General Motors
Company Overview
General Motors is one of the world's largest automotive manufacturers, producing vehicles under the Chevrolet, Buick, Cadillac, and GMC brands primarily in North America and China. After emerging from Chapter 11 bankruptcy in 2009, GM went public again in November 2010. Berkshire accumulated a GM position in the post-bankruptcy period.
Investment Story
Post-bankruptcy investment. Berkshire accumulated GM common shares in the period following the company's 2010 IPO, seeing a restructured manufacturer with a cleaned-up balance sheet, reduced legacy costs, and improving product cycles. The investment reflected Buffett's view that the post-bankruptcy GM was a genuinely different company from the one that had entered Chapter 11.
Mary Barra's leadership. Berkshire's investment coincided with the ascension of Mary Barra as CEO in 2014 — the first female CEO of a major global automaker. Under Barra's leadership, GM accelerated its electric vehicle investments while maintaining profitable core truck and SUV franchises. Buffett praised Barra's management approach.
The EV transition challenge. GM committed to an all-electric vehicle lineup by 2035 and is spending tens of billions transitioning its manufacturing base. This transition requires enormous capital with uncertain payoff timing — the opposite of Berkshire's preference for capital-light, predictable businesses.
Buffett's Own Words
Our traditional business—and still our largest segment—is in the specialized policy or non- standard insured. When standard markets become tight because of unprofitable industry underwrit- ing, we experience substantial volume increases as producers look to us. This was the condition sev- eral years ago, and largely accounts for the surge of direct volume experienced in 1970 and 1971. Now that underwriting has turned very profitable on an industry-wide basis, more companies are seeking the insureds they were reje
*Our traditional business—and still our largest segment—is in the specialized policy or non- standard insured. When standard markets become tight because of unprofitable industry underwriting, we experience substantial volume increases as producers look to us. This was the condition several years ago, and largely accounts for the surge of direct volume experienced in 1970 and 1971. Now that underwriting has turned very profitable on an industry-wide basis, more companies are seeking the insureds they were rejecting *
Overall, our insurance business continues to be a most attractive area in which to employ capital. Management’s objective is to achieve a return on capital over the long term which averages somewhat higher than that of American industry generally—while utilizing sound accounting and debt policies. We have achieved this goal in the last few years, and are trying to take those steps which will enable us to maintain this performance in the future. Prospects for 19
Furthermore, as explained later in this letter, a large segment of these earnings resulted from Federal income tax refunds which will not be available to assist performance in 1976. On balance, however, current trends indicate a somewhat brighter 1976. Operations and prospects will be discussed in greater detail below, under specific industry titles. Our expectation is that significantly better results in textiles, earnings added from recent acquisitions, an increase in equity in earnings of Blue Chip Stamps result
Berkshire’s performance and prospects. Much of this segmented information is mandated by SEC disclosure rules and covered in “Management’s Discussion” on pages 29 to 34. And in this letter we try to present to you a view of our various operating entities from the same perspective that we view them managerially. A second complication arising from the merger is that the 1977 figures shown in this report are different from the 1977 figures shown in the report we mailed
Investment Lessons
Post-bankruptcy restructured companies can offer value when legacy burdens are genuinely eliminated. GM emerged from Chapter 11 with a substantially reduced pension liability, renegotiated labor agreements, and a cleaned-up dealer network. The bankruptcy process effectively did what normal business operations couldn't — eliminated structural cost disadvantages that had accumulated over decades. Investing in a genuinely restructured post-bankruptcy company differs from speculating on a distressed company hoping to avoid bankruptcy.
Automotive businesses face genuine structural transition risks. The electric vehicle transition requires automakers to simultaneously maintain profitability in declining internal combustion businesses while investing billions in EV capability that may not generate comparable returns for a decade. This dual investment burden — keeping the old profitable while building the new — is a capital allocation challenge that even excellent management teams find difficult.