GM Stock Falls on Rebuffed Fiat Merger Inquiry, Potential Recall Related Criminal Charges

NEW YORK (TheStreet) -- General Motors (GM) shares are down 0.56% to $35.50 in morning trading on Tuesday following reports that the American car company rebuffed a merger offer from Fiat Chrysler  (FCAU) CEO Sergio Marchionne in March, according to the New York Times.

Marchionne floated the idea via an email to GM CEO Mary Barra, saying that the industry needed to consolidate to save money and that a merger between the two automotive companies would cut billions of dollars in costs. 

The Times reported that Marchionne's request for a meeting was flatly rejected as a potential merger failed to pique the interest of Barra or any of GM's other executives.

Separately today, the U.S. government is considering bringing criminal charges against either GM or its employees due to its failure to promptly recall vehicles with faulty ignition switches, a defect that resulted in at least 104 deaths.

The FBI is assisting Manhattan U.S.  district attorney Preet Bharara in gathering evidence to ascertain whether the company knowingly delayed recalling the 2.6 million faulty vehicles. If investigators find the company guilty they will then be able to sue GM.

If that were to happen GM would be liable for fines on top of the $3 billion the company has already spent on the recall, including the $600 million it has set aside as compensation for the victims of the defect.

The fund is still reviewing compensation claims though the company has previously stated that it expects to be finished with that process by July.

TheStreet Ratings team rates GENERAL MOTORS CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate GENERAL MOTORS CO (GM) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, impressive record of earnings per share growth, notable return on equity, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 343.7% when compared to the same quarter one year prior, rising from $213.00 million to $945.00 million.
  • GENERAL MOTORS CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENERAL MOTORS CO reported lower earnings of $1.64 versus $2.35 in the prior year. This year, the market expects an improvement in earnings ($4.48 versus $1.64).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Automobiles industry and the overall market on the basis of return on equity, GENERAL MOTORS CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.6%. Since the same quarter one year prior, revenues slightly dropped by 4.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Even though the current debt-to-equity ratio is 1.33, it is still below the industry average, suggesting that this level of debt is acceptable within the Automobiles industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.79 is weak.
  • You can view the full analysis from the report here: GM Ratings Report

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