Is GM's Rebound the Real Deal?

The revival of Detroit is nearly complete, according to The Wall Street Journal. Chrysler made $166 million in the first quarter, its first profit in five years. Ford (F) made $2.6 billion in the same period, which was its best result since 1998.

But the clearest sign of Detroit's comeback is that GM (GM) is set to retake the No.1 spot as the world's largest manufacturer of cars and light trucks, if forecasts for 2011 hold up. Toyota (TM) took away that distinction three years ago as GM moved into Chapter 11, but the earthquake and tsunami that struck Japan in March have caused Toyota's production to falter. The Japanese automaker's sales have also been hurt by a series of recalls that began over a year ago.

GM's recent success has been based to a large extent on its sales in China, where by most accounts, it and its local joint venture partners are the top sellers of cars and light trucks. In addition, GM's domestic April sales rose 27% to 232,538 from a year earlier, and its market share was about 19.2%, up from 16.6% a year ago, further signs that its health has improved in the U.S. as well as abroad.

China is now the largest car market in the world, so GM's success there should cheer investors, but the car company's stock is down from its 52-week high of $39.48 to $32.18.

Fighting for the Future in China, India, Russia

Given GM's sales figures, it's reasonable to ask why its stock price is falling rather than rising. The explanation most commonly given for the relatively low price of GM's shares is that it faces stiff competition in the U.S. from its highly successful rival Ford, as well as smaller firms like Hyundai (HYMTF), which have begun to pick up market share here. The truth, however, is not that simple.

GM's success in China could be short-lived. What was considered an unimportant market a decade ago has today become a major target for Europe's top car companies, as well as Toyota, Honda (HMC), and Nissan (NSANY). The Japanese automakers have all suffered production setbacks from the recent disaster, but those will be temporary. Toyota, for example, says it will have its plants back at full capacity before the end of the year. After that, it will be prepared to fight seriously again for market share in the world's most populous country, and no matter how successful GM becomes in the U.S., its position in China is essential.

GM also faces stiff competition in other high-growth markets which have only recently become important targets for global manufacturers. Chief among these is India, the world's second most populous nation. The number of cars sold in India in 2010 was only 1.87 million, which is tiny for a nation with more than 1 billion people. However, as India's average household income grows and the nation improves its highway system, it could eventually rival China as a critical market for global car firms.

The other large market with the most potential for huge sales growth over the next few years is Russia. Car and light truck sales in Russia are expected to reach only 2.24 million in 2011. While that figure is more than 10 times greater on a per capita basis than India's, Russia's auto sales are still quite modest for a country of its population.

GM may have achieved a major comeback in the U.S., and it may hold a strong position in China, but the future of the automotive business is quickly moving to other markets, and in those nations, GM's success is by no means assured.

Increase your money and finance knowledge from home

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

GM is the real deal..........all you foreign cars head on back to foreign land!!!!!!!!!BUY AMERICAN

May 07 2011 at 4:57 AM Report abuse +1 rate up rate down Reply

First, my apologies to marine1942.....I used the term telling him to "pull his head out of his butt" and he took offense. I assumed that he would know right away that he was being addressed by a fellow serviceman by using that vernacular. I served back in the late 1960's, and the person I addressed may be apologies...

Now for the union bashers. Some of you have made comments to abolish all unions...please do a little reading in your history books..unions made the middle class in this country, no matter whether you were white collar or blue.Are unions a socialist tool? Yes, in the true sense of the word socialist unions qualify. Many programs in our country qualify as socialism...without them we would be in real trouble. True democracy, or true socialism is merely an idealistic goal. Human nature as it exists today will never adopt to either true meaning of either system. Sucessful countries have a mixture of both...checks and balances. As greedy human beings, we require that system of government. In the case of unions, they were and are a necessary component of our society. I will be the first to agree that they became too powerful and caused some of the pain our country is still feeling today. I believe that at this point in time the pendulum has swung back toward the center. Unions realize that they were part of the problem, and will change, in the short term at least, to meet the crisis. This has happened in the UAW, the Teamsters, and many of the municipal unions.

As for GM....well, I don't think there can be much intellegent argument against what the Bush and Obama administrations did to preven the collapse of the company. If it had gone down as many of you on this forum have expressed a desire to have seen happen, the economic reprecussions would have made the downturn worse. Yes, investors lost a great deal of capital in the government bankruptcy...a lot of investments lost a great deal of capital. I lost a good deal of money on GM common stock....still, what steps were taken to keep the company afloat were necessary. I hope that GM continues to do well, and continues to pay back the investment we taxpayers made. I also hope that the day will come when some of the people on this forum will wake up and realize that our tax dollars are invested in this company.....why would you hope that this investment would fail? It just doesn't make any sense at all!

May 04 2011 at 6:11 PM Report abuse +3 rate up rate down Reply
1 reply to Don's comment

You make a lot of sense. Hopefully people will see the logic in your comment.

May 04 2011 at 7:07 PM Report abuse +1 rate up rate down Reply
1 reply to harleydavid105's comment

Thanks. So many people listen to the extremists and never do any thinking on their own. If people would just take a few minutes to look at the entire picture, and study history they might not make bonehead statements like the one just above this one. (mike) There is a person who refuses to use his brain cells.

May 05 2011 at 5:30 PM Report abuse +2 rate up rate down

UAW, strike GM all you want !! Just spare Ford, ok? Ford is heavy in debt... while GM is scot free on debt , you see the difference? Also, you are welcome to unionzie in the Deep South for all I care! You are just all talk!!

May 04 2011 at 3:39 PM Report abuse -1 rate up rate down Reply


i used to live in ne ohio. retired from gm. i just wonder how all the uaw bashers imagine cars are assembled if no one works. it's sad what has happened to manufacturing in this country. that is what made us the greatest country in the world.
after ww 2, we rebuilt our enemies. and people hate us. i just read an interesting article about that. i don't recall who said it, but he was a brit. they don't hate you, they hate how successful your country is, and what you have. it's called envy.

May 04 2011 at 2:53 PM Report abuse +2 rate up rate down Reply

My Brother and sister in law are SEIU , and I know a bunch of former GM employess , and all of the bigger unions put Pelosi , Reid , Rangel , Schumer , Frank , Dodd ect ect in charge of both houses in 2007.

All employees are told to vote Democrat by theses unions , and they do use strong arm tactics and out right lies to get them to.

Before these Regressives took over both Houses on January 3 , 2007 , the new housing market was still running strong. Sub Contractors like myself were buying 50 million new trucks and vans every single year. Trucks were the big profit makers for the big three.
Enter the Regressives who refused to throttle down on their sub prime mortgage push , and the economy collapsed along with the new housing industry.

I still buy American , and have no problem with the union workers themselves , but unions absolutely helped get us in this mess by voting for Regressives that are Democrat in name only.

May 04 2011 at 2:20 PM Report abuse +10 rate up rate down Reply
1 reply to rualibfool's comment

They may be told how to vote but nobody can prove or disprove how that person actually voted.

May 04 2011 at 2:31 PM Report abuse -3 rate up rate down Reply

Well, it's nearing 60 degrees here in my suburb just SW of Chicago. Think I'll fire-up my Harley and see a little of our beautiful country while I still can. I hope I can avoid all the moronic cagers in their foreign cars. See ya, tom. Have a great day. Talk with ya later.

May 04 2011 at 1:52 PM Report abuse +1 rate up rate down Reply

How to spot a foreign car owner when they're not near their car. They're the ones who don't remove their hat or place their hand over their heart when The Star Spangled Banner (our National Anthem) is played at a public event.

May 04 2011 at 1:42 PM Report abuse +4 rate up rate down Reply

The labor unions have done more to harm the USA than help.

May 04 2011 at 1:30 PM Report abuse +4 rate up rate down Reply
1 reply to nedwards1134's comment

Whatever nedwards1134....The spin you and your con friends put on the union situation is amazing. Give it a rest....

May 04 2011 at 1:57 PM Report abuse -2 rate up rate down Reply

To those complaining about GM and Ford having non-American based factories, if people hadn't started buying lower priced imports (lower because of the poor wages paid in foreign countries) GM and Ford wouldn't have had to build plants in lower paying countries in order to compete. Our gov't should tax imports to save jobs the same way the foreign countries tax American goods we export. Now as America loses good paying factory jobs, not just autos but appliances and others as well most people make far less money in lower paying jobs which is bringing everybody down.

May 04 2011 at 1:12 PM Report abuse -4 rate up rate down Reply

The short answer is a big, loud, resounding, echoing, "NO!"

GM should have been allowed to fold, or broken up into the smaller auto companies it's swallowed up over the last 70 years. We once had a choice.

The U.S. government is amazing in it's duplicity. At the time they were telling Bell they had to break up because they held too much market share (which ended up driving up the price of comm), they were telling GM it was ok for them to buy up and eliminate Tucker, Kaiser, AMC, Nash, Studebaker, and others. How do you think the "big three" came to dominate in a country where competition was once the mother of innovation?

It took about 70 years, but the U.S. government has murdered our mother and left us orphans dependent on the "generosity" of the killer!

May 04 2011 at 1:11 PM Report abuse +8 rate up rate down Reply