Is GM’s Recovery For Real?

GM has come a long way since filing for Chapter 11 bankruptcy in 2009. After a shaky four years, including a government bailout and a new IPO, GM recently rejoined the S&P 500 in the beginning of June. With stiff competition from Ford (NYSE:F) and Toyota (NYSE:TM), can GM continue its impressive run? Let’s use our CHEAT SHEET investing framework to decide whether GM is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.

C = Catalysts for the Stock’s Movement

GM’s share price is up an impressive 21 percent this year. GM received a symbolic boost when it rejoined the S&P 500 at the beginning of the month. However, as the Fed reduces quantitative easing, a more ‘risk on’ environment could emerge, hurting new car sales. The end of easy money could mean limited upside for GM for the short-term, but what about for the long term?

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GM has established a strong presence in China owning 13 affiliated plants. The company recently announced that it broke ground on a $1.3 billion dollar Cadillac plant in Shanghai in order to meet rising Chinese luxury car demand. GM’s strategy seems to be working as sales hit an all-time high in China last month. The company sold 252,942 vehicles in May, a 9.4 percent increase year-over-year.

Unfortunately, things in Europe aren’t going so well for GM and haven’t been for a while. The company has been unprofitable there for more than a decade, due to lack of demand for vehicles during the Great Recession and poor capacity planning and plant utilization. GM did reduce its quarter-over-quarter losses during the last quarter, with CEO Dan Akerson attributing this improvement to cost-cutting initiatives and relative success with new models.

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GM has made an impressive commitment to replace 90 percent of its existing vehicle fleet with new offerings by 2016. One of the earliest phases of this revamping process was the rollout of new full-size Chevrolet and GMC trucks this Wednesday. GM’s CEO Dan Akerson was optimistic, noting “it’s probably [GM’s] best launch ever.” It is important for GM that these vehicles receive positive reviews, as the company tries to repair relations with many Americans who were unhappy with the government’s bailout of the automaker.