GM has jettisoned tens of billions of dollars worth of corporate debt. They’ve folded four out of eight of their U.S. brands (HUMMER, Saab, Saturn and Pontiac). They’ve dismissed white collar workers and contained union health care costs. They’ve shuttered factories, trimmed dealers, revised their marketing strategy and released new products. And they’re still taking in less money than they spend. Until and unless that occurs, or threatens to occur, the chances that the nationalized automaker will de-nationalizing itself are less than the chances that GM lifer and CEO Fritz Henderson will introduce accountability into GM’s cancerous corporate culture. Sure, as mid-term elections approach, the feds may try to game the system, offering some kind of IPO-enabling investor “protection.” But, like a “real” bankruptcy, the idea of a “real” GM IPO in 2010 lies somewhere between utterly preposterous and infinitely delusional. Any investor-pleasing turnaround would require a sudden sea change in consumer confidence in GM’s products and a dramatic, robust recovery in the U.S. car market. And yet, the Boyz at RenCen are talking-up the IPO via Automotive News [sub]. At the same time that they’re playing it down. No surprise there . . .
The board of General Motors Co. will set targets in December that will help determine whether the restructured company is healthy enough to go public in the second half of 2010, CEO Fritz Henderson said.
“Investors will want to know what your targets are going to be, so we need to get that done,” Henderson told Automotive News last week.
On the table, Henderson said, will be targets for earnings, cash flow, debt and other key measures.
Auto market conditions late next year also will bear on a decision to go public, he said — and those conditions are impossible to predict.
So, NOT selling the government’s share to the General’s public is now on the cards. In other words, New GM’s old management is preparing for failure. CYA rules! Again. Still. But accepting the whole leopard non-spot changing thing doesn’t make it any less excruciating to contemplate the simple, inescapable fact that New GM should have sorted their shit out before bankruptcy. That they didn’t, and still managed to hoover-up well over $60 billion in taxpayer subsidies, is a symbol of everything that’s wrong with Detroit and Washington.
“Performance is the most important determinant,” Henderson said. “You can do all the work to facilitate it, but if you’re not performing, you’re still not going to have a successful public offering.”
Notice Fritz’s deployment of the impersonal pronoun: “you” instead of “I” or “we.” It’s a verbal tic used by professional athletes (and others) to distance themselves from failure. Other than, say, the Cadillac CTS Sportswagon. you couldn’t ask for a more ominous sign of impending doom. Signs? We don’t need no stinking signs!
Henderson said an IPO will be governed by the automaker’s financial performance relative to investors’ expectations.
Investors will want GM to “set performance expectations for ourselves and ultimately for investors if we go [public] in 2010, and then perform against it,” he said.
Henderson wants good numbers for earnings, operating cash flow and debt, among other things.
Define “good.” Then riddle me this: good for whom? Fritz and his mob, GM’s Chairman of the Board (“We win!”), the Presidential Task Force on Automobiles (remember them?) or U.S. taxpayers? No? How about a reality check, then?
Through September, GM’s unit sales of 1.5 million were down 36 percent compared with the industry’s drop of 27 percent.
Auto market conditions late next year also will bear on a possible public offering, he said. But conditions are impossible to predict.
Again with the impossible. Mission impossible? Impossible dream? Just so.
No surprise here – any IPO without either profitability or at least Silicon Valley style “blue sky” hype makes no sense at all.
How can I jettison my debt while still remaining in my house?
Stock markets are based upon anticipated results, not necessarily past performance. (Those dot.com IPOs are great examples of stock prices being based upon expectations, rather than results.)
GM has done a good job of snowing the investment community into believing that its problems were based largely on costs. The analysts seem largely clueless about the roles of product and pricing power in contributing to GM’s problems. Since the cost-based arguments play well with the general anti-union sentiment on the Street, these inaccuracies have been easy to sell.
If they can perpetuate that level of cluelessness, then this should be successful enough. Inevitably, there will be enough investors who have blamed everything on “legacy costs” to see a bright future, irrespective of the ongoing deficiencies with product and pricing. That’s what happens when ideology trumps a good analysis of the income statement, but it wouldn’t be the first time, and it won’t be the last.
I predict that after some years of unnecessary expense and hardship to the US taxpayers and their biggest ever Welfare Queens, GM and Chrysler-Fiat,
FORD will be the ONLY one left of the so-called “Domestic” Automakers,
just as Boeing is the only (and hugely successful world-wide) domestic Commercial Jet maker.
And it is no coincidence that, before he saved Ford’s A$$, Alan Mullaly saved BOEING’s,
as its CEO. And his generous pay ($40 million or so every year), with hindshight, seems fully deserved.
RF:
Notice Fritz’s deployment of the impersonal pronoun: “you” instead of “I” or “we.” It’s a verbal tic used by professional athletes (and others) to distance themselves from failure.
You are SO right.
@pch:
I think you are on to something. Add to that the tremendous incentive to the Street to make fees on the IPO process and then the opportunity to play football with the new GM stock (there is no longer any link between fundamentals and stock price). Wall Street won’t be able to resist this one. They will ultimately go public for almost all of the wrong reasons but they will ultimately go public. Also don’t factor out the mindset about recovering the glory days of old.
On a personal level, I wish I had a nickel for every pedal stroke I’ve had along PCH/101 between San Diego and Zuma Beach. I would be a rich man.
A bit off topic here, but how fast does the “Big Red Car” actually go? I mean, shoulder restraints??
What a culture we’ve created.
Fritz is doing his job in the service of his political masters in Washington. The Democrats and bureaucrats need to pretend they have a real-world exit strategy, something they can jawbone before the next congressional election. Otherwise, they won’t be able to reposition their auto industry venture away from being seen as a quagmire, a union payoff, and a giveaway of taxpayer money.
There are other, collateral benefits to ginning up a viable future:
(1) it can be used to reassure potential car buyers that they are not purchasing a vehicle from a company about to shut down.
(2) potential car buyers who won’t touch a Government Motors product on principle can be given the impression that it’s OK to buy GM because it will soon be private again.
(3) it will provide a justification when Washington needs to pour in even more money (that’s an especially worrying aspect of this latest PR gambit).
(4) it provides a distraction, at a time when GM is getting its butt kicked in every possible way. I can hear Fritz’s phone ringing, and a voice screaming from the White House, “The boss don’t wanna be humiliated. You better start sayin’ good stuff! NOW!”
(5) it gives the zombie banks political cover when da Chicago Boyz gently explain to them why they should buy GM shares.
An IPO is unnecessary if GM stays in the government’s nest, which it will and must, in order to stay in business. Ugh.
lahdeedahGM.gone
So, on one entry today, we have GM being castigated for being unrealistic. Now we have them being castigated for being realistic.
Autosavant :
October 12th, 2009 at 12:39 pm
FORD will be the ONLY one left of the so-called “Domestic” Automakers,
just as Boeing is the only (and hugely successful world-wide) domestic Commercial Jet maker.
And it is no coincidence that, before he saved Ford’s A$$, Alan Mullaly saved BOEING’s,
as its CEO. And his generous pay ($40 million or so every year), with hindshight, seems fully deserved.
And you really think that Boeing’s survival had nothing to do with government largesse? The commercial airplane division lost a billion dollars last year. If not for their defense division, they’d be screwed.
If GM needs another year to go public, then so be it. If you aren’t happy about the bailout, are you going to be happier if the money that is supposed to go to the gov’t from the IPO is far less than what it could have been if GM waits another 6 months to a year?
If GM goes IPO and it bombs GM could be worse off and go into bankruptcy costing more money and jobs.
The money from the bailout has already been spent, the best way to get it back is to have a successful GM IPO.
GM has done a good job of snowing the investment community into believing that its problems were based largely on costs. The analysts seem largely clueless about the roles of product and pricing power in contributing to GM’s problems. Since the cost-based arguments play well with the general anti-union sentiment on the Street, these inaccuracies have been easy to sell.
Why do you suppose the willingness to let ideology trump analysis is so prevalent? One would suppose that purpose of business school would be to produce grads with the opposite tendencies.
The Fed is helping the Team Washington effort by pimping Detroit iron.
http://money.cnn.com/2009/10/12/autos/most_american_car/index.htm?postversion=2009101208
Why do you suppose the willingness to let ideology trump analysis is so prevalent? One would suppose that purpose of business school would be to produce grads with the opposite tendencies.
I’d like to have a definitive answer for you, but I don’t. A business school education provides all the tools needed to do the analysis properly, and it’s not as if the case studies taught about GM are particularly kind to the company.
I can only assume a few things:
-“Analysts” are still ultimately in the marketing side of the banking and trading business. Pissing all over the management of major companies is generally not the done thing; after all, they may be coming to you for future business, and their accounts tend to be large.
-It’s usually politically easier to parrot the usual story than to tell a new one. The nail that sticks out tends to get pounded. And the old story is that costs are too high and that unions suck.
-The auto industry is mature and not particularly exciting from a Wall Street perspective, so I assume that the analysis doesn’t get a lot of rigorous scrutiny and the sector may not attract the best of the breed.
-They’re lazy.
Generally speaking, securities analysis isn’t very good, anyway. The data can be useful, but the recommendations often aren’t. Perhaps I am giving automotive a uniquely critical beatdown because those of us who post here care about it more than most, but honestly, you would have missed the mark about most of these companies most of the time had you relied upon most of the Wall Street analysts for your information.
It is with pride that I can say my employer hasn’t had a recommendation on GM (or Ford) since 1997 and 1999 respectively. We just stopped researching GM suddenly in 1996 for some reason.
No-one I work with knows why and the records are paper before that.
Unsurprisingly, there are no takers for starting again either…