This Thursday (11/18/2010) GM returns to the market. After emerging from a government-organized bankruptcy (16 months ago), trying to improve their finances, and venturing into new products (like electric cars) GM feels like it is ready to once again be on top. According to the article, GM execs are trying to play up their bright spots, including: "a better lineup of cars and trucks, potential for global growth and a new cost structure that enables the company to make money even when the economy dips." However, the company has not fully "healed." The government is still heavily involved. In fact, the stock offering will only reduce the government's stake in GM from 61 percent to 43 percent. It can take years before the government has completely left GM. As the article says, "For shareholders, that means GM may not always put investors first. Political priorities may trump their demands. Some worry GM will spend too much time and use too many resources working on small cars or electric cars and not enough on profitable vehicle lines like trucks and SUVs." Plus, GM has made it known that it does not have full control over its finances. Its accounting procedures aren't where they should be. For instance, GM has included $30.2 billion in goodwill as an asset. Goodwill is an intangible asset and is not something that could be sold. It is also larger than other GM assets, like property ($18.1 billion) and cash ($26.8 billion).
With all of these issues (plus some more if you read both articles), logically GM does not seem like a good buy. However, logic doesn't always win out when it comes to the market. Plus, foreign investors seem very interested in GM. Chinese automaker SAIC, GM's partner in China, is finalizing plans to buy about a 1 percent stake. Also, funds which manage the finances of royal families and some nations, could invest $1 billion in GM. Overall, there seems to be quite a bit of risk in investing, but who knows, this might be something everyone overlooks, and then it just explodes (it has happened before). So, what are your thoughts; is GM something to take a careful look at or stay away from?
Sources:
http://www.chicagotribune.com/news/local/wire/chi-ap-us-gmipo-redflags,0,6379264.story?page=1
http://www.google.com/hostednews/ap/article/ALeqM5h3slmxJfh-ehG_A3Nf2276IQ0zzw?docId=acefdb2929504ccea71b2f692baff461
I don't think that GM has any reason that it would suddenly grow and become profitable. I see no reason that it will surpass any of the other foreign car companies who have not gone bankrupt and are not relied upon by the government. As Dennis said, GM may spend too much time focusing on fuel efficiency and electric cars which are not as profitable. I would stay away from GM because it is high risk.
ReplyDeleteI think GM is a very risky investment at this point. Lots of the positives for investing in GM are more hypothetical or hopeful then what is already here. I think the investment could pay off in the long run, I mean where can you go from rock bottom, but I think that the ride back up (although it will probably never fully regain its grasp in the car industry) will be a very bumpy one. Though, I am still unsure if GM will go up all that much through this competition. I think that GM needs an solid kick start, and until it gets that, it might just stay low and unpredictable.
ReplyDeleteI can say that though GM has a chance at success, the big risk can be seen in the company history. See this infographic: http://www.buzzfeed.com/automotive/ford-gm-have-had-9-of-the-12-largest-recalls-in-h-1lio
ReplyDeleteGM has had 4 of the top 12 recalls in history. That doesn't mean its future isn't promising (I don't think the future of a company needs always to rely on its past) but it definitely takes guts to put faith in GM. Though I wouldn't be surprised if consumers did just that, since the fact is so little known that GM has a volatile history that it might as well be excusable. Now that GM and other American companies are making progress in new energy sources, anything is up for grabs.