Because success in the auto industry depends upon both the buildup of industrial might and deft maneuvering on the winds of fashion, analysts often struggle to determine how business decisions impact consumer choice. For example, GM and Chrysler long resisted the pressing need to file for Chapter 11 bankruptcy protection because their leaders believed that Americans would not buy a car from a bankrupt firm, and that sales would go into an irrecoverable tailspin if they filed. Needless to say, that assumption proved to be deeply flawed, and sales during the GM and Chrysler bankruptcies barely dipped (if only compared to the miserable months preceding bankruptcy). In any case, the rating agency Moody’s is taking on the challenge of translating good business news into sales by arguing [via Bloomberg]
U.S. consumers who don’t know anything about over- allocation options or the need for strong liquidity in a cyclical industry knew that something exceptionally good happened to GM last week. That knowledge makes it more likely that they will consider buying a GM vehicle and possibly buy one. That’s good for the company’s credit quality.
But does the general air of positivity surrounding the IPO actually make a difference with consumers?
If bankruptcy barely affected sales, why would an IPO have a significant impact? Yes, the IPO helped return some tax money to the Treasury, but GM is still a long way from full payback of its $50b bailout. And with the government still holding about a third of GM’s equity, the “Government Motors” stigma isn’t gone by a long shot. Nor did the IPO create a massive amount of optimism, as GM’s stock is trading just a dollar and change above its IPO price. And at the end of the day, Moody’s still rates GM’s credit several notches below investment grade. But hey, maybe there’s a point here… can we muster any anecdotal evidence of consumers considering GM because of the IPO?
Nah, because the government very clearly declared (with my money) that GM was NOT going out of business.
The IPO doesn’t matter to anyone but the politicians who want to argue that they did a good thing and now it’s over, see? Veni, vidi, vici, vamvoosed. Nothing to see here, move along
Who wrote that statement for Moody’s, Robert Gibbs?
One analyst said it was in “everyone’s interests” for the IPO to be portrayed as a success, and we certainly witnessed a coordinated media/financial sector/government team effort in that regard. However, I think the hype machine has shot its wad on GM’s “newness”, and the IPO is yesterday’s news; atmospherics like “something exceptionally good happened to GM last week” have a short shelf life.
Here’s something that will last much longer:
“Last but not least is the issue of GM’s internal financial controls. Deep in the fine print of its (IPO) prospectus was this: ‘We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.\'”
http://online.wsj.com/article/SB10001424052748704648604575620982583079458.html
it’s a $15 stock if that.
(This comment removed by the US Government)
Given the dismal state of the average American’s understanding of financial matters, I expect that several layers of bias against GM have been removed by the IPO, regardless of whether the bias was deserved in the first place or is undeserved now.
“GM and Chrysler long resisted the pressing need to file for Chapter 11 bankruptcy protection because their leaders believed that Americans would not buy a car from a bankrupt firm, and that sales would go into an irrecoverable tailspin if they filed.”
Nah, that was just their excuse for avoiding doing what needed to be done. The publicly stated reasons for these kinds of decisions are almost never the REAL reasons.
call me stupid, but if some people buy GM stock as a future investment (unlikely) they and their family,and their friends might be convinced to buy GM just to keep the thing going…
i don’t see it any other way, after all as i write it’s standing at 33.729, meaning no one has made the slightest profit yet…and Toyota with all its recalls is still hanging at 77… and Ford, the smartest automaker of 2010 has gotten all the way up to 15, so GM has a way too bloated price for a stock… i would pay 10 max…only if….