The General Motors rebirth whenever it happens, is going to be a very interesting event. This Fortune article has some pros and cons of the company and its prospects as a financial entity (I don't necessarily agree 100%) but what it is missing is the huge UAW concessions given over the past few years. While the old guard is grandfathered (and hence it will take quite a while for labor costs to drop dramatically), the auto companies negotiated a tiered wage system so that new hires are going to be making just a tad more than your local Walmart associate. Not to mention a huge amount of debt was discharged in the bankruptcy which is a huge advantage.
On a tangent, obviously I see a lot of parallels with the auto companies & many layers of our government; in fact the public sector - despite being a fraction of the size of the private - now has more union workers than the private. [Jan 24, 2010: For the First Time, More Union Workers Work in Government versus Private Sector] The idea of the union itself is not harmful but eventually it reaches a size and scope where it becomes as powerful as the forces it originally organized against - we now see this in public education where pay for merit is attacked as unfair. In what world? And we can see the efficiency of all forms of government has suffered... while the geographical area around Washington D.C. has become the center of American wealth. [Mar 11, 2010: [Video] America's 3 Wealthiest Counties Now Ring Washington D.C.] Obviously we are nothing like Greece. ;)
Frankly I am watching in awe as the socialists in Europe actually are taking a knife to their public sector with many countries cutting worker pay, consolidating, while the capitalist corporate socialist U.S. government lives in a parallel universe. As long as the global credit card can be charged ever higher we'll just borrow more money to keep the status quo, rather than adjusting to a world the private sector is painfully forced into. Two of the big 3 finally reached the point the credit card was cut off - unfortunately they don't have ability to print money! Lost in the (justified) rage over the bailouts is the fact the auto companies are adjusting. The events of the Great Recession just forced their hand since it is such a fixed cost business which does not allow for much short term flexibility that a 5M drop in auto run rate requires - unlike many other U.S. sectors which simply slashed their top cost: labor. While this future of far lower wages is going to be a painful path for workers, it poses a potential windfall for shareholders.
This will be an IPO I potentially will be quite interested in....
- Is it worth buying when your government is selling? That will be a big question when the colossal, and once colossally troubled, General Motors finally has its coming out party, which could occur as early as the end of this year.
- The question became timely when news leaked on Friday, stating that General Motors had chosen Morgan Stanley and JPMorgan Chase as the prospective underwriters for the deal, which could top $10 billion and mark the first major IPO to hit the market since Visa went public in March 2008. Treasury better hope it still gets full-fare treatment from the investment banks, because selling investors on GM -- still known to many as Government Motors -- could be as hard as pitching a new GM car to once loyal customers.
- Investors will recall the shellacking so recently received by owners of the old GM, with stockholders virtually wiped out and many bondholders in GM's bankruptcy forced to accept tiny or inequitable recoveries. That's not to say that investors can't get over previous hurt feelings or develop some patriotic flourish, if the price is right. But a good deal for the US government -- and in extension the US taxpayer -- may not be so appealing to potential investors putting new skin in the game. (a fair point)
- As with any insider, the US government, which holds a stake in GM worth more than $42 billion, obviously would like to maximize its profit, or at least minimize its loss. By extrapolating from current pricing on existing GM bonds, Eric Selle, a debt analyst at JPMorgan, has calculated that investors might support a GM market capitalization of somewhere between $70 billion and $90 billion, potentially providing the US government with a tidy profit.