Archive for the ‘GM bailout & IPO’ Category

Remember that masterful GM bailout that saved the US auto industry?

July 21, 2016

Election time, so some politicos are back to touting how the Feds “saved the US auto industry”, so I thought it was time to do a quick retrospective on the bailout.

Let’s put a stake in the ground: Ford didn’t take any Federal bailout money.

Since share price is a measure of financial performance, how has Ford stock performed?

Simple answer: At par with the S&P 500 when measured from pre-financial crisis levels …  better than the S&P if measured from the financial crisis trough. (Ford is the thin green line on the chart, S&P is the blue).



And, how has the Fed-saved GM done?


Will GM go bankrupt again?

August 24, 2012

That’s the question posed in a recent Forbes article that’s worth reading.

Here are some of the underlying facts … read the article for the editorial stuff …

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Stock Market

The federal government owns 500,000,000 shares of GM, or about 26% of the company.

The stock is trading at about $20/share, so the government is holding about $10 billion worth of stock

The government’s GM stock is worth about 39% less than it was when the company went public at $33 /share

Since GM’s IPO almost two years ago, the broader S&P 500 has gone up about 30%.

During that period, Ford shares have gone down about 15%, Toyota up about 15%, Honda up about 5%, Nissan up about 35%, Hyundai up about 60% and Volkswagen up about 85%.

It would take about $53.00/share for the gov’t to break even on the bailout.



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Car Market

As a company, General Motors peaked in 1965, when it commanded 50.7% of the U.S. market, and made a stunning-for-the-time $2.1 billion dollars in after-tax profits.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market.

For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011.

GM is flailing in the D-car segment (Malibu, Camry) which accountd for about 20% of the U.S. car market.

Recent (and forthcoming) versions of the Malibu score dead last in Car & Driver reviews.

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How does GM’s tax rate compare to Buffett’s secretary’s?

March 2, 2012

Interesting editorial in the WSJ re: the GM bailout.

Everybody knows the GM’s stock holders were wiped out, that secured debt holders were subordinated to the unsecured UAW claims and  haircut to about 50 cents on the dollar, and that “New GM” stock is trading about 25% below its IPO price — leaving taxpayers with a $15 billion book loss on Treasury holdings.

What most folks don’t know is that GM got a special deal that rolls old GM’s $45 billion in accumulated tax losses into new GM.  That’s usually not allowed when restructuring companies — as a means of stopping companies from just acquiring losses from other companies as a tax dodge.

Bottom line:

In a 2011 working paper, J. Mark Ramseyer of Harvard and Eric Rasmusen of Indiana University argue that by manipulating corporate tax rules by fiat, “Treasury gave the firm (and its owners, including the UAW) $18 billion more in assets.”

The WSJ observed:

Mr. Obama crowed yesterday about GM’s “highest profits in its 100-year history.”

We’d be interested to hear how its effective tax rate compares with Warren Buffett’s secretary’s.

Hmmm ….

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GM Shareholders: The next bailout?

March 18, 2011

If you were one of the insiders who bought GM’s stock on the day of the IPO for $33 and change, and you’re still holding it, guess what?

You’re under water.

More realistically, if you’re one of the first day fat cats, you flipped the IPO stock … maybe for as much as $39 … you made some quick money.

But, those suckers who bought your flip?

Well, they’re way under water.

Last week, the stock was trading at its life time low … under $32. It’s still there.

Some traders are shorting the the stock, looking for a near-complete collapse.

Here’s an analysis from one of the shorts – Jonathon Hoenig of The Capitalist Pig and WSJ’s Smart Money …

GM recently announced a $4.7 billion profit , its biggest in a decade. Some 45,000 union workers will receive profit-sharing payments averaging $4,300 – a record.

And on that very same day, shares of the company slid below their IPO price of $33 for the first time, a vitally important fact overlooked by most of the enthusiastic media reports.


If there was ever a stock that makes people emotional , it’s General Motors. Either the company is the backbone of the American working man or the poster child for bad business practices.

That emotion, of course, is only exacerbated by the fact that GM received a $50 billion bailout from the Federal Government, an intervention that left taxpayers the largest shareholders, still owning 26.5% of an extremely weak stock. For the government to break even, shares will have to hit an estimated $53 – up 64% from current prices.

And not all of GM’s headlines have been as rosy as its recent profit announcement. The company sold just 281 Chevy Volt hybrids in February.

Despite its recent rebirth, this is a quintessential ” old soldier ” stock, heavy with the overhang of public ownership and beset with wasteful political influence .

GM’s “skimpy” first day bump …

November 23, 2010

First, I’m not a big fan of the GM bailout. 

That view seems contrarian the week after the big IPO.

My reasoning: Remember the Iacocca-led Chrysler bailout.  It was hailed as saving the company.  Well, it saved it from death, but the company never did catch real traction. Even Mercedes couldn’t make it work … and it ended up getting bailed out again.

My take: any company can look good for awhile if you wipe out its shareholders and secured debt holders.

But eventually, the structural factors kick back in (e.g. the UAW albatross) and the rocks start popping through the water again..

Just watch.

Now, about the IPO …

Sean McAlinden of the Center for Automotive Research told NPR that investors may want to ask the new GM: “By the way, the last set of shareholders and bondholders you had, you totally screwed them. So why should I trust you now on nine months’ worth of results?”

Bottom line, the net effect of the bailout and IPO is the transfer of ownership from GM’s old investor base (millions of widows, orphans, and retirees), to a bunch of bailed out banks and sovereign funds…  many of whom whom probably flipped their shares in the first day trading.

The good news is that the new transient owners didn’t make as much flip money as they might have expected.

Here are the facts:

In their first day of trading Thursday, GM shares opened at $35, two dollars above the price investors paid for them in the company’s initial public offering Wednesday.

In trading, they climbed to as high as $35.99 before closing at $34.19.

The first-day price gain of 3.6% over the IPO price was far below the 9.7% average for the previous 10 largest U.S. IPOs, according to Thomson Reuters, which tracks new issues. And the small gain came as the overall stock market rose broadly.

The skimpy price rise appeared to have reflected the U.S. Treasury’s push to boost the IPO price of the shares this week from an initial range of $26 to $29 a share to $32 to $33 a share, and the decision to increase the size of the sale from 365 million shares to 478 million, with an option to sell as many as 550 million.

WSJ, Wall Street Payday for a New GM, Nov.19, 2010.

If true, I say kudos to the Treasury Dept on this on.

I’ve always scratched my head over big first day IPO pops. 

To me, they always seemed to reflect mis-pricing of issues and a big opportunity loss to the company issuing the stock.  Rather then the companies capturing the full value of the IPO, the flippers get rich.

In this case, the company got pretty much full value.  I think that’s a good thing.

One more rub: I heard that the Treasury’s shares are locked up for 6 months.

My bet: GM will be trading in the high teens, low 20s next May … oops.