General Motors' (GM) first quarter earnings were impressive, exceeding expectations by a significant margin. But as of today, its stock has barely budged -- and some analysts are downgrading their estimates. GM is probably starting to feel like Research In Motion (RIMM) -- the carmaker has been making money while its rivals struggle with natural and man-made disasters, but Wall Street doesn't seem to care.
It's actually GM's fault
Investors are having a tough time seeing GM as a truly reinvented company. This is due to two factors:
- Significant profits still come from trucks and SUVs
- GM offered generous incentives on new vehicles at the beginning of the year, something it often did in the past to maintain market share.
"[T]he slumping housing market is an ongoing concern, said Jefferies analyst H. Peter Nesvold.The fat incentives GM has already rolled out are, for my perspective, easy to understand: with Toyota (TM) and Honda confronting production slowdowns through the end of the year -- a result of supply chain disruptions brought on by the Japan quake/tsunami -- and with Ford (F) surging ahead, early 2011 was the time to gobble up market share. Historic opportunity. No-brainer, in fact.
"In our view, production mix is a big risk absent an unexpected improvement in homebuilding activity," Nesvold wrote. "GM's pickup inventory currently stands at over 110 days of sales, suggesting that GM either needs to cut production or boost incentives."
Trucks are trickier
The sluggish housing recovery is another story. With more than 100 days of pickup inventory, GM clearly expects construction to rebound. But the economy just isn't cooperating. The twin demons of unemployment and foreclosure are feeding off each other's toxic energy.
Optimists think the housing market may truly bottom next year. Realists think new construction may heat up in 2015-17. Pessimists think Americans are going to bag the dream and become lifelong renters.
The there's always that pesky U.S. government stake
Wall Street is cold. When it looks at the Treasury unloading it remaining 26.5% equity stake on GM later this year, it figures the automaker's market value will be diluted. You could say that some investors think the stock will bump along at $30 a share all summer, then tank in the fall with Treasury acts, setting up an even better buying opportunity than exists now.
But that would be cynical. GM is already an excellent buy at its current depressed valuation. No, what's really going on is that no one really has any confidence in the resurgent auto industry. Why? Because investors don't know how to deal with manufacturing any more.
Lasting value isn't the goal
There's a better than coin-flip chance that anyone who buys GM of Ford now is going to make money over the long haul. Together they have more than a third of the U.S. market. Cars and trucks wear out. But neither company is all that sexy. The upside is good. But not phenomenal. And these days, Wall Street is far too unsure of itself to bet on anything but blockbusters.