Exploding Investor Demand for GM’s IPO

Pre-production Chevrolet Volt

"Yeah, I know the wheels are off."

First off, let’s be clear that many people want General Motors to succeed. However, the lion’s share of investors probably are in it simply for the profit potential.

The big institutional, “wholesale” investors seem very much pleased with GM’s “near-term upside potential,” as they say in the trade, because the company’s figures and its fundamentals have drastically improved. These insiders are the ones who are going to buy the stock, since most retail buyers—the company’s real rescuers—are being shut out in a typical Wall Street move.

That is making some people angry, and is part of the ongoing outrage over the bailouts, the banks, and disgust with the government, which indeed promised back in September that the little guy would be able to participate.

Some big foreign investors will be in on the action, too—GM’s partner in China, SAIC Motor Corp., is in for 1 percent of the action. And the underwriters—Morgan Stanley, JPMorgan Chase, Bank of America, and Citigroup—also stand to make a bundle: the people we love to hate.

In any case, the price range per share for the IPO went from $26-29 to $32-33 yesterday. Now, Treasury and the UAW have increased the number of shares they are selling to a total of 478 million.

That means the offering could bring in a total of more than $22 billion, much more than previously thought. It could become the largest common-stock IPO in history. More important, Treasury’s stake in GM could be reduced from 61 percent to around 26 percent.

Investors, it seems, have come to believe in the rebirth of the U.S. auto industry. Ford and GM posted impressive numbers for the first three quarters of 2010, even though the industry is selling far fewer cars than before the crash. Ford stock has gained about 50 percent this year. GM reported its biggest quarterly profit in 11 years.

Some investment counselors recommend buying either or both companies. Yours truly would be a little more conservative at this point: GM should have waited another six months to see if its figures hold.

Are you going to be a buyer of GM stock? Would you buy if you could?

—jgoods

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3 Comments

  1. Nobody reading this would qualify, unless of course you are a millionaire or you have a rich uncle. In either case you wouldn’t be here reading this anyhow.

  2. If you want to know how GM will be operated in the future, just look at its past. I’ve lived through so many of these reorganizations, management changes, economic crises and the like, but I never forget that when I was a young person, GM was the largest, most profitable company in the world, and now it is in business ONLY because the government bailed it out and it was allowed to screw hundreds of thousands of investors, suppliers, employees, retirees, cities, states and whole regions. Frankly, in the long run, it would have probably been better if GM fell off the face of the earth because it wouldn’t be able to damage our country any longer.

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