Wednesday, July 25, 2012

GM: Not So Good for America

The "New GM" hits new lows.
[courtesy ZeroHedge]

The above graphic from ZeroHedge overlays the trend in unsold inventories at General Motors dealerships with the downward trend in the company's stock price (closing yesterday at about $19 a share).  GM claims to be profitable, but investors aren't fooled.  Revenues have been boosted by channel-stuffing.  It remains to be seen whether the product sitting on dealer lots will actually be sold through to customers.

U.S. taxpayers should care, because they are still invested in the company.  GM took down $50 billion in TARP aid during the first wave of the ongoing Global Financial Crisis.  The firm entered Chapter 11 bankruptcy, crushing equity holders and extracting union concessions.  When GM emerged from bankruptcy in 2009, the U.S. Treasury owned 61% of the company.  An IPO in November 2010 allowed Treasury to sell 35% of the company for $13.6 billion.

When you think of it, Treasury tried to do what Mitt Romney did many times at Bain Capital:  buy up a distressed company, cut costs in draconian fashion, then sell the carcass to retail investors and pension funds.  But "facebooking" the investing public requires skill, and Uncle Sam doesn't have it.  He locked in a partial loss by selling at the IPO price of $33 a share.  Now he needs a share price on the remaining 26% of almost $54 to break even.  And even that will recover neither the interest paid on offsetting Treasury debt during the interim nor the $18 billion in tax-loss carry-forwards gifted to GM.

President Barack Obama has few accomplishments to brag about during his re-election campaign this year.  One has been that he SAVED the U.S. auto industry.  It is true that GM regained some market share when Japanese competitors were dealing with supply-chain constraints brought on by a rather large tsunami and biblical flooding in Thailand.  But the Toyotas and Hondas of the world are back on track.  That turns GM back into what it was before the bail-out.  A pumpkin.

Keep talking, Barry.

P.S.--As of June 30, the MainePERS investment portfolio held 139,712 shares of GM stock, worth $2.65 million today.  The same shares were worth $4.6 million when first offered to the public.  Reality has bitten bigtime.  Maine taxpayers will have to make up the difference.

Six-month chart for GM common
The trend is not our friend.

P.P.S.--Don't look now, but investors are suing GM for false representations in the IPO prospectus.  Say the plaintiffs, statements by GM that the firm was expanding production to meet increased customer demand were "false and misleading, because the increased inventories were the result of channel stuffing and were not attributable to higher demand.  Indeed, at the time of these statements, dealer inventories were rising and trucks were sitting unsold on dealer lots for longer periods of time." Here's the lawsuit:

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