Investors take GM stock for a joyride
The old saying that what’s good for General Motors is good for the country took on new meaning Thursday after the carmaker went public in a $20-billion-plus stock offering.
General Motors Co. shares accelerated smoothly in their first day of trading, gaining 3.6% from the higher-than-expected price the company sold them for late Wednesday.
The solid debut was especially good news for the Obama administration, which is eager to show it can recoup the nearly $50 billion it plowed into the auto giant last year.
“This is just about the sweetest deal that they could have hoped for,” said Sandeep Dahiya, associate finance professor at Georgetown University’s McDonough School of Business. “They got a good price, they sold a lot of their shares, and they’re not facing criticism that they sold out cheaply.”
GM’s warm reception on Wall Street also could bode well for Main Street by reflecting the increasingly upbeat expectations many investors have for the economy, market watchers said.
Although the carmaker accounts for a much smaller percentage of the nation’s output than it did in the 1950s, when a former executive famously asserted the convergence of the country’s interests with the company’s, the company remains a mirror of the economy.
“If people were overly concerned about the economic outlook for 2011 and 2012, then they’d hold off on making an investment in GM,” said Jane Caron, an economist at Dwight Asset Management in Burlington, Vt. “Over the last two months there’s been a notable improvement in the economic data, and investors are carrying that over and expect 2011 to be better than 2010.”
If the deal had faltered, new questions would have been raised about the government’s ability to extract the rest of its money. And if the stock had soared on its first day, the administration could have been criticized for pricing the deal too low and not getting enough for taxpayers.
The Treasury Department reaped about $11.8 billion in the deal and could ultimately get up to $13.6 billion. With the $9.5 billion that GM already has paid back to the government or soon will, U.S. taxpayers would recoup about $23 billion of the $49.5 billion it handed over to rescue GM.
The government still has a long road ahead before it can get back all its money. To do that, the Treasury must sell its remaining stake at an average price of nearly $53 a share, more than 50% above Thursday’s closing price of $34.19. The Treasury Department has agreed not to sell any more stock for six months but otherwise hasn’t given a timetable for unloading its stake.
The offering raised more than $20 billion, a total that could rise by $3 billion if the banks that underwrote the offering decide they can profitably distribute that additional amount of stock in the next few weeks. Such an increase would make the offering the world’s largest IPO.
The stock’s first day of trading ended months of meticulous stagecraft by GM, the Treasury Department and the underwriters.
Even after the offering had attracted more than enough buyers, GM continued to pitch the deal to overseas investors this week. That helped raise the offering price to $33 a share from an original forecast of $26 to $29.
The IPO gave a much-needed boost to GM, which is trying to rebound from its near-collapse last year.
It’s “a good start, but we have a long way to go in capturing the hearts and minds of the general public,” said Joel Ewanick, GM’s marketing chief.
GM’s challenge, he said, is to persuade car shoppers who might have had a bad experience with a vehicle or were put off by the federal bailout to take a look at its new product line.
“We are going to prove to them that we are not the company they have seen for the last 30 years,” Ewanick said.
One marketing strategy will be to focus on each of GM’s surviving brands — Buick, Cadillac, Chevrolet and GMC — rather than selling vehicles as “General Motors” products, Ewanick said.
Already, the company has quietly dispensed with the “GM” emblem that it had put on some of its new vehicles.
“No one really buys a GM. They buy a Chevrolet or a Cadillac and have a relationship with those brands, not GM,” Ewanick said.
The car company reported its third consecutive profitable quarter last week and is on its way toward its first full-year profit since 2004.
GM earned $2 billion in the third quarter as revenue jumped 27% to $34.1 billion from the same quarter last year, which included nine days when the company was in bankruptcy.
Promoting itself as socially responsible, the company will offer alternative fuel vehicles such as the Volt, economy cars such as the Cruze compact sedan, and more efficient larger cars, such as the Buick LaCrosse, which will soon come standard with a modest hybrid system that could increase fuel economy 25%, Ewanick said.
GM also plans to offer a more balanced portfolio to appeal to a wider range of buyers rather than relying on trucks and SUVs as its main source of sales, he said.