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During the IPO season Francis Gaskins, editor of IPOdesktop.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has... More
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  • Preliminary GM IPOreport -- 50% loss on government's investment? 1 comment
    Aug 17, 2010 10:16 AM | about stocks: TM, HMC, F, V, GMA, TSLA, NSANY, CAAS, KNDI, YHOO, GOOG, MSFT, GM, ACF, BGM, GMS-OLD, GMW, GOM, HGM, XGM
    GM’s IPO Will Be Overpriced, preliminary IPOreport, Monday, Aug 16, 2010
    $80 billion projected market cap?

    see valuation comparisons

    . The talk now is that GM wants to offer 20% for $16 billion, which puts a market cap on GM of $80 billion.
    . Government bailout money bought 61% of GM for $50 billion, which ‘coincidentally’ puts a market cap of $82 billion on GM
    . GM & Wall Street are trying to set an IPO price for the government to breakeven – won’t happen, see below.

    Adverse trends will prevent an $80 billion valuation for GM
    . The general outlook for GM’s business is not good based on potential economic issues, for example auto sales growth is stalling
    . Today’s IPO buyers actively push back on IPO pricing
    . Auto industry stocks trended down recently

    GM should sell at a discount to Ford
    which means a 50% loss on the government’s “investment”

    Compare GM & Ford.  Ford has a market cap of $42 billion
    June quarter results for GM & Ford.
    . Sales: the same for both, around $32 billion.
    . Profits: Ford $2.6 billion versus $1.3 bb for GM
    . Negative tangible book value: GM has a negative tangible book value of -$20 billion, Ford is trending to a breakeven tangible book value.
    Current ratios
    . GM, 1.15. (current assets: $60bb, current liabilities $52bb)
    . Ford, 2.1 (current assets, $126bb, current liabilities $60bb)
    Long term debt
    . GM, $53bb
    . Ford, $118bb

    Investor confidence in GM projections hurt by “surprises”
    Investors do not like surprises
    . On August 5th GM’s CEO said “Our anticipation would be we’d roll it out (the IPO) there all at once.”  The apparent plan 10 days later (?) is to sell 20% not 100%, see above.
    . The recent CEO replacement is requiring a delay in GM’s much anticipated IPO filing date.  If GM can’t even meet its publicly acknowledged filing date of Friday, August 13, then how much confidence can investors have in sales & earnings projections?
    . GM’s CEO implied that a $6.7 billion TARP loan was repaid from operations, when actually it was paid from additional borrowing.  Borrowed from Peter to pay Paul.  Then implied the money came from operating cash flow (?).

    CEO Whitacre didn’t plan to exit pre-IPO
    . Otherwise he wouldn’t have put himself in commercials
    . You don't become the face of the company if you plan to be there only eight months.

    Is Akerson the right CEO?

    . The surprise decision to change CEO’s apparently was made in haste (see above) so, yes, it made sense to recruit from the board.
    . However, Akerman has no experience running an industrial company like GM.
    . He is yet another finance type.  Finance-oriented executives excel in cost costing, but often lack game winning strategic vision -- even if they know the (heavy manufacturing) industry, which Akerson does not.

    Is GM ‘cooking the books’ pre-IPO?
    GM’s CFO said GM's results wouldn't keep improving at this pace in the second half of the year, because the first-half results included onetime gains, such as the reversal of some leasing provisions.

    Market share declined
    During the first six months GM's U.S. market share slipped to 18.9 percent from 20.5 percent over the same period in 2009. But CFO Liddell said the automaker's market share appeared to be stabilizing.  Is it true or is it more IPO hype?

    GM’s bad strategic planning
    CHEVY VOLT – perfectly positioned to fail
    Range: 40 miles per charge?  $41k msr price

    Nisson LEAF is a better value on the low end
    Range: 47 to 138 miles. $33k msr price
    LEAF is priced below the Volt, longer range

    Tesla sedan is a better value on the high end
    Range: 160 to 300 miles depending on selected options.  $58k msr price
    Better body style

    Will be updated when GM’s June quarter detailed results are filed. Sometimes the numbers are not directly comparable based on different accounting practices.

    see valuation comparisons

    Disclosure: none
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  • Dan Detroit
    , contributor
    Comments (92) | Send Message
    Mostly conjecture with some outright falsehoods!
    It is disturbing and sad to read presumptuous opinions, largely founded on the fallacy that GM's collapse in 2008 was the inevitable result of mis-management, rather than a direct fall out of the global financial crisis. The only thing that kept Ford from bankruptcy was their locking up $23B in financing prior to the crisis. Rick Wagoner had successfully re-structured the company, and more importantly, negotiated the VEBA with the UAW. That, and elimination of the Jobs bank, lifted nearly $8Billion in annual negative cash flow off from the company. The North American region of GM has gone from a huge cash drain to a solid, and the largest, profit contributing region. GM is poised for tremendous profitability with just modest vehicle market recovery. Here are responses to your points:


    *GM’s IPO Will Be Overpriced:
    Conjecture-You don't know this. The market will determine if it is correct.


    *Adverse trends:
    GM is profitable, particularly in North America, even at current, depressed volumes. No reliable source projections suggest volumes will decline. In fact, the latent annual rate of demand for new vehicles in the U.S. is over 15 million. This is not conjecture, but based on growth of the number of licensed drivers and vehicle scrappage rates. The currently depressed market can not last for long.


    *Compare GM & Ford:
    Notice Ford has over twice GM's long term debt? Ford is at a serious competitive disadvantage to GM. They have less favorable union contracts, GM is growing away from them, gaining substantial share on Ford, Toyota & Honda in July, the most recent months sales. GM is far ahead of Ford in the world's largest market, China, as well as fast growing Brazil, Russia & India.


    *Investor confidence in GM projections hurt by “surprises”:
    2- Repayment of the borrowed, interest bearing loan, with other capital already in hand was not additional borrowing! That capital was injected in exchange for the government taking ownership stake to assure adequate cash to weather bankruptcy. It was the right business plan and proved that the business was generating enough free cash flow to let go of that money which was held in escrow. A far cry from the naysayer's claim that GM would never pay a dime back!


    *CEO Whitacre didn't plan to exit pre-IPO:
    FALSE!! He made it clear when the feds asked him to take the job that it was to be short term. GM unsuccessfully tried to find a new CEO from outside not many months ago. Evidently you missed that. Some conjectured the failure was due to Obama administration's salary caps.


    *Is Akerson the right CEO?
    Surprise? Only to you! The CEO has typically come from a finance background. I'm pretty sure you don't know a thing about the man personally! I expect his tenure will last thru the completion of the IPO. Once the government is out of the ownership picture and their ridiculous salary cap is gone, there will likely be another change.


    *Is GM ‘cooking the books’ pre-IPO?
    There is no evidence of this whatsoever! Pure conjecture!


    *Market share declined:
    It is true that GM's July YTD share with 4 divisions is 1 point lower than last year's 8 divisions sold. However, GM gained share on Ford, Toyota & Honda in July, all of whom were down, while GM was up. More importantly from a business perspective, GM's sales increases are accompanied by $thousands more in per unit transaction prices and profit. Premium brands Buick & Cadillac are well over double last year's sales (up over 130%!) and global market share has stabilized.


    *GM’s bad strategic planning:
    Your opinion is, frankly speaking, ignorant! Volt does not have a 40 mile range, it has a 340 mile range on a tank of gas and essentially unlimited range as long as there is a gas station every 300 miles!!!
    It is a real, usable family vehicle with 40 mile plug-in electric capability suitable for 78% of American's daily commute. The Leaf is actually just a toy. You have to recharge it for 8 hours after its 100 mile range. You can never travel more than 49 miles from home on its best day! Tesla currently estimates prices will start at $49,000 in 2012 for a vehicle yet to be tooled and produced! Their only current product starts at $101,500 AFTER federal tax credit!!
    Volt uniquely overcomes the fundamental problem of the physics of the best available batteries with its onboard generation capability. It is a complete and elegant solution to the lack of competitiveness inherent in electric vehicles today.
    18 Aug 2010, 10:01 AM Reply Like
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