Is General Motors Cooked Or Cooking?

As an Elder Millennial, it’s always dangerous to try to use the jargon of the day. I hope I never sink so low that I try to explain how Norbert Reithofer rizzed up Baby Koji Sato. Still, I do enjoy the way the larger internet tends to create useful binaries (it’s so over/we’re so back) and I’m going to use one today to talk about General Motors. Is the automaker cooking or is it “cooked”?

The cooked/cooking dichotomy is like a year old at this point and I’m sure parts of the internet have moved on, which means it’s a perfect time to drive it into the ground. The Morning Dump today will start with GM, which has done quite well up to this point. It’s definitely cooking, though there’s a disagreement over how long that’ll last.

Amazon’s car sales program with Hyundai has not, to this point, delivered much. Is it cooked? We’ve noted many times that Stellantis definitely is cooked at the moment, and its plan for the future seems to be laying off workers. And, finally, the editors at Cox have a list of the automakers they think are cooking and I mostly agree, though there’s one big flaw in their analysis.

Skibidi. [Ed Note: I had to look that up, and I still don’t get it. -DT]

Analyst Downgrades GM Stocks Over ‘Earnings Headwinds’

So far this year, Tesla stock is up about 2.35%, though it’s mostly been underwater. General Motors stock, however, has climbed about 33% and has spent most of the year in positive territory. While Tesla is still way more valuable than GM from a market cap perspective, this might be a surprise to people who think Tesla stock only goes up.

If you regularly read TMD this isn’t a shock to you, as last year General Motors indicated that the company’s plan was to improve the stock price and would do so via stock buybacks and dividends. Since writing that, GM stock has gone up more than 80%. It’s a publicly traded company, so improving the stock price is generally a good thing and Barra et al deserve credit for successfully navigating a tough year and delivering a big increase.

Still, I expressed a lot of skepticism last year that this was ultimately the best long-term strategy, writing:

Yes, the company’s truck and SUV business is very profitable and I also think their new EVs look very good, but if I were a GM shareholder I’d want them to invest as much as possible in hybrids and fixing their Ultium production. It’s nice that GM will be profitable this year and that the strike is only going to cost about a billion dollars, but in what universe does GM not need every cent to survive a future with Chinese automakers expanding in Mexico and Tesla showing no signs of slowing down?

This isn’t so out there a view as Daniel Röska, Bernstein analyst and recent GM bull, has downgraded GM from “outperform” to “market perform” and set a price target down slightly to $53 (it’s currently trading at around $48 per share). Röska gives many reasons:

From a macro point of view, Roeska noted that continued inventory build in the US will lead to pricing discounts in 2025, impacting profitability. “We assume that discounts will need to increase as inventories are getting pretty high, currently standing at 70 days,” he wrote.

Meanwhile, GM’s EV ramp might not go as expected. GM’s 200,000 EV production target in North America for 2024 is likely beyond reach, Roeska wrote, and GM would have to quadruple sales in the final four months of the year to hit that goal.

All that sounds reasonable to me, as are his concerns over hybridization costs:

Roeska is concerned that the joint venture with Hyundai will require significant capital expenditures which will dent profits. “We expect the [hybrid] endeavor to require catch-up capex on hybrid models reducing the FCF [free cash flow] available to return to shareholders.”

Yeah, but what if GM-Hyundai brings back the LUV?

In this first view, GM will be fine, it just won’t be returning as much value to shareholders as it has in the past. Is there another view? Analysts at British bank HSBC set a higher share price target of $58. Why? Here is HSBC’s reasoning:

In a note devoted to US automakers, the broker refers to “resilient” demand, but also to sharply contrasting sales dynamics between the “Big Three”.

While Ford and GM saw their sales increase by 6% and 2% respectively over the summer period (July-August), those of Stellantis fell by 19%, notes the broker.

As far as GM is concerned, the strength of the results published for the second quarter should make up for weaker performance in the second half of the year, he points out, while revising downwards his forecasts for 2025 by 6% in view of a more difficult market environment.

The broad view is that 2025 may be a good year for sales if something weird doesn’t happen, but it’ll probably be tight for automaker profits. I don’t personally think GM is cooked, I think it’ll do well, but I don’t think if we fast forward another 10 months that GM will be up 80% again.

Amazon’s Car-Selling Thing Isn’t Working Out So Well

In theory, Amazon sells cars via a pilot program with Hyundai. In reality, it’s a lot more complicated.

The concept of using Amazon to sell cars makes sense as it already has an enormous number of customers who look to the company for help in buying everything from movies to a 55-gallon barrel of lube to help you rev your Onan (full disclosure, I did put in an Amazon affiliate link, which means if you buy a 55-gallon barrel of lube we might make a commission on it. I mostly did this for my own amusement).

Early reports of the service identified some problems:

And most of the new car market, made up of franchised dealers protected by tough state vehicle sales laws, hasn’t been able to mimic the click-and-buy purchase process consumers are increasingly able to get everywhere else.

So far, Amazon’s program is small, but dealers are watching. Some are skeptical that Amazon will be able to overcome the challenges that have stymied other companies.

That was in January, let’s check in on this courtesy of NADA CEO Mike Stanton during a panel at the Automotive News Congress yesterday:

“What I am hearing right now is that the dealers are frustrated,” Stanton said. “They’re not there yet with the agreement. It appears to be another digital retailing tool at the moment and probably not top tier.”

[…]

“They still haven’t set up a situation where the dealer can deal with multiple banks or work on trades, so I think more will come,” Stanton said.

Panelist Inga Maurer, senior partner with McKinsey & Co., cautioned the Amazon-Hyundai partnership carries risks for dealerships in terms of the data they must give up to participate.

“It’s important that dealers understand what they’re giving up for data and what it means down the road,” Maurer said. Amazon likely will use their customer data to market other products to them including parts purchases, she added.

I went to an Amazon page to look at a car and it was basically a decently nice configurator that then just sent you to a dealership. This isn’t to say that Amazon can’t or won’t figure it out. Amazon has figured out how to do a lot of things, including saving the last few seasons of The Expanse, for which I’ll be forever grateful.  This is just to say that making cars is hard and selling them, in some ways, is even harder.

Stellantis Is Laying Off Workers

I was going to go a day without writing about Stellantis. I really was. There’s been plenty of it lately, but it turns out I just can’t quit you Stellantis.

Today is the news that Stellantis is laying off UAW workers in all sorts of places as it continues to fight with the union and plan for its uncertain future. This bit from the Detroit Free Press stuck out to me:

Stellantis Chief Financial Officer Natalie Knight told analysts Monday that the company intends to have 80% of “our supply” coming from “best-cost countries” in coming years, echoing a theme the automaker has been touting to investors this year.

Stellantis’ issues go well beyond its fight with the UAW, however. The company has been struggling with high inventories, lower sales in its crucial U.S. market and diminished profits, although it has remained profitable, according to its most recent earnings report.

What, exactly, is a “best-cost” country? Places like Morocco, India, and Brazil.

The Best Brands Right Now According To Cox Automotive

The nice folks over at Cox Automotive do a lot of analysis that I link to and I’m grateful to have access to it as it helps me explain to all of you how I think the automotive world works. I also appreciate that they’re willing to engage in a bit of schtick to get the point across, especially for something that’s a bit more qualitative than quantitative.

This week’s schtick is comparing the four best brands to college football teams. I take no issue with the brands they picked because, while I’ve had my issues with Subaru, they are an extremely popular carmaker with products people seem to love. Toyota and Honda are definitely at the top of the game and Chevrolet, with products like the Trax and still-popular trucks and SUVs, is doing a great job. Other than a lack of hybrids and the lack of a Camaro replacement, Chevy has an appealing lineup.

My issue is that they made Toyota the “Alabama” of automakers and Chevrolet the “Texas.” Here’s what they wrote:

Toyota is the Alabama Crimson Tide of the car business and a championship contender every year. They have some compelling new product launches, including the all-new Land Cruiser (which looks great), the new Tacoma and the 100% Hybrid Camry. Toyota continues to carry the highest blue-sky multiples in the industry, enjoys the lowest incentive spending per unit, and has the fastest days to sell! As always, they will be a tough team to beat.

My Texas Longhorns (Class of ’05) are #1 in the rankings, baby! Also, Toyota is literally based in Texas now. I think this is a massive oversight on the part of Cox Automotive, but I’m gonna let it slide because they called Subaru the “Notre Dame” of car brands and I think that’s definitely right because Notre Dame has a bunch of extremely loyal fans, gets way more attention than it deserves, and is usually kinda mid!

What I’m Listening To While Writing TMD

I decided I needed to blog a bit this morning to help out while we’re short-handed, so I tossed on Rage Against The Machine’s “Wake Up.” I am pumped.

The Big Question

Who is cooked right now and who is cooking?