September 13, 2010

JUST BECAUSE WE'LL GET OUR MONEY BACK DOESN'T MEAN IT WASN'T A MISTAKE:

Get Ready for the GM IPO (PAUL INGRASSIA , 9/13/10, WSJ)

[M]aybe a hefty market valuation for GM, though probably south of $70 billion, isn't so implausible. The company had $8.2 billion debt on its books at the end of the first half, compared to $27 billion for Ford. Tens of billions of the old GM's debt were wiped away in the bankruptcy. Chapter 11 is great . . . if you're not a creditor.

Besides, if you're a potential investor in the new GM, it doesn't matter if the company's market cap is higher than Ford's. All that matters is that GM's stock appreciates from the IPO price, which hasn't yet been set.

General Motors is now profitable in a lousy economy in which U.S. car sales, though better than last year's, remain at multidecade lows. Car sales need only recover halfway toward their previous peak for GM (and Ford and Chrysler) to start coining serious money, assuming the company keeps its cost discipline intact. That bodes well for the stock, if the IPO price is reasonable.

But buyers might want a long-term warranty on the stock, like the warranties on some cars nowadays. One major threat to GM is its long-toxic relationship with the United Auto Workers union, for which both sides bear the blame. Abolished in last year's bailout were the worst abuses: the Jobs Bank that paid workers not to work, ridiculous medical benefits that no other Americans have, and many feather-bedding work rules.

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Posted by Orrin Judd at September 13, 2010 12:14 AM
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