It might finally be time to say goodbye to Government Motors, because General Motors is buying back $5.5 billion of the common stock that the U.S. Treasury currently owns. GM will be paying $27.50 per share, which is a 7.9% premium over its most recent trading price prior to the announcement, but is a 17 percent discount vs. GM’s $33.00 IPO price in 2010. Of note, the price that GM is paying for its own shares is also about half of the $52.39 the shares would have to be in order for Treasury to break even on its “investment” in GM.
“It is always good when a man has two irons in the fire.” –Francis and Fletcher, John Beaumont, The Faithful Friends, Act 1.
While there’s certainly something to be said for the value of multitasking (though studies have proven that the human brain actually cannot focus on more than one task at a time), Sergio Marchionne has proven that it’s very difficult to juggle management of two multinational automobile companies as he shuttles between Chrysler and Fiat.
Who wants to buy a car from Government Motors? Apparently, not as many people as would prefer to buy one from General Motors. That’s the argument that GM has attempted to convey to Treasury officials in recent weeks. It seems that GM is tired of its association with the controversial TARP/auto industry bailout, and feels that any continued ownership by the U.S. government is acting as a drag on its reputation, and therefore its sales.
The funny thing about the car business, or indeed nearly every business, is that it’s very much about people. Whether those people happen to be the famous ones that run a company (Sergio Marchionne, Carlos Ghosn), ones that run a company’s marketing (Jim Farley
, Joel Ewanick), or ones who actually provide the labor to build the cars that we love to write about, talk about, and drive, people are always and have always been an important part of this business. So, with the master agreements between Canada’s CAW and the Detroit 3 expiring next month, the sides remain far apart in their expectations of what form a new agreement may look like. Talks begin tomorrow in Toronto.
GOP presidential candidate Mitt Romney told the Detroit News that one of the first things he would do if elected president is to completely divest of the government’s stake in GM. He made the case to the paper that the Obama Administration is holding onto its 26 percent stake in GM solely so that the extremely-likely loss that would come from the shares is not locked in.
By Chris Haak
Probably due to its much larger size, GM’s bailout and repayment of some government loans has drawn far more attention than the assistance provided to Chrysler has for the past several years. Chrysler doesn’t even get the perk of a derogatory nickname like “Government Motors” has.
Former “Car Czar” Steven Rattner’s book described how the Obama administration was split nearly 50-50 on whether Chrysler was even worth rescuing, and not everyone is certain of the viability of the now Italian-American automaker in the coming years.
By Brendan Moore
The chatter in Washington is that the U.S. Treasury Department is going to sell most of its shares it received in General Motors stock in 2009 as part of the auto industry bailout package, perhaps as early as this summer. The reasons are either political or financial, depending on whom you ask. Some will tell you that the Obama administration wants the sale this year so that the federal bailout of GM is a non-issue in the 2012 presidential election, and some say that the sale is going to happen this year because the Treasury department thinks the current stock price is as high as it’s going to get for the foreseeable future.
Either way, unless the share price climbs above an unlikely $53 a share before the sale date, the Treasury’s dream of making a profit on the bailout is not going to be realized. At $53 a share, the federal government breaks even on the $50 billion it “loaned” GM, but at the current share price of approximately $30 (well below the $33 IPO price of last November, which raised around $20 billion), taxpayers would lose around $11 billion.
The U.S. Treasury currently owns 500 million shares of the reconstituted GM, which represents 33% of the company’s worth.
By Chris Haak
Toronto-Dominion, the second-largest bank in Canada based on deposits, announced today that it has acquired Chrysler Financial. Chrysler Financial has had a number of ups and downs over the past few years, but the entity is clearly ending its life on an “up” note. Toronto-Dominion is better known in the US as TD Bank.
Previously the captive finance arm for Chrysler and its various brands, Cerberus purchased the lender along with Chrysler’s automotive operations in 2007. Partially due to Chrysler’s struggles, and partially due to the financial crisis, Chrysler Financial was undergoing major struggles. As Chrysler exited bankruptcy, Chrysler Financial lost its status as Chrysler’s captive-finance arm, with that role moving to GMAC instead under the government’s direction. Chrysler Financial executives declined to accept TARP funds to shore up the company’s balance sheet, and it looked like the firm would be liquidated. It was generating little new business and seemed to have dim prospects for the future.
By Chris Haak
Less than a year and a half after its predecessor, General Motors Corporation, collapsed under the crushing weight of declining sales and market share, unsustainable debt levels, and enormous labor costs, General Motors Company has completed its initial public offering. Starting this morning, you can hit up your broker for a few shares of GM (the company got its old ticker symbol back) and ride what may or may not be the company’s ascent toward business success.
The company sold 478 million shares yesterday, priced at $33 per share. That price was well above the original expected price range of up to $27 per share, and also at the top end of the revised $30-33 per share. The revised range, and the higher price, reflect considerable IPO demand for GM’s stock. On top of the 478 million shares, GM’s bankers were expected to also sell another 71.7 million shares as an “overallotment,” which is allowed when demand for shares is stronger than expected. The 478 million shares raised $15.774 billion, and the 71.7 million shares raised another $2.366 billion, for a total common stock sale of $18.14 billion.
By Charles Krome
Let me deal with one thing before I even start: I was definitely in with the bailout crowd back during the depths of the global economic meltdown, and I remain a firm believer in government providing the occasional boost to U.S. industry. But that being said, I’m starting to get a bad feeling about how things are playing out at General Motors.
Consider: The General recently teased its third-quarter financial results—the final numbers will be released on Wednesday—and the early line is that the company expects to see a “net income attributable to common stockholders” of about $2 billion. That’s a swing of more than $3 billion as compared to GM’s results during the same time last year, although the automaker’s 2009 third-quarter numbers were more hazy and haphazard than usual, due to the whole “going through bankruptcy” business.
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