GM General Motors
Trailing ROE fell to 3%; even a 9% normalized ROE trails equity cost, so price exceeds value.
The story
GM remains a scaled North American truck/SUV franchise with a captive lender (GM Financial), but operating margin has slid from 8.0% to 2.1% and trailing ROE is just 3.2% as tariffs, EV write-downs and pricing normalization bite. The balance sheet carries heavy finance-arm leverage, so book equity of 61.1B is the anchor, and the stock at roughly 1.15x book already prices a recovery that the cycle has not yet delivered. We are late-cycle to early-downturn for autos, not at a trough with visible upside.
Normalized ROE stays at 9%, which blends GM's 12-15% peak years with trough periods like today's 3%, and remains below the ~11.6% cost of equity, so excess returns are negative. Year-1 book growth is trimmed from 2% to 1% because thin earnings, after buybacks and dividends, barely add to equity. Beta, terminal growth and failure risk are unchanged since leverage and cyclicality have not materially changed.
Value drivers
| Return on equity (normalized) | 9.0% |
| Book-value growth (Y1) | 1.0% |
| Terminal book growth | 3.5% |
| Beta | 1.40 |
| Failure probability | 8.0% |
| Cost of equity | 11.6% |
Valuation bridge
| PV of excess returns | -9.74B |
| PV of terminal excess | -8.19B |
| Equity value | 39.73B |
| ÷ shares → per share | $45.28 |
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 61.12B | 9.0% | -1.60B | -1.43B |
| 2 | 61.73B | 9.0% | -1.61B | -1.29B |
| 3 | 62.52B | 9.0% | -1.63B | -1.17B |
| 4 | 63.49B | 9.0% | -1.66B | -1.07B |
| 5 | 64.66B | 9.0% | -1.69B | -974.71M |
| 6 | 66.02B | 9.0% | -1.72B | -891.75M |
| 7 | 67.60B | 9.0% | -1.76B | -818.07M |
| 8 | 69.40B | 9.0% | -1.81B | -752.51M |
| 9 | 71.44B | 9.0% | -1.87B | -694.08M |
| 10 | 73.75B | 9.0% | -1.93B | -641.91M |
Key risks
- Further margin compression from tariffs, pricing and EV losses pushes ROE below 9% for longer
- Credit-cycle losses at GM Financial erode book equity given its leverage
- Upside risk: a sharp truck-pricing recovery or EV cost breakthrough lifts normalized ROE toward 12%
Catalysts
- Quarterly margin trajectory and GM Financial credit metrics
- Tariff relief or policy changes on EV mandates and credits