Dear Mr. Berko: I recently subscribed to the Value Line Investment Survey. One of its analysts, Ian Gendler, is recommending buying stock in General Motors, the largest automaker in the world. Gendler says that GM has “strong volume and pricing and continues to reduce cost” and that “the firm is posting healthy financial results.” He says GM is planning to come out with three brand-new crossover models that “will help the company sustain the momentum in the quarters ahead.” According to Gendler, the 4.5 percent dividend is attractive and the stock has good investor appeal for excellent long-term growth in principal, earnings and dividends. Please give me your thoughts on General Motors and the Value Line Investment Survey. We have an $11,000 certificate of deposit coming due next week. The best renewal rate is 1.35 percent, so we would consider buying 300 shares of General Motors.
— S.Z., Vancouver
Dear S.Z.: I’m sorry to disabuse you of this notion, but GM is no longer the largest automaker in the world. That title belongs to Toyota Motor Corp. Renault-Nissan Alliance claims the No. 2 spot. Volkswagen comes in third, followed by General Motors (GM-$33.69) and then Ford Motor Co. And Ian Gendler isn’t just an analyst at Value Line; he’s the executive director of research, and that means he has a lot of smarts. I’ve followed Gendler for several years. I’m impressed with his work, and I’d hire him in a Sioux City second if I could afford him. However, a subscription to the Value Line Investment Survey is the best alternative.
I may be wrong — and hope I am — but I don’t agree with Gendler’s bullish opinion of GM. After bleeding under the United Auto Workers’ thumb for ages, in November 2010 GM emerged from an ignominious bankruptcy and sold 550 million shares in an initial public offering at $33. At that time, the Dow Jones industrial average was at 11,500. The Dow has almost doubled since then, and GM is still trading at $33. Hmm! Well, there’s a darn good reason for that. Though revenues, earnings and dividends have improved since 2010, they haven’t improved enough in the eyes of Wall Street’s movers and shakers to grow the value of the stock.
Some automakers are trimming production because of excess inventory on dealer lots. GM has laid off several thousand workers in Michigan and Ohio. Ford, sensing a slowdown, intends to pink slip 200,000 employees this year. Meanwhile, GM’s important net profit margins have been falling and may continue to fall through 2021. GM’s return on capital and its return on equity are also declining and could continue moving lower over the next few years.
