GM made $2 billion last quarterand forecast growing earnings this year.
How do investors react?
By pushing shares of GM lower.
Welcome to the new conundrum facing GM.
Even as it posts solid earnings, investors remain spooked about the stock. (Track GM Stock Here) What scares them is a litany of real and perceived issues ranging from rising commodity prices to a secondary stock offering diluting share value to the threat of sales stalling with the economy.
So here's a breakdown of the issues weighing on GM shareholders.
- Higher commodity prices will cut into profits
Yes, prices are going up (and will be higher in second half of this year) for everything from steel to rubber to oil. GM says it can counter these higher costs by raising prices on vehicles and controlling fixed costs. In fact, GM says it will have positive pricing in North America in the second quarter.
- Secondary stock offering will dilute GM share value
At some point the U.S. Treasury will sell its remaining stake in GM in a secondary stock offering. The impact is unclear due to a variety of factors including pricing.
- Sales will falter as high gas prices slows the economy
This concern overlooks the fact pen-up demand is driving sales right now. That demand is driven by the jobs market and consumer confidence. Are high gas prices a factor? Yes. The impact of high gas prices is on the type of vehicle someone buys.
- GM will "screw things up" and go back to being the old GM
This is one I hear all the time. CEO Dan Ackerson is well aware of GM's track record and penchant for being overly cautious. That's why he's pushing the company to speed up development of new vehicles. Will it work? Only time will tell. But so far, it's not fair to say GM can't be nimble and grow.
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