Since the financial collapse of 2008 and ensuing recession spelled disaster for American automakers investors have been frightened away from what many see as an industry on shaky ground. When GM (GM) faced bankruptcy and Ford (F) dropped well below $2.00 per share in the fall of 2008 investors wondered if American automakers could ever rally back to their previous highs in the face of a would be depression. Even leaving macro concerns aside American auto firms had been losing their technological edge for decades and it appeared as though the collapse could only be the nail in the coffin for this hallowed American industry. But GM (with a little help from Uncle Sam) did recover, and 2013 was the best year for auto sales since 2007.
Still it is increasingly noticeable that new car sales and new car culture have suffered declines in America since the recession, with people keeping their vehicles on the road for longer than in previous decades. The appearance of innovative new companies such as Tesla Motors (TSLA) and the continued technological prowess of foreign companies like Toyota Motors (TM) have continued as serious threats to the old American automakers. The evidence for this continued pessimism is reflected in GM's low P/E ratio of 15.48.
In spite of overlying fears regarding the future of the American auto industry, new developments in the Government Motors story seem to indicate that the company should be seriously considered for long term value investment portfolios. The introduction of a dividend for the first time since 2008 and the prospect of expanding Electric Vehicle market share position GM as a potentially out performing long term investment.
On January 14th GM announced a 3.3% quarterly dividend, causing the stock to surge in after hours trading. The dividend reintroduction will make the stock attractive to more income focused investors for the first time in over 5 years, thus precluding increased investment and possible rising P/E ratios if 2014 sales stay strong. The new dividend coupled with the end of the "Government Motors" era back in December seem to suggest that GM's management is confident in the company's financial condition moving forward.
Turning to electric vehicles we get a possibly overlooked lead into an exploding industry. I would suggest that GM's shot at significant EV market share in the coming decade makes it a solid bet for investors today. It has been pointed out by some analysts (like this one) that EVs will likely not achieve significant market penetration for another 5-10 years even with soaring sales since 2011. Nevertheless, as oil scarcity becomes old news in the public consciousness there will no doubt be several big winners (and losers) as the world drives away from gasoline. GM, with its popular "Volt," may be well poised to rack up significant EV sales in the near future, especially among American loyalists. A $5000 price cut in the Volt in 2013 and rapidly expanding battery production facilities seem to indicate that GM's management is well aware of the threat that electric start ups and foreigners pose to its livelihood in the near future. With new developments it appears that GM is worth watching as the EV story unfolds, and may be a good buy now while the whole world drools over the Model S.
