Friday, November 19, 2010

General Motors Initial Public Offering

I have followed the General Motors IPO with great interest given my long history with the company.

The IPO price was way too high.  The Chinese government bought 1% of the company for $500 million and got a super sweet deal subsidized by U.S. taxpayers.  So even at this artificially low price, GM is worth $50 billion, just about what U.S. taxpayers have put into the company.

The IPO price was $33 and raised about $22 billion in total.

I think the price of GM common will be less than $10 a share in a year's time.  I'm not the only person who feels that way either.  Here is a United Auto Worker's union representative officially saying the same thing.

My sources on Wall Street and in Washington, D.C. tell me that this IPO was oversubscribed because of intense pressure from the Obama Administration which is eager to get back some of the $49.5 billion that U.S. taxpayers spent saving GM.  Treasury and the White House twisted arms and are now taking credit for the smooth IPO and the high volume of sales.

Is General Motors REALLY the stock of the future, the one you REALLY want to buy for your investment portfolio?  Do you know people eager to rush out and buy a new Buick or Cadillac because GM is now a public company again?  The company is riding on the success of the new Chevy Volt, the Green Car of the Year, praying that people will want to buy them.  I'm skeptical.  It's really just another hybrid with a whopping pricetag, but we will see.  I wish the sales force luck.

Given its vital ties to the UAW and organized labor in general, the Obama Administration had to do something politically to save GM.  It spent nearly $50 billion, just about the same price that the Chinese just paid.  I doubt the taxpayers of the United States are ever going to get their money back on this rescue.  The fate of GM would have been better decided by an experienced bankruptcy court judge rather than the U.S. Treasury but that is another story.