Two Big GM Stories

This week I stumbled on two big stories about GM. First, GM has decided for sure how many dealers to keep. At one point they were gutting much of their dealer network, but they have now settled on 4,500 dealers. From Fox Business:

General Motors will move forward with 4,500 dealers after the automaker, under pressure from Congress angry with j

ob losses, reversed planned closures of more than 800 franchises, the company said Monday.

GM finalized dealership closures and franchise reinstatements over the weekend, one of the final pieces of business to be checked off before beginning its presentation to investors this week on its proposed share sale.

The public offering is designed to return GM to public markets and shake off the government's controlling ownership.

The U.S. Treasury obtained a nearly 61% stake in GM in return for $50 billion in taxpayer Bailout and bankruptcy financing in 2009.

The automaker said it intended to stick with the decision to terminate 1,233 dealerships as of Sunday following months of arbitration and despite continued pressure from lawmakers, including an Ohio delegation that includes House Republican Leader John Boehner, to keep more small businesses open in a struggling economy.

I think that, while it is good for GM to be saving jobs, this move is financially bad for them long-term. No company should be pressured by Congress on how to act, except in instances with already existing regulations. This is one of the big pitfalls of the governments 61% stake in GM. Un-American things start to happen.

However, GM will look good for saving jobs, yet I expect them to further shave down the dealer network once they are free of the federal government's coercive control.

As the Fox Business piece mentions, GM is going to be issuing an IPO very soon. Here's a story from the WSJ:

The U.S. will cut its ownership stake in General Motors Co. below the symbolically important 50% to about 35% when the car maker relists its stock later this month, according to new figures the company plans to disclose Tuesday, but it will be tough for the government to break even on its investment.

Neal Boudette discusses GM's IPO plans, which will raise up to $10 billion and cut the government's stake to below 50%.

The new projections by GM say the company could have a stock-market value at the start of trading of $50 billion—about the same as the solidly profitable Ford Motor Co.—and that it could be as high as $60 billion, said people familiar with the plan.

But for the U.S. to break even through sales of the rest of its stake, the share price may need to rise more than 60% from its initial level, to about $50.

The initial public offering plan envisions the shares would be priced at $26 to $29 each, these people said. The actual price of the stock to be sold in the IPO would be set about Nov. 17, and the sale would take place the following day.

Through the IPO, GM plans to sell 24% of its total shares, or about $10 billion worth, based on the midrange of the share-price estimate.

Ultimately, this IPO will be very good for all parties, in my opinion, because it will pay back the government and will loosen the government's grasp on GM. GM will also be a great investment because they are still in the top three globally for car sales, but now they have much less debt and dead weight since going through bankruptcy. Moving forward, GM is a company to keep a close eye on. Lots of great new products will be coming out soon, so I expect sales, profits, and the stock price to increase in the near future.