. Our sister site, looked at GM after a recent analyst upgrade and asked should you buy General Motors stock.

The world of automobiles is changing. More and more folks in cities take public transportation and rent a car for the day or even a few hours when needed. Electric cars may be the only models available in a decade and self-driving cars are on the way. Who is going to thrive in this environment and who is going to disappear? In the glory years for cars in the 1950s common names like Studebaker, Packard and American Motors vanished as the Big Three automakers dominated. Then foreign imports prospered and eventually contributed to bankruptcy of Chrysler two times around and finally GM. There is no promise that large American car makers or any current car makers will succeed in business as the world of cars changes.

That is the bottom line for the car industry. Car makers like GM are where carriage makers, saddle makers and wagon makers were at the beginning the era of the internal combustion engine. Some, like Studebaker, adapted and lasted for half a century but otherwise they become a foot note in history. Is it time to sell GM? It may be too early to tell but anyone with investments in the auto industry needs to pay attention and have a solid game plan or they might just wake up one morning to find that their stock has gone the way of the industries that supported the horse as the preferred mode of transportation.

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