Toyota Motor Corporation (ADR) (TM): Is General Motors Company (GM) the Best Ride to Prosperity?

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General Motors Company (NYSE:GM) is the largest car manufacturer in the United States and the second top seller globally. For more than seven decades, the company held the crown as the world’s number one automaker until 2008, when Toyota Motor Corporation (ADR) (NYSE:TM) beat its sales record.

General Motors Company (GM)

In 2011, the American automaker regained its top selling position, after sales of the Japanese automaker went down due to natural calamities. GM CEO Daniel Akerson expected that Toyota would rebound, and he emphasized that the company will be ready to compete in a healthy market place.

As expected, Toyota Motor Corporation (ADR) (NYSE:TM) regained its position in 2012, after selling 9.75 million cars compared with the 9.28 million vehicles sold by General Motors Company (NYSE:GM). Despite falling back to the second position, many believed that GM is driving in the right direction towards complete recovery from bankruptcy and government bailout.

During the fourth quarter last year, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B) increased its holding in GM by 10 million shares, bringing its total stake in the company to 25 million shares with approximately $720.74 million market value. This is an indication that Buffett has a great confidence in the company’s profitability. Is General Motors Company (NYSE:GM) the best ride to prosperity?


From bankruptcy to recovery

As we all know, the American auto giant fell to its knees and filed for Chapter 11 bankruptcy protection in 2009. In its filing, GM reported $82.29 billion in assets, and $172.8 billion in liabilities. The United States Bankruptcy Court of the Southern District of New York ordered the sale of all the assets and the trade name of the company to a new entity called NGMCO Inc, later renamed General Motors Company, which received $49.5 billion funding from the United States government.

GM emerged with a competitive cost structure, strong balance sheet, and cash position. In April 2010, General Motors Company (NYSE:GM) repaid $5.8 billion of its loans to the U.S. Treasury ($4.7 billion) and Export Development Canada ($C1.1 billion), ahead of schedule, due to strong sales of its vehicles. GM converted its remaining loans into equities — the U.S. owned 60.8%, the UAW Medical Benefits Trust, and the Canada & Ontario government owned 17.5% and 11.7% stake, respectively, and the old GM held 10% stake.

In November 2010, GM succeeded in its initial public offering (IPO) and raised a total of $23.1 billion after selling more than 450 million shares at $33 per share. Its IPO is the largest recorded in history, proving that it is back on its feet to become profitable.

In 2012, GM repurchased 200 million shares from the U.S. Treasury for $5.2 billion, or $27.50 per share, which represents a 7.9% premium to the closing price of the company’s stock on Dec. 18. The Treasury Department sold more than $500 million worth of GM stocks in January & February of 2013, thus it has already recovered around $29.8 billion out of the $49.5 billion bailout money.

The government plans to sell its remaining 300 million shares in GM over the next 12 to 15 months depending on market conditions. In order for the government to recoup all of its investments in General Motors Company (NYSE:GM), it must sell its remaining stockholding for at least $72 per share. The question is, will GM’s stock price go up that high? The latest median and highest price target of analysts covering the stock is $35 and $44 per share, respectively.

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