Obama's bet on GM hangs on new pickups boosting share price
GM shares fall nearly 2% today
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Of 13 new Chevrolet vehicles to be introduced next year, the Silverado will do more than any other model to help boost sales and profits, analysts predict. |
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DETROIT (Bloomberg) -- General Motors Co.'s best bet for 2013 may also provide the Obama administration an exit ramp for its $50 billion investment in the largest U.S. automaker.
With today's unveiling of its first redesigned Chevrolet Silverado full-sized pickup since 2006, GM aims to take Ford Motor Co. head on with new trucks that could help boost its share price, encouraging the U.S. government to sell its stake.
GM's Silverado and GMC Sierra pickups, mechanically similar models that combined to make up 23 percent of the automaker's U.S. sales last year, generated an estimated 16 percent of the company's global earnings before interest and taxes this year and the redesigned versions could boost that figure by more than $1 billion in 2013, according to a Citigroup estimate.
Even with the recent cloud of high existing truck inventories, the new models hold the promise of giving GM's investors, the U.S. government included, a long awaited boost.
Introducing a new pickup "tends to correlate very well with positive stock returns" for GM, said Itay Michaeli, an analyst with Citigroup. Since GM's initial public offering in November 2010, "there was high anticipation already then for the 2013-2014 truck launch."
Of 13 new Chevrolet vehicles to be introduced next year, the Silverado will do more than any other model to help boost sales and profits, which analysts project will increase next year.
Nineteen of 25 analysts surveyed by Bloomberg recommend buying GM stock.
"It's really hard to find a product for GM that's more important," Rebecca Lindland, an industry analyst with IHS Automotive, said this week in a telephone interview. "From a volume and financial standpoint, this is GM's Super Bowl."
IPO Price
The U.S. may sell its remaining 32 percent stake in GM, a hold-over from the 2009 rescue of the automaker, if the shares rise. The Treasury wants to sell for at least the $33 a share price it got in the initial public offering in November 2010, people familiar with the matter have said. It needs to sell for more than $50 for the U.S. to break even.
Wall Street wasn't impressed today. GM shares fell nearly 2 percent to close the day at $25.12. For the year through yesterday, the shares gained 26 percent, and they needed to gain 29 percent more to reach the $33 IPO price.
GM has long battled Ford for pickup buyers. Sales of Ford's F-Series, which was redesigned in 2008 and has been the best-selling vehicle in the U.S. for 30 consecutive years, have outpaced Silverado and Sierra as customers have shifted to Ford's more efficient smaller engines.
Fuel efficiency
About 54 percent of F-150s sold through September came with six-cylinder engines whereas only 7.6 percent of Silverado 1500s had the smaller powerplant, according to Edmunds.com, a Web site that tracks auto sales.
Before Ford's 2010 introduction of the Ecoboost version of its V-6 engine, which uses direct fuel injection and turbocharging to increase fuel economy and power, about 14 percent of F-150 sales came with six-cylinder engines in 2008, Edmunds said.
"They need to move fuel efficiency that sticks beyond what Ford is doing without sacrificing power," Matthew Stover, an industry analyst with Guggenheim Securities LLC based in Boston, said in an interview. GM will probably "shift it from a horsepower war to a fuel-efficiency war."
GM's current Silverado has fallen behind in technology as the automaker wasn't able to keep investing enough during its 2009 bankruptcy reorganization, said Larry Dominique, executive vice president of researcher TrueCar.com.
"They had a really good riding truck, good fuel economy," he said in an interview. "They've got to take that leap again. They've got to leapfrog Dodge and Ford."
Battling Ford
GM began touting its new trucks today. Executives have promised the new pickup that would have more torque and better fuel efficiency than Ford.
"Everything that I have heard, I think the truck is going to be a threat not just to Ford but a threat to everybody in the full-sized truck business," Jason Brickl, the CEO of a dealership chain that has two Chevrolet outlets in the Madison, Wis., area.
The introduction of the new pickup comes as GM struggles to manage inventory of the old version it must sell down while production of the new truck begins in the second quarter.
At the end of November, GM's pickup inventory rose 4.4 percent to 245,853 compared with a month earlier. Kurt McNeil, GM vice president of sales operations, said the pickup inventory may finish the year higher than the company's 200,000 to 220,000 target.
Eager dealers
After considering trimming its estimate for 210,000 GM pickups to be produced in the first quarter, IHS decided against doing so, analyst Tracy Handler said Wednesday in an e-mail.
Production of GM's full-size pickups and SUVs built on that truck frame could rise 20 percent in 2014 compared with 1 million produced this year, Citigroup's Michaeli said.
Full-sized pickup sales make up about 30 percent of John McEleney's Chevrolet sales at his dealership in Clinton, Iowa.
"A lot of people have been waiting for it," he said in a telephone interview. "I think a lot of Chevy and GMC truck buyers who have had two or three of the current version are excited to maybe move into the new one."
After previewing the truck earlier this year, he said the cabin is nicer and has improved technology.
"They did a great job with the interior," he said. "The outside appearance is strong, but the interior is probably the biggest change, which I'm very encouraged about."
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