The New York Times reports that the auto industry “overhaul” (AKA General Motors’ bankruptcy) is about to “pay off handsomely” for UAW workers at GM. GM, along with Ford, is expected to announce profit-sharing checks for hourly workers this month. UAW president, Bob King, states that workers expect to get a piece of GM’s profits.
There was a time when publicly traded companies were expected to deliver profits to shareholders in the form of dividends or increased share price. This model seems to have been subordinated at General Motors where the desires of politically favored union members seem to take precedence over other stakeholders. In a particularly egregious example of the wealth redistribution scheme at GM, Old GM bondholders have yet to receive their equity distribution as laid out in the bankruptcy proceeding. It is likely that additional stock offerings will dilute the bondholders’ share while their equity is held … Read More ➡
The positive news on GM has been so rampant that many risks factors to share price have been overlooked. It is tough to get unbiased opinions since most analysts work for the GM underwriters and TV networks receive millions of dollars from GM ad revenue. While GM has much good news to discuss, the very obvious risk factor of share dilution to benefit the UAW has not been mentioned.
Here are the facts regarding GM’s plans for diluting shares in order to make a $2 billion contribution to the UAW benefits fund in GM Investor Relations’ own words:
The $2 billion in GM stock will be newly issued shares. They would be dilutive to the existing shares. We currently expect to complete the contribution to the pension plans in the near-term. The stock contribution is contingent on Department of Labor approval. The number of shares contributed will be determined based
… Read More ➡
The past few days have seen an approximate 7% rise in General Motors’ Stock. Much of this gain is attributed to Wall Street investment banks initiating positive coverage on GM. A further review of the coverage reveals a wide divergence in opinion between big banks that are profiting from the GM IPO and analysts who did not.
Investment Banks that currently have a “Buy”, “Outperform” or “Overweight” rating on General Motors include, Citi, RBC Capital, JP Morgan, Morgan Stanley, Credit Suisse, Barclays, Bank of America, Deutsch Bank and Goldman Sachs. Every one of these firms has earned a minimum of $22.5 million from the GM IPO and stand to earn much more, particularly if GM’s share price rises. Price targets from these optimistic analysts range upward to $50 a share. It is interesting that Investment Banks who recommended offering taxpayer owned shares of GM at $33 less than two months … Read More ➡
JP Morgan Chase and Morgan Stanley have initiated coverage of General Motors stock with a positive recommendation, according to Bloomberg reports. Coincidentally, both firms are the lead underwriters for GM’s IPO. Underwriting fees paid to both JP Morgan Chase and Morgan Stanley were recently disclosed in a chart published by the Wall Street Journal showing fees and TARP money received by major underwriters for GM.
According to the WSJ, JP Morgan Chase and Morgan Stanley each received $36.9 million for underwriting General Motors’ IPO. The government plans to sell more shares in future IPOs and additional profit potential exists. Of course, the better GM shares do, the more money there is to be made.
The WSJ chart also exposes TARP money that GM underwriters received from the government with $25 billion going to JP Morgan Chase and $10 billion going to Morgan Stanley. Given all the above facts, I would … Read More ➡
Earlier this month, General Motors made a $4 billion cash contribution to its UAW pension fund. Reports state that an additional $2 billion worth of GM common stock will be contributed to the fund. What is not being reported is where the stock is coming from.
In addition to public ownership since the IPO, GM common shares are currently held by the US Treasury, Canadian Government, the UAW and Motors Liquidation Company (creditors of Old GM). Unless the US Treasury is giving away taxpayer shares, new shares will have to be issued for an additional $2 billion worth of common shares to fund UAW pension plans.
Any new stock issuance is dilutive to existing shareholders and lowers the value of GM stock. Considering that US UAW benefit plans are still under-funded by $17 billion (as mentioned in reports) and overseas obligations under-funded by $10 billion (not mentioned in reports), it … Read More ➡
General Motors has recently disclosed on more than one occasion that “we have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective.” It remains to be seen how this warning affects future earnings reports, but we can review GM’s past to see how previous financial reporting internal control flaws played out.
Well prior to General Motors’ previous accounting woes culminated in a bankruptcy filing in June of 2009, we had these statements from then CEO Rick Wagoner, “General Motors Corp. has made significant progress on its turnaround plan in the past year, reducing costs and rolling out new products. It’s important to understand that our goal in this restructuring is not just to change GM’s bottom line from red to black. Our goal is to structure GM for sustained profitability and growth to set us up to be successful for years … Read More ➡
General Motors recently reported that it has a 93 to 95 day supply of vehicles at dealerships in its latest inventory report. This is well above the industry average of a 67 day supply, as well as exceeding analysts recommended 60 day supply. According to Jim Bunnell, general manager of GM’s dealer networks, the reason is because they expect strong demand for vehicles. There is a more likely reason that should be a cause of concern for GM’s new shareholders.
General Motors records revenue when vehicles are shipped to dealerships. While GM has technically sold these vehicles to the dealerships, retail customers haven’t yet purchased the vehicles. This stresses the dealerships as they are paying for vehicles that have not yet been sold. There are usually incentives (paid by GM) for dealerships to accept the inventory. Once shipped, the inventory is financed (in most part) by government owned Ally Financial. … Read More ➡
The General Motors’ IPO has lead to the Obama Administration declaring victory for a successful GM restructuring. GM executives echo the optimistic view of a now healthy auto company with a “fortress like” balance sheet since the infusion of over $50 billion of taxpayer money. There is still one major test left to see just how healthy GM is.
During the time of General Motors’ recent woes, the US Treasury has sunk over $17 billion of taxpayer money in to Ally Financial (previously known as GMAC) making the US government majority owner. Ally Financial has in turn assured financing for GM and Chrysler vehicle sales and dealership inventories. This taxpayer expenditure is conveniently left out when auto industry bailout costs are calculated. The proclaimed success of GM warrants the demand that taxpayers no longer remain on the hook through backdoor bailouts siphoned through Ally Financial or in the form of … Read More ➡
General Motor’s CEO, Dan Akerson, recently proclaimed that GM’s balance sheet was “pristine” and that the company was aiming to have zero debt in the future. I guess the question is, “how do you define pristine?”
The recent prospectus for GM’s Preferred Series “B” share offering gives the following accounting of some of the company’s liabilities: as of September 30, 2010, $10.3 billion of outstanding debt and $9 billion Preferred Series “A” obligations. In addition, there are still under-funded UAW pension obligations of over $20 billion. The Preferred “B” share offering was for another approximate $4.5 billion of shares paying a 4.75% dividend. This is money that GM already has mostly committed to UAW obligations.
The issuance of preferred shares to pay other obligations is a disturbing reminder of GM’s “smoke and mirrors” approach to public relations. While Akerson boasts about steering GM towards zero debt, the debt obligations are … Read More ➡
Most news we hear regarding General Motor’s IPO this week proclaim the event as a huge success. It would be prudent to consider whether the process leading up to and following the auto industry restructuring should be a template for future restructurings, as Al Koch (head of Motors Liquidation or “Old GM”) has stated. While some may argue the positive aspects of the GM bailout, it is more than just sour grapes or GM hating that contributes to a desire to have a continuing dialogue on the precedent setting procedures that may lead to a subversion of contract law that has governed for over 200 years in this country.
First, there should be recognition that some creditors were favored over others in the GM bankruptcy process. It can be spun any way apologists want, but the facts are clear that politically favored groups, i.e. the UAW, were favored over bondholders. … Read More ➡