Brave New GM

Has General Motors overcome its crisis? – On Thursday, November 18th, the market is supposed to experience the largest IPO of 2010.

One of the many companies hit badly during the financial crisis has been General Motors. Rescued through a $ 50 billion bankruptcy protection by the U.S. government, GM is having its public “revival” this Thursday. 

The U.S. government plans to reduce its stake in the auto maker from 61 to 35 percent by selling 365 million shares through an IPO on November 18th, the WallStreetJournal reports. 

The question arises: Should individuals consider investing in GM stock?

Chief Financial Officer P. Liddell emphasizes in the Businessweek, “The new GM is fundamentally different than the old GM.”

Bankruptcy has helped GM to cut costs enormously, making profit even in a terrible market situation possible. Furthermore, General Motors has a leading position in two of the fastest growing markets, Brazil and China, and a focus on just four core brands helps GM to remain competitive, Phil LeBeau analyzes in CNBC

Critics, on the contrary, argue pension obligations could be a future threat and additionally point out that GM is still losing some U.S. market share to Ford.

Nevertheless, experts in the WallStreetJournal state: “…this is a good time to be buying auto-company shares, and that GM in particular seems an attractive candidate…”.

However, due to a high demand, stocks in this week’s biggest deal already are hard to get and as 90% of the IPO go to institutional investors, many of them to Asian and Middle Eastern sovereign wealth funds, we as normal retail investors will barely have any chance. Retail investors will have to wait until shares start trading on the New York Stock Exchange, as explained in the WallStreetJournal.

F. Sherosky highlights in the Examiner, U.S. Treasury still owns a numerable amount of GM stock and future supply on the market could depress the stock price which will be a buying opportunity, rather than this IPO.

Summing up, one could say, General Motors has transformed itself and looks very profitable, at least in the foreseeable future, so buying stock could be a promising investment. However, the long-term success of GM will also depend on a stronger economy generating more demand for new cars.

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3 Responses to Brave New GM

  1. rudi2020 says:

    Totally agree. Unfortunately shares available are already over-subscribed many times.

    Why GM’s IPO may delay is explained in this short video.

    http://uk.reuters.com/resources_v2/flash/video_embed.swf?videoId=136367921

  2. bravenewloock says:

    For two reasons, I would be thinking hard about investing in the “new GM”:

    1. Despite the restructuring of GM, made possible by the bankrupcy, they still have a very bad position in the US car market, as this WSJ-statistic shows

    2. GM is in a “Do or Die”-position with its electric car “Volt”, as can be seen from this article.

    Therefore, I think that GM’s future is very much in the dark, with a weak position on the current car market and its future very much depending on a new model with very advanced technology, whilst we don`t know whether they can overtake Toyota and other hybrid/electric car maker veterans from scratch…

  3. stuerzele says:

    Leaner, meaner, faster, smarter: Check out this commercial video.

    The video is a bit cheesy, but maybe the restructuring of GM worked. I agree, that GM is in a “do or die” position, but I believe they can make something out of this “rebirth” if they do it right.

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