Skip to comments.GM Needs to Double Earnings to Repay Taxpayers
Posted on 08/19/2010 7:53:45 AM PDT by Qbert
General Motors much anticipated initial public offering filing finally landed on Wednesday. But investors shouldnt get too caught up in the hype. Sure, the automaker looks in pretty decent shape thanks to last years bankruptcy clean-up, and car sales are motoring away from last years lows. But to repay U.S. taxpayers in full, GM needs to at least double its earnings.
Thats assuming the carmaker is valued at the same earnings multiple as Ford Motor. Granted, GM and its bankers could argue that it has advantages over its cross-town rival that may warrant a higher valuation. It has far less debt, for starters. And it has a stronger position in fast-growing China.
But operationally GM is still lagging: the pre-tax margin on its global autos business was 5.7 percent in the second quarter. After years of losses and in a fairly low-margin industry, thats worth shouting about. But it falls shy of Fords 7.2 percent margin in the same period. Theres an even bigger gap of more than three percentage points between the margins the two manufacturers make in the key North American market.
Being generous to GM, assume the company should trade on the same price-to-earnings multiple as Ford 6.4 times next years consensus earnings estimates, according to Reuters. The U.S. Treasury converted $43 billion of emergency loans into a 61 percent equity stake in the revamped GM that emerged from Chapter 11. That means the Motown manufacturer has to be worth about $70 billion for Uncle Sam to break even.
On Fords PE multiple, GM needs to earn just shy of $11 billion next year to hit the desired target. Extrapolating earnings in the second quarter, GM would make as much as $5 billion this year...
(Excerpt) Read more at blogs.reuters.com ...
Wait, you mean it was the bankruptcy clean-up rather than the government bailout that has helped Government Motors to get into better shape? Why didn't we just let the bankruptcy cleanup happen first? (Seems like I remember some of us around here suggesting that.)
patriots do not buy GM products
I suggest Pelosi investigate those people who don’t buy GM cars.
Ahem ... businesses use cash flow, not book income, i.e. earnings, to pay their bills.
So how much more cash does Government Motors need to generate to repay the bondholders that were screwed in the government takeover ... and how many Chevy Volts do the idiots have to peddle in order to do this?
I don't see Government Motors able to do it.
I am sure the o cabal will be buying gummint motors fleets with our tax dollars.
Anyone who invests anything in a government bailed out industry needs to just walk up to the nearest well and dump all of that money into it. At least they will know where their money went to and have some sort of chance of getting some of it back.
Just ask the bond holders of what was Chrysler.
I think “bankruptcy clean-up” is a euphemism for bailout/government takeover.
The administration is going to keep spinning what happened as a “new model” for handling failing companies, and to show supposedly how “quickly” Big Gov can turn around a business, “unlike the private sector”. The IPO will probably go forth right before the elections.
Like everything else (Obamacare accounting, jobs “created or saved”, etc.) there is a lot of fudging here, as the article explains. But the general public senses this I think, because it doesn’t seem to comport with the everyday economic realities that most folks face...
The two are distinctly different. You had the bailout, which only delayed the bankruptcy.
The price and recharge mileage has already doomed the Volt. Two years after it’s release when reality sets in and the honeymoon sales are over, the stock will tank.
6 or 8 weeks ago, there was a report that GM had already repaid the taxpayers....whassup with that?
“6 or 8 weeks ago, there was a report that GM had already repaid the taxpayers....whassup with that?”
My understanding was that Gov. Motors “repaid” it with taxpayer (bailout) money, not with profits generated.
More shell game government accounting to throw out a positive headline, like claiming unemployment is only 9.5% by not counting another 8% or more who are out of work and have given up on looking for a job.
“I am sure the o cabal will be buying gummint motors fleets with our tax dollars.”
They already are- that’s partly how they returned to “profitability”:
“...GM has also relied heavily on sales to rental-car, government and corporate fleets, which are less profitable than sales to individual customers. Retail sales or sales to individuals were up 11 percent industry wide through June, but up only 1 percent at GM.”
It was a blatant lie. They transferred some TARP funds to repay other TARP funds.
According to GM, they already paid back those loans.
“6 or 8 weeks ago, there was a report that GM had already repaid the taxpayers....whassup with that?”
GM Pays Back TARP Loans With...TARP Loans!
Nick Gillespie | April 23, 2010
When I walk through my company parking lot I always notice there is only one late model car with peeling paint. Guess who made it? GM has 20+ years of perception of producing junk to overcome. The bailout just reinforced the image of an invalid corporation that doesn’t care what it produces.
They used their Discover card to pay part of the balance on their Citibank Visa, then they used their Chase Mastercard to pay part of the Discover card balance, and then they used their Capital One Visa to pay off the Chase Mastercard. Then, they consolidated the whole thing on their GMAC introductory rate no-interest card from the taxpayers.
Imagine that, Government Motors lied to us.
We should consider the money given to GM sunk-costs (lost forever) and just get out.
The dangers that arise from the federal govenment owning a stake in a private enterprise (especially one as large and important as GM) far outweigh any money the taxpayers may lose.
Money lost is just money. Losing our freedoms is a different story.
I vote lose the money and keep the freedom.
55 chev with a 283 four barrel, 57 chev with a 301, rich guy down the blocks 409, the incredible 83 goat, 396’s, 427 Camero’s, sleeper Chev II with a 327....
how could a company that produced so many fond memories have turned into such a POS.
How long before GM is in the tank again?
“low-margin industry”.... yeah made so low by the Unions... I once saw the figures on how much of the cost of each vehicle produced in a UAW plant is directly associated with UAM demands and benefits.
Why is it that the Japanese (and Koreans now) build plants generally in “right to work states”? Simple - they are not forced to recognize the unions.
My Nissan Titan (built in Mississippi by non UAW workers) has been a better vehicle than my last new vehicle (a GM product). While it has had a couple of recalls - they have not been major issues, and were not safety-related. The initial quality off the dealer’s lot is better, I haven’t had the odd quirks of the GM I had either.
By the way - my Titan is a 2009. The vehicle it replaced was a 2008 Chevrolet Impala. It had all sorts of quirks - though a fairly nice vehicle. It just had so many little issues - that the GM dealerships didn’t want to recognize (even when they could be demonstrated in their presence). Noises, water leaks on window/door gaskets, funny shifting transmission, delivered with a warped power steering pulley, paint that didn’t want to stick, etc.
My first Dodge truck was a 2000 model - it was made in a UAW plant. It was a pretty good truck (though it had some issues - most notably, a transmission sensor that after 3 visits resulted in a brand new transmission), a leaky water pump housing, and some various paint issues itself.
Bought a 2002 Ram (same model/trim level) but made in the plant in Mexico - not UAW, I don’t believe... was actually a better made truck, particularly in fit-and-finish. And this was the first year model of a brand new body and interior, plus the first year of the 4.7L V8. That truck was great, and I still miss it. I had no issues at all with it, and kick myself in the tail every time I think about it. The vehicle that followed that was a 2004 Chevrolet Tahoe - liked the look and room. Got fair gas mileage... had issues - especially with Delphi-produced electronics (entire gauge cluster had to be replaced...).
Wife had a 2002 Oldsmobile Intrigue - and thank GOD for the extended warranty we purchased. A/C went out at 60K miles. Transmission grenaded at 76K miles, insanely complicated emissions equipment (electric pumps that push fresh air into the exhaust just before the cats - at over $1K each - that were engineered with an opening that scooped water any time it rained hard... thus failed regularly...
The list could go on...
Get rid of the union - and make wages and benefits more in-line with the real world, and GM could be profitable and out of debt to taxpayers in short order. But that won’t happen...
This is Democrats call a ‘success’. Better yet, GM is shipping jobs to Mexico using the TARP money to open plants there.
Partially owned by the government...
Under the management of Barack Hoover Obama...
The unions are in partial control...
They’re moving some operations to Mexico...
They government tries to destroy other companies to gain market share...
GM, enough is enough. Good riddance...
“assume the company should trade on the same price-to-earnings multiple as Ford 6.4 times next years consensus earnings estimates”
Funniest thing I’ve heard of in a long time.
Yeah, their revenue is what, 5 billion this year? They’ll then be worth about 2x what Ford is, not 6.5x.
I could see an argument for valuing them at par with Ford.
“This is Democrats call a success. Better yet, GM is shipping jobs to Mexico using the TARP money to open plants there.”
Better Yet tear out assembly lines and install printing presses and start printing money!!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.