Two years ago this week, Uncle Sam opened up his wallet to offer a besieged General Motors (NYSE:GM) a $50 billion handout. When all was said and done, U.S. taxpayers owned nearly 60% of the new GM’s common stock. At the time, many experts thought the Treasury Department’s rescue of the automaker amounted to doling out a whole lot of cash for a pretty big clunker.
Nobody’ s saying that today.
The post-bailout GM has risen like the proverbial Phoenix from the ashes of bankruptcy by offloading brands, shrinking its workforce and adopting a leaner, meaner corporate culture that had the agility to seize the future without being held back by its past.
Here are five reasons that this may be GM’s time to shine:
- Sometimes, Bankruptcy Is A Good Thing. Before a federal bailout and government-assisted bankruptcy created the “new GM”, the old GM was saddled with a truckload full of debt, brands that had outlived their popularity and profitability and a bloated corporate and management structure. After selling off some brands, killing others, closing factories and cutting the number of employees and dealerships, the new GM has dramatically reduced costs and debt. The company has repaid more than $2 billion in loans so far and has emerged as a much stronger competitor as a result of its trial by fire.
- Strong Sales And Earnings Growth. GM shares may have slipped more than 10% so far this year, but that’s not a performance-related dip. In fact, GM is making money — posting more than $3 billion in earnings for the first quarter of this year alone. And with GM trading in the $30-$31 range, its stock is trading only around seven times earnings – an indicator of value. And with the Treasury Department poised to sell its remaining 500 million shares later this year, many investors are poised to get an even better bargain on a solid investment.
- Attractive New Products. GM is riding the rising tide of popular new products like the Chevy Cruze and Volt – which are selling very well without expensive incentives. The company also is rolling out its Chevy Sonic subcompact this year and its next-generation full-size pickups (GMC Sierra and Chevy Silverado) in 2013.
- The China Edge. GM’s stronger position in China, the world’s hottest emerging auto market, has very little to do with sponsoring a Communist propaganda film. The company’s operations in China are worth nearly a fourth of GM’s stock value. China sales have jumped by double-digits this year and the outlook remains strong. GM and competitors like Ford (NYSE:F) and Toyota (NYSE:TM) are counting on the world’s largest economy to fuel their global growth plans. GM is a strong player in China already, having actually sold more vehicles in that country than in the U.S. in 2010.
- Toyota’s Troubles. Toyota’s trials might well turn into GM’s triumph. In the wake of recall challenges and dramatic production losses in Japan after that country’s earthquake, tsunami and nuclear disaster in March, Toyota’s first quarter earnings fell by nearly 80% as production slipped by more than half. That means Toyota is likely to lose its top sales perch to GM this year.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
