Thursday, August 19, 2010

Government Motors IPO


You bought the company once (via bailout) and
you get to buy it again! (by buying stock)

Taxpayers own more than half of General Motors (67%).
GM still owes the government $43 billion.

They are going to be selling shares to the public - traded in the US and Canada (New York Stock Exchange and the Toronto Stock Exchange). Some say that GM is looking to raise up to $20 billion in its Initial Public Offering (IPO) making it the second largest in history. They will be offering $100 million in Common Stock and $100 Million in Preferred Stock (pays dividends and offers some protection if GM goes bankrupt).

Some analysts are predicting that in the long term, General Motors is just going to fail again.


They say it's because a legitimate bankruptcy and meaningful restructuring of the company was prevented by the taxpayer funded government bailout. What was preserved was an inefficient and unproductive company. Additional government subsidies and programs like "Cash for Clunkers" were just crutch programs to keep GM propped up - meanwhile their revenues/earnings have been padded as a result. It doesn't represent true sustainable demand for their product. So the increased profits they have been posting may not be telling the whole truth.

Some say that this company is run by labor unions and not for the benefit of its stockholders. The labor unions have done much damage to the profitability of GM and other companies as well. Benefits and pensions and other perks have driven up the price of manufacturing their cars. Many buyers must now take out huge loans in order to own a new vehicle. Clearly, people are shying away from that much debt nowadays and they are opting to buy used cars. (even though they are getting hit with higher tax assessments on used cars)

CNBC reports:
Scott Sweet, senior managing partner of IPO Boutique, agreed GM has a lot to prove before investors should consider it a worthy investment.

"They still have problems and their problems are large," Sweet said.

Of course everyone can see that this is a political ploy as well... by trying to raise enough cash to pay back the taxpayers, even though some would say that this company is fundamentally still sick, the Obama administration wants to be able to portray this $50 billion GM bailout as a financial success in the face of public skepticism and Republican political opposition. People are saying that buyers should tread cautiously (aka buyer beware) - because you may be buying just another inflated stock that is being hyped.

According to this video

GM is offering its customers less choice. It has trimmed its models from 8 to 4 - shedding SAAB, Hummer, Pontiac and Saturn while retaining Buick, Cadillac, Chevrolet and GMC

The company is still $8.1 Billion in debt.

They have laid off 40,000 workers going from 93,000 to 53,000 employees.

Some may say that those cost cutting measures were a good thing, however the truth is that unless they can sell cars that people want, at a price they can afford then this company will be going nowhere very very fast.

I know one thing - I will be steering clear of this IPO, and I have decided not to do business with any company that has gotten a government bailout.

You can check them out here and here.

(The above should NOT be taken as investment advice... it is statement of various facts and opinions... anyone interested in making investments needs to do their own homework regarding investment and company financials before they plunk down any chunk of change. Just sayin'.)

1 comment:

Eric Holcombe said...

Gee, I didn't realize that "we" were selling "our" publicly-owned car company to the public (us?). It seems a lot like trying to move money from my right pocket to my left pocket and call that a "profit" while at the same time cutting the legs off my pants and giving them to banksters.

But then, I guess that's why we need the Federal Reserve Cartel of TARP-suckers to "oversee" the offering.

Why would I hire a bankrupt auctioneer to sell my car company?

I'm not worried though. My state Sen. Bob Corker (R-TN) worked really hard on this bailout (for all parties involved) and said it would be a good investment. I am holding my breath waiting on the dividend checks from the sale of "my" car company...