Posted on 02/16/2013 7:51:11 AM PST by ExxonPatrolUs
Interesting news for auto-watchers: Berkshire Hathaway (NYSE: BRK-A), the savvy conglomerate controlled by the great Warren Buffett, disclosed in an SEC filing on Thursday that it had bought 10 million shares of General Motors (NYSE: GM).
That comes on top of another 15 million shares of GM Berkshire bought earlier in 2012, bringing the total value of the company's investment in the General to nearly $700 million as of Thursday's close.
That's not chump change, even by Buffett's standards. What might Berkshire be thinking?
Is GM a value stock? The obvious guess for anyone who knows anything about Buffett's career is that he (or, more likely, Berkshire's new portfolio managers, Todd Combs and Ted Weschler) thinks that GM is undervalued at current price, particularly when viewed in the context of where the business is likely to go over the next several years
I happen to agree, which is why I own (somewhat less than 25 million shares of) GM stock myself. But it requires some explaining, because GM isn't really undervalued by the most basic traditional measures. Its current price-to-earnings ratio is around 10.4, roughly the long-term norm for auto stocks.
But it may well be undervalued after taking into account the huge amount of room for improvement available in GM's global operations -- and current management's determination to make those improvements and realize GM's full value.
Big gains await GM's Europe turnaround GM lost $1.8 billion in Europe last year and expects significant losses to continue for at least another year or two. The problems are a lot like those GM had in the U.S. a decade ago: too much production capacity, too-high costs, and declining sales -- in the case of Europe, because of a deep, protracted recession.
But GM CEO Dan Akerson has set in motion a major effort to overhaul GM's sick European operation. A new management team is in place, a factory has been closed, another has been sold, a cost-saving joint-venture with French automaker PSA Peugeot Citroen (NASDAQOTH: PEUGY) has been established, and a bunch of new products are coming.
GM CEO Dan Akerson reiterated on Thursday that he expects GM Europe to break even on a pre-tax basis by "mid-decade". Consider that GM made $6.19 billion in 2012. If GM had simply broken even in Europe last year, that number would have jumped to about $8 billion before taxes -- with no other changes or improvements to GM's global operations.
And the thing is, other changes and improvements are already happening.
Improvements at home are already in motion Despite posting three profitable years in a row since its emergence from bankruptcy, GM is still very much a turnaround work in progress. It still has some catching up to do before it can match Ford (NYSE: F) or Toyota's (NYSE: TM) end-to-end product quality here in the U.S. -- or for that matter, Ford's profit margins here.
But what isn't visible to casual observers is that the work needed to narrow that gap is already happening. For the past three years, GM has been working on a full-on product overhaul that is just now hitting its stride. Products like the Chevy Cruze and Sonic small cars, and last year's Cadillac ATS sedan, have proven that GM can design and build vehicles that really do compete well with the world's best.
Over the next couple of years, GM will go from having North America's oldest product lineup to its newest, as a slew of all-new cars and trucks hit its dealers. If they're competitive – and GM's recent track record inspires some confidence – those new products should improve GM's average transaction prices, driving fatter margins.
The upshot: A lot of upside for GM The case for GM isn't quite as much of a slam-dunk as the case for Ford. Ford's North American operation is already robustly healthy, and the Blue Oval's proven management team is taking the same approach to restructuring its European operation, which has problems (and losses) similar to GM's.
GM still has more challenges at home than Ford does, and unlike Ford, its management team doesn't already have one impressive turnaround under its belt. But given GM's still-impressive global scale, the potential upside may be considerably higher. It's not hard to understand why Team Buffett chose to jump in.
It's true that decades of mismanagement of General Motors led to a painful bankruptcy in 2009, but it emerged a leaner, stronger company. GM's turnaround, however, is still a work in progress. Investors around the world are wondering if GM has what it takes to reclaim its former glory. I've put together a brand-new premium research report telling you exactly what you need to know about GM and its turnaround. If you own or are thinking about owning GM, then you don't want to miss this report. Click here now to get started.
Buffet is getting in on buying American.
There is still a whole lot of FReepers ready to sell out America if it means 2 cents more in profits.
Meanwhile China grows, and grows. And grows. Now China is the world’s largest exporter. America is number two now, and falling.
Buffet is ahead of the curve. He sees a fight for national supremacy looming, which we are utterly unprepared for at present.
The sides are changing. I pick America.
So evidently does Buffet.
Buffett is used by the administration to establish confidence in unstable markets. He is one of the new American oligarchs; privy to insider information, sweet deals and too big to fail.
GM is probably also worth more in parts than it is as a whole entity. By buying into it, if GM should face another round of bankruptcy, it could be sold off for parts easily enough.
That’s what should’ve happened the first time around.
This is a payoff, make no mistake that Buffett is in this for the money he can make and has nothing to do with stabilizing anything. He’s another buttboy for der Fuehrer. The two of them mutually benefit and the rest of us pay and or have paid for it through taxes.
Well, you know if that happened, the unions wouldn’t have gotten their cut. That was a priority with the administration at the time.
Now, tha the unions have maximized their benefits from GM, it can be cut loose and perish.
Not to mention the GM bond holders.
They should pitch tents in Buffet’s front yard in Omaha.
No mention of the Volt. Maybe it’s destined for Edsel row and that’s why investors are interested again.
Well, his Omaha front yard doesn’t have a very big yard anymore but it would be good to make the point.
Extreme Bovine Excrement.
Buffett is playing a curve. GM is making a profit only because of government propping. At some point the government will cut that support and then union greed will be allowed to finish what it started. I’m sure Buffett will dump his stock at a profit before that happens.
Buying GM isn’t about buying American, it’s about supporting Obama and the union/communists.
I remember my professor explaining “The Rational Man Theory Of Investing”. Then, he told us it doesn’t work because people aren’t rational. George Soros made his billions by understanding this. There is no rationality in how people decide to buy cars. I don’t even need to look at the signs at the gas stations to know what the price of gas is doing. I just drive by our local Chevy dealer. If gas prices are going down, the pickups and Suburbans are parked up front. If the price of gas is going up, the little cars come to the front of the lot.
No doubt Buffet’s private security would stop the first tent stake from being pounded in...
Pay no attention to the man behind the curtain...
IMHO?
Another slight of hand about to occur to make it look like it has recovered? Something to make it look like a "value" stock that all Seniors are clamoring for since Treasuries ain't paying squat?
My guess? They could be considering paying a dividend.
But how would Warren know that? :-)...
He’s going to force all of the Heinz executive to drive Volts.
Really? And what are they gonna do about that Mil-Stone called Opel?
I think you are exactly right. WB is savy to a fault, he knows how to cultivate to his advantage, for now he is cultivating nobama. Buffet is always first for Buffet, somewhere next he’s for America. The big question is, is (funny how those two words together generate a grin) he helping the socialists or using them. I suspect he is using them and they being somewhat less asstute think they are using him.
Regardless of WB’s ultimate intent, its still makes me uncomfortable.
Well you’ll certainly find plenty to agree with then, on this site.
I am taking a conspicuously minority view here. But I take it from strong personal principle:
We have become part of the problem. We need to be pro-American.
I’ll repeat that. We need to be pro-American.
Not pro-Republican or pro-Democrat. That is the problem now, both sides are anti-American.
Everyone is sold out.
America shrinks, spends more then she has, and is on a fast track to historical irrelevance if we do not turn (dramatically) around and start to support the USA first.
In my opinion that is what Buffett is doing. Ahead of the game. He sees the way we are heading, and is buying American.
I support him 100% in this.
Whatever I may criticize Buffett for (not a lot on this site, but quite a lot for his sell-out to Obama) I am with him 100% for buying American.
We are headed toward a conflict of some sort. China is rapidly growing, keeping all their production to Chinese control. Even the joint ventures, are 51% Chinese and all manufacturing there is done domestically.
The game is rigged. We have largely, allowed that, so now we have to fix that.
That is my own personal opinion. It seems to be a seriously minority view here on FR, but I hold it more strongly by the day.
We must change. Especially the GOP. Now.
I hate GM. But I bought it too at 22 and sold it at 25.
They extinguished 100 billion in debt due to bankruptcy.
The US govt. is their partner and will not take aggressive regulatory action against it.
Obama will keep it a float at all costs for his legacy.
It is too big to fail.
It is too politically connected to fail.
It is a really sucky company but it won’t go bankrupt before the US govt. goes bankrupt.
I would recommend you buy it back, but I don’t know.
Don’t want the responsibility that comes from a recommendation like that.
However things have simply got to change. In a very big way. As in big.
I will not recommend any financial moves though.
Prepare for change. That I will say.
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