The GM IPO Loses Its Window

There are more rumors that GM will have an IPO before the end of the year. The latest gossip is that the Treasury will sell 20% of its shares in the process, get taxpayers some of their investment in GM back, cutting the government’s stake to below 50%.

The prospects for a GM offering were fairly strong two months ago. The largest car company in the US and second largest in the world made $865 million in the first quarter, its first profit in three years.The estimates of what GM is worth now range from $30 million to $70 million. Taxpayers could get back most of their $50 billion investment in exchange for 70% of the company if the high-end of the range is accurate.

GM’s success is based largely on two factors. The first is the brutal cost cuts the company has gone through which includes  firing tens of thousands of workers, plant closings, and a new UAW deal. The firm can probably make money in a US car market in which annual sales are about 12 million units. That is well down from the 16 million that the market produced four years ago. GM is one of the two largest car manufacturers in China, so it has a strong hold on the largest market in the world.

The company also is being helped by an improving US economy.  In addition, the auto market grew at a 11.4 million seasonably adjusted rate in May, and that rate is expected to rise. GM’s domestic market share is 20%.

GM’s problem is that there is a growing body of evidence that the US expansion may be over at least for the next several months. Unemployment has proved intractable. Consumer credit is still hard to come by. More Americans are saving money. All of that taken together could cause the growth of vehicles sales in the US to stall.

GM’s value is largely based on its profits and a pause in revenue increases would considerably hurt the company’s bottom line.

GM may find that an IPO in March or April would have been a major success, but one in July or August may be extremely hard.

Douglas A. McIntyre