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GM and it’s IPO

Posted by Bill Sluben on July 5, 2010

In the hope of stabilizing its post-bankruptcy financial standings, General Motors (GM) will be unlocking 20 billion dollars (US) in initial public offering (IPO) by next month.

Although there have been no concrete announcements yet from the management, finance expects could still not figure out how much would be the prices of stock valuation.  Cutting the valuation of its IPO, General Motors will be able to establish a broader base of investors and reduce its dependence to government aid. General Motors declared bankruptcy last year and sought a federal protection by invoking Chapter 11 of the United States Bankruptcy Code.

More than 60% of the General Motors’ common shares are owned by the U.S. Treasury and will probably be selling twenty to forty percent of its current level. Currently, the estimated value of the government’s shares is around 11 billion dollars.

A number of banks are also likely to venture into a revolving credit line for the General Motors amounting to 5 billion dollars. As of press time, the Citigroup Inc, Bank of America Corp. and JP Morgan Chase & Co as well as Morgan Stanley have declared intent to provide the GM with 500 million dollars of credit from each of them. More banks are still to follow.

General Motors is not likely to pay the dividends to its shareholders but will plan to sell about 3 billion dollars of mandatory convertible securities to avail regular interest or payment to dividends that will sooner convert into shares in the near future. In this way, growth funds investors will definitely find interest to come in.  Two major shareholders, the United Auto Workers Healthcare Trust which controls 17.5 percent of the company’s total shares and the Motors Liquidation which holds 10 percent of stocks is yet to decide whether or not they will sell parts of their shares in the planned initial public offering.

The Government of Canada having sliced up an 11.7 percent of the General Motors shares has been planning to sell around 20 percent of its current shares.

General Motors’s IPO at 15 to 20 million will be a record-breaking venture under Obama’s government. It will surpass Visa Incorporated’s 19.7 billion IPO last 2008.

But the General Motors even with the huge IPO plan still have to convince potential investors that its recovery is already gaining ground. At the end of March, General Motors still have al outstanding debt of 14.2 billion dollars and 27 billion short of its pension funding obligation during the first quarter period. Certainly, the company can utilize its IPO earnings to pay its debts and end its standing pension shortfalls.

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Are incentives drying up?

Posted by Bill Sluben on December 11, 2009

Consumers, long conditioned to look for the greatest incentive among vehicle manufacturers, may find that the well is starting to dry up.

Car-shopping Web site Edmunds.com said the average automotive manufacturer incentive in the U.S. was $2,713, up 1.9% from the prior month, noting GM, Chrysler and Ford spent the most on incentives.  While GM’s November sales fell just 1.5%, the company outspent its rivals on incentives by at least $1,000 a car, subsidizing $4,300 per vehicle, says Edmunds.com. If Whitacre pulls back too much on the discounts, sales could plummet.  However, the long term strategy has been clearly communicated to focus on value and quality and not on discounting.  Discounting, with its fickle and fleeting mentality, ultimately will not build the brands.

Nissan spends about $2,000 to $2,500 per vehicle on incentives, compared with $1,500 to $1,700 at Honda and Toyota.

Chrysler also has been reducing incentive spending. Average incentives for Chrysler fell 6.8 percent, or $262 per vehicle, in November

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Auto Ad Spending Plummets

Posted by Bill Sluben on September 14, 2009

David Goetzl of Media Daily News reports that automotive ad spending continues moving in reverse — at high speed. Even with the “cash for clunkers” program and post-bankrupt General Motors and Chrysler promising significant investments in marketing, total ad spending in the category is on pace to fall more than 31% this year, according to figures from TNS Media Intelligence.

Based on data from the first half of 2009, the sector could generate $9.8 billion in spending across all media for the year — a 31.3% decline over 2008. That precipitous drop would be nearly twice the 15.7% of a year ago.

During the first six months of the year, the six leading automakers all cut spot TV spending, with Honda down the least at 27%. GM, which emerged from bankruptcy in June, was down the most at 70%; Chrysler curtailed spending 52%.

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Chevrolets in the U.S.A.

Posted by Bill Sluben on September 8, 2009

Could we all be turning more patriotic when it comes time to get a new car?

In a recent Consumer Reports survey of almost 1,800 adults, 81% of those in the market for a new car said they were likely to consider a domestic brand. That compares to just 47% looking at Asian brands and 46% in the market for European models.

“Ford has benefited the most from the recent turmoil in the auto market, with the largest gain in new-car buyers who say that they are likely to consider buying a Ford model — up 17 percentage points compared with a year ago,” Consumer Reports said in a statement on Wednesday.

Consumer Reports credited Ford’s aversion to accepting any federal aid with its appeal to consumers.

The number of those considering buying a GM model was up 6 percentage points.  Chrysler conversely was down 25-28% attributed to their court ordered bankruptcy and recent marriage with Fiat.

Troubling for the entire auto industry is the survey finding that showed only 9% of respondents expressed interest in buying any new car in the next year, down from 19% in a June 2008 survey. That’s hardly a surprise considering the big spike in sales the government’s clunker promotion had in August.

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Clunker program closing?

Posted by Bill Sluben on August 20, 2009

It seems that the bureaucracy and red tape of the government is holding up a significant number of cash for clunker reimbursements to dealers…and dealers are not happy about it.  For dealers, this timely reimbursement represents an infusion to their cash flow.  It is also a return on a hefty promise made by the Federal Government when they rolled out the program.

The problem is that no one (dealers, industry analysts, Department of Transportation officials) knows exactly how mush of the $3 billion is left, if any at all.  And that is making dealers squeamish to say the least. 

Questions abound from dealers at this point – When will we get paid?  How many of the claims will be reimbursed?  And should I still promote and honor the cash for clunker program at my dealership?

GM LogoGM, for their part, is taking a proactive stance and approach by fronting the money to dealers.  And Ray LaHood, Transportation Secretary, has said that an “enormous number of people on the task of processing the paperwork” and that “there will be no car dealer that won’t be reimbursed.”

The key to the continued adoption and support of the program will be how quicklythe reimbursement arrives to the dealers…and ultimately how much of the amount owed is paid.

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Detroit U-Turn?

Posted by Bill Sluben on July 16, 2009

So where does Detroit turn from here?  With near record levels of unemployment, record foreclosure rates, perceived lack of consumer credit and a general malaise in consumer spending, it does not appear likely that Detroit will witness anything close to a recovery with new vehicle sales.

That’s not stopping Detroit from coming out with new product that is built better than ever before.  Witness the new 2010 Buick LaCrosse.  A departure from the traditional styling of Buick.  A design that can stand up with the best of the imports, including BMW and Lexus.  Despite rave reviews, Buick is still faced with the task of appealing to a wealthy youthful audience that normally would never consider buying American. 

The ultimate success of Buick and the rest of GM is changing consumer perceptions about the quality and design of vehicles rolling off of the assembly lines of U.S. manufacturers.

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