GM’s Non-IPO IPO

Both the government and GM management are talking about an IPO at the end of 2010 that would allow the taxpayers to get the money that they put into the No.1 car company in America back. Ron Bloom, head of the Obama administration’s auto task force, said that the target was based on GM paying down completely its debt to the Treasury and becoming profitable again, according to an exclusive report by Reuters. That means the goal is no goal at all.

GM has effectively cut costs in the US about as much as it can. It still needs a recovery in the domestic auto market to have substantial and sustainable margins in its home market. Many analysts think that the “cash for clunkers” program and GM’s own “60 day test drive” promotion pulled sales that would have occurred in early 2010 into the latter part of 2009. Those effects should be added to a slack demand that may continue into next year as unemployment rises and consumer credit remains tight.

GM has also elected to keep its European operations–Opel and Vauxhall. It is counting on European governments, particularly Germany, to provide Opel with funding to complete a restructuring which could involve the lay-offs of as many as 10,000 people. Germany may balk at the plan, which means that GM would need to invest several billion dollars to handle the restructuring on its own.

GM can still rely on its sales in China to be a lift to its profits. The company sold 166,000 cars and light trucks there in October which is close to the number of vehicles it sold in the US for the same period.

Whether GM can reach the government goals for an IPO a year from now are just a guess and a poor on at that. GM may not be in much better shape in the fourth quarter of 2010 than it is today.

Douglas A. McIntyre