Dueling Fools
GM Tough
The Bull Rebuttal
By
In his bearish argument, Richard went straight where I thought he would -- attacking the quality of both the auto industry and GM. He makes some good points, and I'll have to agree with him that there are far higher quality companies out there to invest in. However, that doesn't mean companies lower on the quality scale can't be compelling values. They can, and I think GM's price today more than accounts for all the bad stuff Richard pointed out.
Richard's argument does have a few holes. He calls cars a commodity and then turns around and praises the brand names under its belt. Are all cars really created equal? Vehicles are about as far from a commodity product as you can get.
The bearish argument then points to Hughes as a bright spot for GM. He's right! We both love our DirecTV. Of course, as Richard pointed out, a better "play" would be to buy the Hughes tracking stock, yet that doesn't mean that we should forget the positive returns Hughes can bring to its parent company.
Then there's the issue of strikes. It's an interesting thought that perhaps strikes should not be seen as extraordinary items. I don't agree. (Hey, I'm supposed to be the bull, right?) GM still managed to produce profits of almost $3 billion last year, even with the lengthy strikes. The company has also remained in the black going on seven years, even though there have been numerous strikes putting the brakes on production. Imagine what GM could do in a year without work stoppages. This year and next may very well be strike-free since the current relationship between the company and the UAW seems quite rosy.
Richard then points to the fact that GM doesn't have a blockbuster sedan. This may be true, but what the company does have is more than a few extremely well-selling trucks and SUVs. Chevy Suburban or Blazer, anyone? And as I pointed out, the larger trucks carry much higher margins than cars.
Does GM really not have the operational "buzz" that Richard says Ford has? Again, I have to disagree. The company has been actively downsizing its operations while upsizing its sales. More importantly, the company is now focused on making cars profitably, not just making as many cars as possible. The company recently shed its Delphi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DPH)") else Response.Write("(NYSE: DPH)") end if %> parts unit to better focus its energy, and more spin-offs (Hughes?) are possible.
As the bull, I think it's my duty to point out that GM's valuation remains quite compelling. Here's the largest company in the nation (and likely to stay that way), making the right moves to refocus its organization, and it still only trades for single digit P/Es. Fill 'er up!
Next: The Bear Responds