Analysis: Wall Street frustrated with pace of change at GM
DETROIT (Reuters) - General Motors Co is frustrating the hell out of Wall Street.
Many securities analysts have "buy" ratings on the stock and are hopeful that a raft of new cars and trucks hitting showrooms over the next year could ignite growth at the automaker, which was bailed out by the U.S. government in 2009.
Yet they have nagging doubts. GM's European business is a mess, there is a big question mark over whether growth is slowing in China, and they worry the U.S. government's stake is holding the company back. There also are concerns that Chief Executive Dan Akerson is not communicating with investors clearly enough or pushing to change GM's hidebound culture fast enough.
And while GM shares have gained more than 25 percent this year to trade at around $25.50, outperforming the S&P 500 index's 16 percent rise, they are still well below their 2010 initial public offering price of $33 a share.
"People thought this new company would have this new sense of energy and momentum and in both cases you don't feel it," said Citi analyst Itay Michaeli, who nonetheless rates GM stock a "buy" as he feels it is undervalued and that management has done a reasonable job given the recession in Europe.
Not helping matters is a corporate culture marked by arrogance and insularity that Akerson failed to break after he took over in September 2010, analysts and bankers said.
Current and former employees have described too many managers operating under too much bureaucracy, a lack of urgency to change or accountability to perform, and a feeling of being stuck in an era when GM dominated the automotive market.
Akerson has acknowledged changing that culture was not tackled in GM's restructuring, and several former executives say the CEO's vision still has not been effectively driven into the lower layers of management.
"The organization is not under control yet," said one former GM executive, who asked not to be identified. Akerson is on the right track but he should trim the number of mid-level managers and bring in more outsiders, the former executive said.
GM officials said the environment has improved, pointing to the story of an employee at the assembly plant in Lordstown, Ohio, who was so concerned with the initial quality of the Chevy Cruze small car that he emailed Akerson directly. That led to a visit by the CEO and the initiation of a practice where GM regularly introduces a defect, called a rabbit, as a way to track whether mistakes are caught during assembly.
"The one thing you'll never hear uttered from the lips of any person here is satisfaction that the work is done or the progress is good enough," GM spokesman Greg Martin said.
THUMBS UP FROM EINHORN
GM and Akerson retain the backing of the U.S. Treasury, which owns about 26 percent of the automaker, according to people familiar with the government's thinking who asked not to be identified.
Given the Obama administration's repeated touting of how it saved GM in 2009 with a $50 billion bailout, that stance is not a surprise and could change after the November 6 U.S. presidential election, industry observers said.
The view is more mixed on Wall Street. Hedge fund manager David Einhorn, known for his strong returns, said this month that GM was much healthier now and could beat growth forecasts thanks to demand for its new cars and trucks.
GM has said it will refresh or redesign more than 70 percent of its U.S. vehicle lineup this year and next. Of special note is the late second quarter 2013 launch of the full-size trucks, including the Chevrolet Silverado and GMC Sierra pickups, which will generate more than $1 billion in additional operating earnings in 2013 and 2014, according to Citi's Michaeli. That compares with last year's record company profit of $7.6 billion.
Others worry more about GM's struggles to turn around its European unit and whether the long-hot Chinese auto market, where GM is the market share leader, is slowing as the 1.8 percent decline in September total industry sales suggests.
Last month, Morgan Stanley analyst Adam Jonas, who rates GM's stock "overweight," suggested the company should divest its Opel business in Europe, which he said would boost GM's shares more than 50 percent.
Most analysts say GM needs at a minimum to close a plant or two in Europe, where the company has posted 12 straight years of losses. But GM has repeatedly stated that Opel is vital to its global success and will not be sold.
Critics cite high turnover at the helm of Opel, which has had four chiefs in the past three years, and wonder whether GM and its leadership fully grasp the region's problems.
Some analysts and bankers said GM has not explained well enough its vision for Europe, including its partnership with PSA Peugeot Citroen. GM said in August it may have to write down the value of its $423 million investment in the French automaker, about five months after announcing the alliance. Analysts have speculated on the survival of the partnership even as sources have said the companies are weighing even closer ties through a joint venture.
STILL WOOD TO CHOP
Analysts have said GM is playing catch-up globally with Ford Motor Co, which under its "One Ford" plan is building more cars using fewer platforms to cut costs. GM is pushing to change that, aiming to have core vehicle platforms account for more than 90 percent of sales volume by 2018 from almost half today.
Ford shares are still valued at a higher multiple than GM's based on enterprise value and operating earnings, even though Ford stock has fallen about 2.5 percent so far this year. Stock performances were calculated shortly before midday on Thursday.
Most GM shareholders say their shares would benefit from Treasury's exit, calling the government ownership an overhang. Some investors said they won't buy GM until Treasury is out.
Analysts say GM post-bankruptcy does a better job communicating with Wall Street, but there is still room for improvement, including more appearances by Akerson outside of quarterly earnings conference calls to explain his vision.
"I do think they're going to need to articulate a little bit clearer some of their plans over the next few months as well as years," said UBS analyst Colin Langan, who has a "buy" rating on GM and believes its management needs more time to demonstrate their abilities.
GM's top financial executives have met several times with Wall Street analysts, while Akerson and his team often hold smaller, more intimate gatherings, called diagonal slices, and larger town hall meetings with company employees to drive their message of change home.
"They're moving in the right direction, but...there's still a lot of wood to chop," said Brian Sponheimer, an analyst with Gabelli & Co, the broker-dealer subsidiary of GM shareholder Gamco Investors.
(Additional reporting by Rachelle Younglai in Washington, and Soyoung Kim, Katya Wachtel and Svea Herbst-Bayliss in New York; Editing by Tiffany Wu and David Gregorio)
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