The Truth About GMs IPO

The Truth About GMs IPO http://www.thetruthaboutcars.com/editorial-the-truth-about-gms-ipo/#more-358651
One might believe that GMs forthcoming IPO marks the second coming of
Christ. GM, once the worlds largest corporation, faced oblivion in the winter of 2009. The train wreck of this former company reemerged from burial last summer through the generosity of the US and Canadian taxpayer as a new company shorn of most of its former financial liabilities, unproductive assets, and brands it no longer could support. Everything that Jerry York (R.I.P.) told the automotive world in January 2006 that GM needed to do to survive back then finally came to pass. And now, its preparing an IPO to swap ownership from the governments to the public. Ed Whitacre and his team will get the credit for a most remarkable turnaround while Obama will bask in the light of his stewardship of public monies. Lets get the story straight.
For starters, GMs turnaround is mostly a result of the balance sheet restructuring. By eliminating its onerous debt load, transferring a good portion of its UAW VEBA obligation from debt to equity, and killing four brands along with eliminating a bunch of unnecessary assets (like NUMMI), it greatly lowered its operating breakeven level in North America. Think of it as you tearing up your credit cards, getting rid of most of your mortgage and auto loans, and stop alimony payments to your two ex-wives. You could cut your salary in half and survive. It has nothing to do with the genius of Ed Whitacre.
Instead, GM launches a whole bunch of new products, all of which were designed and engineered as part of the old GM, that just happen to be pretty darn good (thanks to Bob Lutz and Ed Welburn). Think Camaro, new Equinox, new SRX, and new Lacrosse, and maybe even the upcoming Cruze. On top of that, GM has a potential technological tour de force in the new Volt that could possibly anoint GM as the King of Green. Oh yeah, GM comes out of bankruptcy during one of the deepest recession in automotive sales in history (relative to the trend line) and start selling again into an upswing. Then its major competitor, Toyota, stubs its entire foot by ignoring a major design flaw that results in death and dismemberment of several US citizens including a California highway patrolman and family.
Even so, GMs market share remains flatlined mostly at around 18%. But its enough share (and volume) that it pays back $6.7 billion of government debt through an escrow fund set up for extraordinary expenses that was barely tapped and thats only because the terms of that extra funding required it to be applied against the debt if it wasnt used for emergencies. Whitacre goes on TV and dupes the public without revealing the true nature of the repayment. Thats like using the estate money you inherited which was never your money in the first place to pay off your bookie but you tell your third wife she can keep her diamond ring and now she thinks youre her hero.
GM reports its first quarter earnings and, surprise, it makes money in North America for the first time in years. And it even manages to reduce losses in Europe while its China JVs hum along nicely as before. The future looks bright time to put on the shades. Its so bright that the GM top executives look to reward themselves some $13 million in restricted stock for just being in the right place at the right time and by coasting off of new products designed before some of them even knew theyd be in Detroit.
But whats really driving the IPO is not the requirement to raise capital for GM. Instead, its a combination of factors, mostly the need for the Obama Administration to win political points before the November elections. A market value on the Treasury holdings most of which it will still own even after the IPO will make headlines all by itself and prove to the taxpayers that the Government Motors moniker is no more. Second, Wall Street investment banks see huge fees of the IPO and secondary offerings of what will be one of the larger stock issuances of all times. Third, Ed Whitacre (and other insiders) wants to proclaim victory and put a value on shareholdings.
What about that value? Heres what the Congressional TARP Oversight Panel has to say on the topic:
The valuation of New GM used by the bankruptcy court estimated that the market capitalization (the price of all outstanding shares) of the new entity would be worth between $59 and $77 billion in 2012. Treasury has invested a combined $49.5 billion in the New and Old GM and approximately 61 percent of equity in New GM.280 Assuming full repayment of the $8.8 billion note and preferred stock issued by New GM to Treasury, the shares in New GM will have to be worth $40.7 billion (the difference between $49.5 billion and $8.8 billion) for Treasury?s investment to be repaid when Treasury sells its shares, meaning the market capitalization of the entire company needs to be worth $67.7 billion. In April 2000, when Old GM shares were at the height of their value (not adjusted for inflation), the company?s total value was only $57.2 billion. In other words, New GM will have to achieve a capitalization that is higher than was ever achieved by Old GM if taxpayers are to break even.
GM is still in turnaround mode. Yes, it will pull off an IPO likely by early in the fourth quarter this year and will garner accolades from Obama, Wall Street, and even some competitors for its remarkable story. But GM still faces a massive problem in Europe Opel/Vauxhall has been a perennial laggard in a market that now looks to be moribund for years. The new executive team hasnt yet sold a car that it has designed and developed for North America. And were still trying to decipher the playbook of the four brands in North America. The IPO is merely a swap of stakeholders in the company from the government to the public but theres still little there to tell us whether or not GM in the future will be a winner. Place your bets!
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"Editoral writers all have a private agenda just like you and me, usually they dont have any more facts or foresight than everyone else. Watch CNBC they make guesses everday and in the end they dont know anymore than anyone else what will happed in the market, and they have all the info they need and are looking forward buy hour or day and they are usually wrong, wait until it happens before you climb on your horse.
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On 11/06/2010 5:33 AM, Jim_Higgins wrote:

It wasn't generosity. 79% of the people were against it. And most representatives in DC and Ottawa caved into the corruption and sold the taxpayers out.
This artical excludes the costs of GMAC on it's 4th bailout, and other things like poluted plant cleanups. Even the true cost of cleaning up GM.old isn't yet known, or at least made public.
When you add up all the costs to GM, the swindled bond holders, pension capital losses, bailouts, fraud loans, fraud financials, taxpayer rape, two things stand out. First the real cost likely exceeds $250 billion. The second is not one person has been charged in this whole mest.
Corruption at it's finest. We now pay taxes to corrupt corporations of America. And people wonder why the economy sucks with all this DC/Ottawa corruption wasting economic wealth.

Do you think anyone trusts GM or government accounting?
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Once again our goofy friend Canuck57 is telling us the sky is falling. LOL

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Most corporations have do similar things to adjust to todays down market.
Obviously you were never an Economics Major are you would understand adjusting ones economies of scale to match ones market. LOL

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Once again our goofy friend Canuck57 is telling us the sky is falling. LOL

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Germany has offered to take over Opel and restructure it, but GM doesn't want to let it go. It has asked Germany for over a million pounds to upgrade the plant, Germany has said no, why should they throw good money into someone else's pot and quite frankly would you give money to a stranger, no,well neither will Germany and I don't blame them.
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On 11/06/2010 6:14 PM, Clive wrote:

Because GM Greedy Motors) is one greedy incompetant company. Good for Germany for not doing it. They should tell GM to pay back the moneys they loaned them that GM didn't spend on plants like they promised.... or confiscate Opal.
I expect this part of the GM issue is far from over.
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You are confused. GM does not own Opal. Opal is "owned" by the Bankruptcy Court in change of disposal of the former "General Motors" remaining properties.
If it can't be sold "as is" the assets will be sold off individually. It could be to the advantage of the German government to keep it in production since a socialist state would still need to "pay" the people who would loose their jobs.
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GM is GM is the legacy of debt, wealth destruction and gross incompetance. Spining off, it is still s result of GM ineptness.
Not at all worth it to keep a dead horse alive. Too costly. First, paing unemployment is cheaper. Then when they do find jobs they are paying taxes at a more productive job. And when unemployment runs out they will take a job for what they are worth.
And then there is the wealth and job destruction factor. Economically government cannot create wealth. It can redistribute it and consume it, but it can't create wealth. When government rapes someone elses pay for lethargic losers, the person paying the taxes will spend less and employ less people, which will more than offset whatever the government does with the stolen moneys.
Obviously your economics comes from the puke of a drunk union workers lunch pail.
On 12/06/2010 10:58 AM, Mike Hunter wrote:

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Once again our friend Canuck57 is telling us the sky is falling LOL
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