General Motors: Big Changes, Big Benefits

When David Bowie sang “Changes,” he was singing about people, not auto companies. But he sure could have been singing about General Motors (GM). Strike “man” and replace it with “car company” and “Ch-ch-Changes/Just gonna have to be a different man” makes a lot of sense.

Bloomberg

In fact, it could be argued that General Motors needs change more than Ford Motor (F), Toyota Motor (TM), or even Honda Motor (HMC), which had to recall a slew of Acuras today.

And big changes its making. General Motors dumped their stake in Peugeot-Citroën and Ally Financial, and closed factories overseas. JPMorgan’s Ryan Brinkman and team explain why these are all positive steps for General Motors:

Firstly, the Ally and PSA stakes did little to benefit GM either financially or strategically, and the cash raised is better invested in restructuring efforts to improve the profitability of GM's core operations. Secondly, the Holden announcement confirms our suspicion that the Chevrolet in Europe plan announced last week is only part of a broader effort to vastly improve the profitability of consolidated International Operations, with a potential Korea capacity reduction likely next.

Thirdly, we are impressed with the rapid pace at which GM is moving to
diagnose and aggressively fix problems, overcoming organizational inertia without undue deference to history (the decision to cease manufacturing in Australia was likely a difficult one internally, given Holden's storied presence in that market). The net effect of these changes is a modest -$0.04 reduction to 4Q13 earnings on increased near-term severance costs (other non-cash Australia wind-down costs will be called out as special items, as will gains booked on equity stake sales); we expect the moves to benefit earnings beyond 2016, after the Australian plants close. We continue to see +30% upside to our $52 December 2014 price target. Reiterate Overweight rating.

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Shares of General Motors have gained 0.3% to $40.17 today at 3:22 p.m., while Ford Motor has gained 1.7% to $16.66, Toyota Motor has fallen 0.8% to $119.36 and Honda Motor has dropped 0.4% to $40.41.