GM IPO Land Mines

GM logoIt would be easy to believe that the GM IPO is an opportunity to make easy money based on the reporting by television news networks. Themes such as allowing retail investors to “benefit” from the IPO imply that GM stock has no where to go but up.  However, under the surface of this optimistic appearance lurk some hazards.

A little research on the web uncovers some of the red flags potential investors in GM should be aware of. Rather than speculate on why it is a “Tale of Two Cities” when it comes to GM reporting by TV networks compared to the internet, let’s focus on one of the major warning signs that the outlook for GM may not be as rosy as expected.

General Motors admits on their S-1 SEC filing that its financial reporting may not be accurate. In GM’s words, “The lack of effective internal controls could … Read More ➡

GM IPO is Wealth Redistribution Scheme

UAW/GM logosThe term “wealth redistribution” has been used by political pundits on the right who accuse Democrats of having a misguided agenda wherein the wealthiest Americans will be able to subsidize a government spending spree in order to redistribute wealth to the less affluent populace. General Motors, through its reorganization plan, has contrived its own version of wealth redistribution. This action was orchestrated by the Obama Administration as it took control of the GM bankruptcy process. Old GM shareholders and bondholders, along with taxpayers, lose out as new wealth is created for bankruptcy attorneys and advisers, investment banks and the politically connected UAW.

During the bottom of the latest economic cycle, auto industry sales plummeted far below normal levels. President Obama recently explained that Ford was able to ride out this rough patch by borrowing $23 billion to shore up their balance sheet prior to the downturn.  For a short (and … Read More ➡

Election Day Prompts Rosy Projections for GM IPO

According to unnamed sources, the GM IPO will offer approximately 22% of the company for proceeds of about 10 billion dollars. Shares will be sold at $26 to $29 after a stock split. This puts the company’s value at approximately 50 billion dollars, in the same area as Ford’s market cap. Arguments can be made whether or not GM is worth more than Ford, but there are other more important facts to ponder. Why did Ed Whitacre recently disclose that the IPO would price between $20 and $25, only to see the media hype a higher figure based on leaks that no doubt came from the company itself.

Probably because today is Election Day. The auto bailout is even more unpopular than the stimulis spending or ObamaCare. The pressure is on GM to shed the “Goverment Motors” label.

Anyone with financial market background understands that stock price is meaningless without … Read More ➡

GM IPO: Buyer Beware

GM logoGeneral Motors is expected to begin soliciting for its IPO within the next few weeks. Some warning signs are surfacing regarding the risks relating to investing in New GM. These risks will be easily recognized by astute money managers and may require GM (and its owners, the US Treasury) to rely more upon the Mom and Pop investors who are less sophisticated and more susceptible to being taken advantage of.

Prior to filing for bankruptcy, General Motors funded its operations by borrowing from small investors. This funding came in the form of “baby bonds” that were traded on security exchanges and made readily available to retail buyers. Around the same time that unethical practices led to predatory lending in the mortgage industry, GM engaged in its own practice of predatory borrowing. The individuals who lent money in good faith eventually had their rights subordinated to the politically powerful labor unions.… Read More ➡

Government Motors’ Chevy Volt Sparks Criticism

Volt logoInformation about General Motors’ Chevy Volt surfaced last week that caused the blogosphere to light up. It seems that the much-hyped Volt is technically a hybrid vehicle as opposed to a true electric car since at certain acceleration points it relies on a gas powered engine to assist its electric powertrain. This comes after three years of GM touting the Volt as a “one of a kind, all-electrically driven vehicle.”  Sites such as Edmunds’ Insideline.com proclaimed that “GM Lied: Chevy Volt is Not a True EV.” There appears to be a disturbing picture developing at GM of a government owned corporation that is fostering a culture of deceit in order to generate public acceptance.

General Motors was also less than honest a few months ago when advertisements featured then CEO, Ed Whitacre, boasting that GM had repaid all government loans “in full”.  This was obviously not the case and GM … Read More ➡

How Can Auto Bailout Succeed When Its Based on Fraud?

Rattner photoIn the coming weeks we are sure to hear a lot of hype over the upcoming General Motors IPO. As we approach the November elections, it is a certainty that the Obama administration will tout the government intervention and nationalization of a major US industrial corporation as a huge success. Claims have already been made that the American economy and millions of jobs have been saved by bailing out GM. There are many people, including the Mom and Pop investors that financed GM through their bond purchases, who see a less savory side to the bankruptcy process and view it as a model of corruption and cronyism.

Let’s review the sordid history of the GM bailout. Well before the time of the bankruptcy filing, the executive branch of the US government unilaterally took it upon itself to bail out and restructure the American auto industry. Decisions and funding were made … Read More ➡