By on August 16, 2010

Reuters [via ABC] reports that GM has completed its S1 filing and will file Monday, after a Friday the 13th filing was delayed in order to

add a management risk factor after Chief Executive Ed Whitacre announced on Thursday he would step down and be succeeded by Dan Akerson effective September.

And that won’t be the only “risk factor” warning to investors in GM’s S-1. Bloomberg found a number of analysts ready to support the headline

GM’s Akerson to Struggle in Proving to IPO Investors Europe Fixable

Any bets on the number of times the word “Opel” appears in tomorrow’s filing?

It’s no coincidence that Bloomberg describes Akerson’s task not as fixing Opel, but in proving that it can be fixed at all. Over the last two years, Opel’s been flapping in the breeze as management purges, competing visions and political uncertainty prevented a definitive decision until just this year. Even now, GM has chosen not to directly address the Opel issue with a major write-down in recent quarterly filings, despite some $5b in restructuring costs remaining as yet unfunded after the German government backed out of a rescue loan. And European investors like Raimond Saxinger of Frankfurt Trust Investment are starting to wonder where the plan is. Saxinger tells Bloomberg

One of the aspects to consider before deciding upon the IPO is to see a more specific roadmap for how, and by when, they are going to turn Opel around

Read between the lines, and it’s clear that Saxinger means that GM needs to put some skin in the Opel game. But GM clearly thinks the market would prefer that it keeps a big cash pile on hand during the IPO, so it seems unlikely that any kind of Opel decision will be made before the offering. With this, the management change, the challenge of exiting government ownership, GM’s unfunded pension liabilities and the threat of a double-dip recession, at least one analyst worries that

This is an investment based on hope, not on economic reality. This IPO is designed to meet the government’s needs, not investors’ needs. No one is clamoring for a GM IPO right now. This is not Facebook.

Former auto czar Steve Rattner halfway confirms this suspicion by arguing that

This issue of Opel has been way overplayed. Opel lost $500 million in the first quarter and less than $200 million in the second quarter. If they can keep Opel down to that kind of a loss rate, this is not GM’s biggest issue by any stretch of the imagination.

But just because GM faces bigger problems than Opel does not mean Opel isn’t a problem. With the European market weakening and Opel’s market share falling even faster, the trouble isn’t over… and the turnaround hasn’t even begun. On the other hand, if Goldman Sachs is slitting throats in order to underwrite the IPO, there’s still plenty of reasons to expect at least some initial frisson in the early days of public trading. Whether an IPO price will be sustainable has a lot to do with how Akerson sets the tone of his tenure as CEO, and dealing with Opel should be at the top of his list.

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28 Comments on “GM To File IPO Paperwork Tomorrow, Opel Woes Cited As Major Concern...”


  • avatar
    kkt

    Can I be the first to say “A couple hundred million here, a couple hundred million there, and pretty soon you’re talking about real money”?

  • avatar
    don1967

    Citing Opel as a major concern in a GM IPO is like citing slippery floors as a major concern on your way to the electric chair.

    One can only imagine the conversations as stock brokers everywhere take to the phones to unload their quota on their “clients”.

  • avatar

    Yup, this sure is the right time for an IPO, no politically-motivated rush whatsoever. Investors, just pay no mind to the bleeding division to the East, from which today’s GM must source almost all of its cars.

    Opel’s all the way over in Europe, after all!

    This farce reminds me of a quote from “Futurama”

    “Some bad things happened today. Here’s one of them! A train crashed in New Jersey, but nobody will be late for work because the Governor Lady said “I’m sending in more trains!”

    another train slams into the wreck and people scramble to board it

  • avatar
    jkross22

    “This is an investment based on hope, not on economic reality. This IPO is designed to meet the government’s needs, not investors’ needs.”

    Wow, glad to see someone talking about the elephant in the room. Coincidence this is being pushed just before the election cycle?

  • avatar
    Educator(of teachers)Dan

    I can only think of one thing to say about this, it starts with “cluster” and ends with…

  • avatar
    mpresley

    In a market economy GM would have already been liquidated. It only survives because of political, and not economic decisions. And what ideas do they have to offer their investors? What is their future product? Let’s see–an electric car that may run 40 miles as long as you don’t turn on the air-conditioner. Now I ask, would you, as a private citizen, loan your money to this entity?

    • 0 avatar
      MikeAR

      Actually there is a good chance that it would not have been liquidated. There would have been a filing and the creditors (mostly bondholders) would have exchanged debt for equity and taken over the company. All union contracts and pesion obligations would have been wiped out along with the debt. New management hired by the new owners would have had the upcoming product portfolio to base the new business on, dealers would have been culled for the right reasons and excess factories would have been closed and maybe sold.

      Most important union contracts would have been completely voided and new people or even old union members would have been hired at a reasonable fair wage, There would have been a younger, healthier workforce without the legacy problems the old GM had. Quality would have been better, morale would have been better and all the deadwood would have been gone.

      The new product would have been very competitive on price and quality. A win-win for everyone if the law would have been followed.

    • 0 avatar
      Steven02

      In your simplified version of GM, no. In the current GM, yes.

  • avatar
    th009

    Actually Opel’s market share is somewhat stable now — it has dropped only three tenths from 2009 through the first six months (from 7.5% to 7.2%).

    In comparison, Ford has dropped from 8.9% to 8.4% over the same six-month period. And in June it was even outsold by Opel. (Toyota and Honda have seen even more disastrous drops.)

    Not to say that Opel doesn’t have its problems, but its market share isn’t exactly collapsing at the moment.

    • 0 avatar
      Norma

      Ahem, may be you have missed what’s in the Bloomberg article, or just too busy to look into it.
      “In Germany, Europe’s biggest auto market, Opel dealers offered average discounts of 12.7 percent in June, trailing only the 12.8 percent of French carmakers Renault SA and PSA Peugeot Citroen … ”
      Still, Opel’s market share dropped by 0.3 percentage point.

    • 0 avatar
      th009

      Admittedly did not look at the Bloomberg article (until now).

      But for June alone (which was the month quoted for the discounts), Opel’s market share actually went UP from 7.4% to 8.3%, almost a full percentage point. Not down. Shame on Bloomberg for using the first half for market share but then only June for discounts: makes the situation look more dramatic, but I would have expected a higher standard of reporting.

      Ford did the reverse in June, dropping from 8.6% to 7.4% — I would very much like to know how much less discounting Ford was doing.

      http://www.acea.be/images/uploads/files/20100715_PRPC-FINAL-1006.xls

  • avatar
    gslippy

    Well, I’ll be a monkey’s uncle. I didn’t think they’d do it, nor have the guts to do it.

    I’d like to know how an investor sees GM as a good long-term investment. Throwing themselves upon the whims, realities, and vagaries of the market seems mighty risky. I doubt they’ll be able to return to the warm government womb ever again.

    • 0 avatar
      CJinSD

      I guess we will see how much leverage the Obama administration bought or seized for themselves within the investment banking community. I could see pension managers loading up their clients’ portfolios with this latest toxic asset in accordance with Obama regime aspirations to influence elections this cycle and to create more government dependents later, when the worthless retirement savings are realized.

  • avatar
    tced2

    That’s what IPOs are for – put the stock on the market -the market will decide the worth of the stock.

  • avatar
    Norma

    GM’s only hope:
    if exchange rate of Euro goes down the drain, sooner or later, losses from Opel? No problem.

  • avatar
    John Horner

    Financially, GM has more upside in the US where it still has a strong position and in emerging markets like China where the growth opportunities are.

    Where I on GM’s board, I would have a hard time justifying investing billions of dollars in a hoped for Opel turn around. GM simply has better rate of return opportunities elsewhere. Opel will likely be treated in a keep alive mode with cost cutting and other tactical actions rather than having mega-bucks thrown its way.

    The native sons in the various European countries are going to have an advantage when playing the government incentives game. Opel has lost that game already. Given that reality, Opel’s situation calls for holding actions and strategic retreats, not an expensive frontal assault.

  • avatar
    caboaz

    “That’s what IPOs are for – put the stock on the market -the market will decide the worth of the stock.”

    Now do you think that Wall St., which owes the government a few small favors, is going to fairly evaluate this stock or will they simply buy into the IPO in a big way to pay back their benefactor? They will run it up and dump it all on YOU, Main St., and YOU will be left holding the bag – again. It takes a special kind of ‘gullible’ to fall for something this obvious. RUN from this IPO unless you plan to short it. If it still isn’t clear enough for you remind yourself that after the government gets out your new partner is the UAW. This is a horror story in the making and only a fool would put his money into this so-called investment.

    • 0 avatar
      CJinSD

      It is starting to become apparent why the government pushed their bailout money on some of the banks, and why they were reluctant to accept renumeration. People with managed retirement plans had better make sure they aren’t the ones paying for Obama’s UAW votes.

    • 0 avatar
      rnc

      “It is starting to become apparent why the government pushed their bailout money on some of the banks, and why they were reluctant to accept renumeration. People with managed retirement plans had better make sure they aren’t the ones paying for Obama’s UAW votes.”

      If you are going to post cr@p atleast post historically accurate crap, the bailout of the banks, IB’s and wallstreet firms was done before the election and before GM was given $15b in life support.

      Are the IB’s going to fairly evaluate the stock?, yes they will, because what they are essentially doing is making a guarantee and if the valuations come in below that, it’s thier capital (shareholders, bonuses, etc.) out the door and they are the ones stuck with the stock (IPO’s work where the IB’s guarantee a certain price for a certain amount of stock, they benefit from the upside and eat the down, they usually don’t go for the down, leads to lots of angry shareholders and lawsuits and the IB’s underwriting this are out of the TARP trap).

    • 0 avatar
      CamaroKid

      CJinSD

      You need to check your calender, It was Bush 43 who gave GM DIP loans in the fall of 2008 and then another big whack of money (against the vote of congress) on December 23/24.

      Right problem, wrong president.

  • avatar

    Gentlemen, start your options trading! (puts, that is)

    sarcasm
    Otherwise, GM is right on the ball. There is absolutely nothing wrong with the current market conditions.
    Nothing like scheduling an IPO just in time for September and October.
    /sarcasm

    I’m sure the GM BS Crew will spin it as if they’re actually just getting the IPO done in Sep/Oct to take advantage of the November-April rally.

  • avatar
    Steven02

    For a company that has profits, generating cash, and very little debt, it seems odd to focus in on Opel as the reason not to buy GM stock. Europe, while important, is becoming less important as a market every day. China, Brazil, India and Russia (sorta) is where all the growth is at. GM isn’t doing bad there, especially not bad in China.

  • avatar
    John Horner

    GM would be foolish to spend a bunch of money trying to improve its fortunes in Europe. The real action is in emerging markets like China, where GM is doing pretty well and in turning around its large North American business, which turn around is also going well.

    Europe is a stagnant market and not worthy of herculean efforts at this time. Japan, likewise is a market no company which doesn’t already have a large, profitable business in should spend resources on.

    GM will not succeed or fail because of Opel, GM will succeed or fail based on its performance in North America and in the rapidly growing previously “emerging” markets. China, for example, is no longer an emerging market. It has emerged. Now it is simply the world’s biggest growth market. The fixation on “Yeah, but what about Opel!” is misplaced.

    • 0 avatar
      tced2

      The only thing GM should be concentrating on in Europe is transfer of the Opel expertise to somewhere else – China? The development expertise is the only thing really valuable in the Opel organization.

  • avatar
    Invisible

    So, how much pressure is being applied by Obama’s CZAR?

    I’m sure Obama and the Dems want this rushed, the IPO offered, and the stocks unloaded.

    Then they can point to how they saved GM. Do they care if a few months later GM stocks are junk bond status again. NOPE

  • avatar
    Rod Panhard

    The “green” administration has to distance itself from GM before the elections. The press has reported that GM’s has returned to profitability. I don’t know if GM is playing by the rules of reporting profits that public companies play by. I do know that the sales of non-Green trucks and SUVs have helped GM look good. But that isn’t green.

  • avatar
    NN

    This IPO is too easy to call out…the government is pushing GM to do this as soon as possible so a) they can wash their hands of auto investments by the election cycle, b) take politics out of the auto industry so GM can bail out their engineering operation in Europe with investors cash, not taxpayers.

    What they are doing is using the same creative accounting they’ve used for years to show great earnings results, which will last a few quarters before the massive one-time charges come…Opel…Daewoo…etc.

    GM’s success in China is overstated, profitability-wise. They will hype the hell out of it, for sure, to bring up the share price. Yet in China, GM’s biggest selling product isn’t even GM, it’s the Wuling breadbox van that sells for under $5k, is only 38% owned by GM. GM’s share of the profits on each sale are probably a couple hundred bucks, at best. The rest of GM’s cars sold in China are Daewoos (sold as Chevys) or Opels (sold as Buicks). Opel is starved right now and needs a bailout. Daewoo is starved right now and needs a bailout. Hyundai is on the rise in China and offers similar value products as Chevy (Daewoo) but much better engineered, higher quality products. Look at the new Elantra (Avante in Korea) compared to the Cruze. Hyundai will take massive amounts of GM’s market share in China over the next 10 years.

    GM’s best chance at actual, sustainable profits would come from building and selling highly competitive products here in it’s home market, which will rebound sometime in the next few years. That will be tough when all of it’s engineering has been outsourced to Opel and Daewoo, who are being starved. But not impossible. I just bought (and love) a new Malibu, which was based on an Opel platform, with the Opel-engineered Ecotec 4-cyl, and the Daewoo-engineered 6 speed automatic. It’s a fantastic car.

  • avatar
    philadlj

    People who don’t want the government in the automaking business should be happy: The government is trying to get out of the automaking business. This IPO is the first step. I don’t care how they do it, just that they do it, and that taxpayers get as much back as possible, as soon as possible.

    Those who were against Government Motors from the get-go are free to criticize how it’s divesting itself, but shouldn’t lose sight of the fact that while the means may be messy, divestiture is the end we all want.

    Government Motors is like the Stay-Puft Marshmallow Man…do you want the giant monster defeated, or do you want clean streets devoid of his marshmallow innards? You can’t have both.


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