As automobile major General Motors (GM) finalized terms for its IPO, offering almost $13 billion to repay a controversial taxpayer-funded bailout to reduce the U.S. Treasury to a minority shareholder, market analysts and automobile experts are now waiting to see if the positive results of the US Auto sales gain could actually boost interest in the automobile sector - especially with the upcoming initial public offering of General Motors in the pipeline.
US Auto Sales: U.S. auto sales rose 13 percent in October, the best month of the year, led by a 19 percent gain at Ford Motor (NYSE:F) while Toyota Motor (NYSE:TM) slipped. Earlier, Auto major Ford's impressive quarter had underlined the company’s strong fundamentals but also presented a case that the automobile sector could very well be back on track as far as domestic sales in the United States is concerned. A growing US domestic sales could auger well for GM as the company has already announced that it will stick to its pledge to keep certain levels of vehicle production in the United States until it has fully repaid the US taxpayer.
Ford boasts an impressive line-up of new and revamped vehicles to keep its momentum going and is powering ahead on performance GM has yet to match. Wiping out tens of billions of dollars in debt in bankruptcy has helped GM. But even though GM has recovered well, and has the benefit of a larger emerging markets business and a chunky stake in parts maker Delphi (DPH) to unload, it still has a long way to go, but the surge in Ford's quarter results could very well act as a trigger for GM. One of the biggest problems for the “Old GM” was debt and the Company got rid of that problem with its bankruptcy problems, but earlier analysts felt that GM now had to survive in a relatively stagnant industry.
GM IPO: General Motors finalized terms for its IPO, offering almost $13 billion to repay a controversial taxpayer-funded bailout to reduce the U.S. Treasury stake. GM's filing with U.S. securities regulators marks the final step before it begins marketing what is expected to be one of the largest-ever IPOs. The offering, potentially the largest U.S. IPO since Visa Inc's (NYSE:V) $19.7 billion IPO in 2008, would cut the U.S. Treasury's current 61 percent stake to just over 43 percent. GM's underwriters could sell an additional 54.75 million common shares and 9 million preferred shares if the IPO attracts robust investor demand, raising another roughly $2 billion and potentially taking the total IPO amount to as much as $15.65 billion, the company said in the amended prospectus.
The Detroit-based GM is now relatively well financed with $50 billion of cash from the US government, but experts feel that it hasn't yet shown sustained profitability or that it can compete with Toyota, Honda (NYSE:HMC), Hyundai (OTCPK:HYMLF) and other foreign automakers. Unlike most new listings, GM's won't necessarily mean a windfall in capital. Much of the new stock will be sold from the federal government's $43.3 billion stake in the company, and depending on how much of a hit the release is with investors, GM developers could receive only a small boost to their budgets in the aftermath.
Investment professionals are also not too favorably inclined to the risk inherent in companies that reorganize after a bankruptcy filing, which wipes out equity investors and often reduces debt obligations to pennies on the dollar. GM's credibility is further weakened because of widespread worry that the new company is just a better-financed version of the old one, with many of the same bad habits and cultural weaknesses that drove it to Chapter 11.
General Motors has meanwhile announced that it will stick to its pledge to keep certain levels of vehicle production in the United States until it has fully repaid the US taxpayer. The company is also pledging to make at least 90% as many vehicles in the United States as planned, provided it is commercially reasonable after repayment condition was added to GM's registration statement for the IPO.
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