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 shouldn’t get too caught up in the hype. Sure, the automaker looks in pretty decent shape thanks to last year’s bankruptcy clean-up, and car sales are motoring away from last year’s lows. But to repay U.S. taxpayers in full, GM needs to at least double its earnings.
That’s 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, that’s worth shouting about. But it falls shy of Ford’s 7.2 percent margin in the same period. There’s 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 year’s 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 Ford’s 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
http://reason.com/blog/2010/04/23/gm-pays-back-tarp-loans-withta
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.
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