GM To File IPO Paperwork Tomorrow, Opel Woes Cited As Major Concern
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.
More by Edward Niedermeyer
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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.
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.