Warning! Word on the street is, the stock symbol for Government Motors will remain the same – GM. So, what’s really different about this public offering? And why is this still called initial? True, it is longer General Motors Corporation, but General Motors Company, at least on all fine print under the advertisements and media posts.
A few months back, the company got overly excited as it reported it had reached a supposed milestone in its return of $8B from its bankruptcy agreement. Some reports indicate the amount was partially or perhaps totally paid from other government funds.
There are many more miles to go, as GM still owes well over $40B, that’s with a “B” folks, as in Billion; and almost the market cap of Ford. And the IPO will still only cover maybe a quarter of that total debt amount.
And that is precisely why there is an a “new” IPO. It is merely the transference of debt risk from the government taxpayer to private investors, which includes public investors in ETFs, mutual funds, etc. Will there be a preferred stock offering as well as a common stock offering? If so, that would be the safer bet; as Jim Cramer told his fans to stay with Ford preferred when they were asking about auto stocks.
Furthermore, since the stock symbol is the same, doesn’t that kind of negate the “I” initial in IPO in this case? It just doesn’t ring true.
Should you buy the new GM stock?
As it stands right now, every trader and investor thinking of buying GM’s future IPO (Initial Public Offering) may want to think thrice before participating. This debt is the money that the government gave GM just to get to bankruptcy court. Again, Ford might still be the better buy, albeit GM is doing well in China.
GM has certainly turned a corner with its downsizing. Unfortunately, all that came with a hefty price, and I don’t mean the bailout money. My latest visit to a seminar at Michigan Works had an entire room filled with ex-GM people from the metro-Detroit area still looking for work. One woman has a master degree and wondered how Michigan Works was going to train her to get new work. She also wanted to know why she just couldn’t go back to GM.
Just how much education does it take? And how many CAD systems does a designer have to be fluent to scure a job. Fact is, it’s the job skill in tune with a young age that succeeds these days. Most of those people in their mid 50s might as well admit that they need to start their own business.
Even as the new GM is hiring, it’s not in that age 45-62 group. Yes, you are correct if you sense age discrimination. GM won’t even hire those with the experience they surely need to meet program deadlines, simply because of concern over potential reprisals.
A company doesn’t have to worry when they treat people right. The sad part about this story is that GM and the government financially raped the GM bond holders, in my opinion. These were not just hedge funds and mutual funds. These were grandfathers and grandmothers living on a fixed income, dependent on the bond to pay its promissory note. Most tend to forget those casualties; especially those in GM who managed to keep their job. Trust, which is the basis behind any bond, has to be gone.
Thanks to government pressure, bond holders got pennies on the dollar. Maybe there was supposed to be an I.O.U. but those usually get wiped out in bankruptcy court. Good thing the court didn’t negate the $40B, though; otherwise the tax paying public would have taken the same prod the bondholders got.
Government was right in one respect
Bankruptcy court was the only way to rid the bond debt legally. Right or immoral, that’s how it works; and those politicians who were criticized by Detroit were correct in their assessments. Fact is, GM (old GM with a new hair do), was incapable of recovering from its position without some form of restructuring; and that required bankruptcy.
What’s the big deal? Donald Trump has gone bankrupt at least two time that we know of. Plenty of folks have gone bankrupt in this economic mess.
Examiner Final Comments
My opinions are based on my own beliefs as former design engineer and presently as a day trader and author. Read “Perfecting Corporate Character” and “Awaken Your Speculator Mind.”
Since GM was deemed too big to fail, like AIG, I just want to know why they were too big to be fully accountable, too? Why did the bond holders get stuck with the burning match? Why does Wagoner still have a hefty retirement package, and Fritz Henderson gets a cushy advisor job? Let’s apply the same standard of benefits to them as some of the past employees.
Furthermore, let’s treat them like early pre-62 retirees; those people who received an early retirement package, no bonus to leave, no ability to collect social security, and not much opportunity for a joe-job; and where age discrimination is in vogue. Furthermore, they got hosed on their medical package to the tune of $5,000 annual deductible. Try that on a fixed income. Some of you know what I mean; and some of you don‘t even have that.
The most screwed are the early-out GM people without any retirement. Some did manage to get a lump sum and unemployment benefits, but that’s all. Michigan Works seminars are filled with these people looking for training. They will, however, be deemed marginal or collateral damage after all the IPO dust settles.
The IPO, whenever it is, will allow the government to sell its risk capital to the public. That means a more select group of volunteer investors will own GM, not every tax payer.
And that’s a major point here. GM is not a free entity, never was. It will be owned by the stock holders; and the GM managers need to have that fact burned into their foreheads and their right hands.
So, if you’re willing to fork over your hard-earned money for a piece of GM, then go ahead. I have to wonder why, especially when the new GM still acts like the old GM in many ways, and fails to make good on earlier promises to retirees. If they can do it once, they can do it again – fail their stock holders, that is. The American economy is already going the way of Japan.
Bankruptcy for GM was merely a shape shifting event. You’ll find out how much as it goes forward in time. Just ask one of the old bond holders on a fixed income who got hosed holding GM debt. After all, this latest IPO for GM is merely a transfer of debt risk.
And you know my motto: You cannot manage risk. You can only manage yourself and your money relative to all that is risky around you.
About Frank Sherosky: As a local trader with twenty years of market experience, Frank designs his own parameters for technical analysis indicators. He has a unique focus on the mental side of trading, as witnessed by his title, “Awaken Your Speculator Mind,” available in soft cover and as an ebook. Aside from writing as the Detroit Day Trader Examiner and the Detroit Automotive Technology Examiner, all his writs may be found by visiting his author website, http://www.authorfrank.com/index.html