General Motors’ CEO, Mary Barra, continued to project a bright future for the automaker during a recent presentation to shareholders. The prognostication gave a rosy appraisement for financial estimates as far out as 2020, when Barra says GM will have between $9 billion to $10 billion in free cash flow. Her crystal ball also shows that electric cars will compete with gas-powered vehicles by 2022 and that global car sales will increase by 50% to 130 million by the year 2030.
Rumors have circulated that General Motors is considering building Buick SUVs in China which would be sold both there and in the USA. The timing of the leaked plans could not be worse as China markets continue to collapse, spreading contagion to world markets. The timing also coincides with GM’s negotiations with the UAW, raising the suspicion that GM is using the rumor to leverage their bargaining power with the UAW.
Why is GM focusing so much on the Chinese market at the worst of times? Regardless of the weakening Chinese economy, it would be challenging to convince American consumers to purchase SUVs built in China given the perception of lower quality and safety standards. China also has not been the best of US allies considering ongoing computer hacking allegations, aggressive military build-ups and unfair currency devaluation tactics.
General Motors recently announced that it will spend $5 billion on a joint venture with Chinese state-owned SAIC Motor to develop vehicles for emerging markets. The announcement came around the same time that GM reported results for 2015 second quarter earnings, which showed cash and cash equivalents decreasing $2.2 billion in the first six months of the year. Marketable securities also declined by $2 billion during that time frame.
It would appear that the insiders at General Motors do not have as rosy a view on the financial outlook for the company as they would have the rest of the public believe. The well-paid executives at GM sold out of another $2.8 million worth of shares in June according to Yahoo Financial statistics. Of course, the sales of shares are pure profits for the higher-ups at GM, considering that the elite group of executives receive millions of dollars’ worth of GM shares for free through stock options.
Earlier this month, the Wall Street Journal reported that the United Auto Workers union (UAW) was drawing up contingency plans to strike if upcoming negotiations with General Motors, Ford and Fiat Chrysler Automobiles do not satisfy UAW officials. The UAW is leveraging the good timing of the negotiations, which are occurring at the same time as the auto industry’s cyclical top.
The Wall Street Journal recently reported that Fiat Chrysler Automobiles CEO, Sergio Marchionne, has been pressing for a merger with General Motors. Marchionne has been appealing to hedge funds and activist investors in a move that seems to verge on desperation. The main takeaways from the appeal are that the government bailouts of GM and Chrysler were not a long-term fix for the industry and that Mr. Marchionne is one of the few experts on the industry who is honest enough to admit it.
The New York Times reports that the Justice Department has concluded that there was criminal wrongdoing by General Motors as the company covered-up a deadly ignition switch defect for years. That defect has now been blamed for causing the deaths of at least 107 motorists. While many observers may have been able to come to the conclusion that GM was guilty long before the Justice Department’s recent epiphany, the bigger question now is, what’s next?
It appears that General Motors is trying to remedy one of the latest criticisms against them. That criticism is that the company has way too large a “cash hoard” and most recently came from former Obama Auto Task Force member turned shareholder activist, Harry Wilson. Well Harry, be at ease; GM has managed to reduce that so-called hoard by over $3 billion in just three months as first quarter earnings flopped on Wall Street.