The U.S. government (you and I) invested over $50 billion dollars in General Motors to keep it alive, we currently own 61% of the automaker. Over the past year, under our ownership, GM has made some major strides to becoming healthier. It has shed a number of divisions including Hummer, Pontiac, SAAB and Saturn. It has paid back the $6.7 billion loan that we lent it and it is preparing for an IPO.
Will the IPO be a success, what is success? Will the tax payers get all their money back plus a risk adjusted rate of return or will we get a portion of it back? It is hard to predict given the economic climate. GM’s pension plan is underfunded by $26.4 billion and its U.S. market share has fallen in the first six months to 18.9% from 20.5%. However, it’s operating at 93% capacity up from 39% a year ago. The company’s profits are $2.2 billion for the first six months compared with an $18.9 billion loss for the first half of last year. It looks promising, but there are some hurdles.
The head of GM, Ed Whitacre, Jr. will be stepping down on September 1st to be replaced by Dan Akerson. Mr. Akerson is a Managing Partner with the Carlyle Group, a private equity firm and he will need to convince Wall Street that he has the skill necessary to run this company. He will also need to lead the largest IPO this year--larger than all 86 IPO’s this year combined and it could be the largest in history. The man who bought Dunkin Donuts and AMC movie theatres (I love both those brands) has a large hill to climb, let’s hope he can make us a believer in Cadillac again.
