Monday, September 13, 2010



Paul Ingrassia, perhaps the nation’s best automobile business writer, discusses the upcoming GM IPO on today’s (i.e., Monday, 9/13's) Wall Street Journal op-ed page. Mr. Ingrassia brings up some great points, such as:

--GM’s “on the books” debt level of $8.2 billion vs. Ford’s $27 billion,

--GM’s (and Ford’s and Chrysler’s) reduced breakeven levels after the restructurings of GM and Chrysler and the adjustments at Ford made partially in response to those restructurings, and, especially,

--GM’s UAW contract and the need for investors to have certainty that GM has a partner, rather than an adversary, in the UAW.

Mr. Ingrassia, though, misses the most important consideration for GM investors, which is surprising given that Mr. Ingrassia has been around longer than I have.

I well remember the days when analysts and investors, looking over the bleak domestic prospects for domestic tobacco consumption, pronounced such companies as RJ Reynolds dead. These analysts somehow completely missed that the people who ran RJR were not fools and had set their sites elsewhere; (at least some) tobacco companies survived and some prospered because of their burgeoning operations overseas, primarily in Asia, where Marlboros are something of a luxury item. In the same way, the people who run GM (and, yes, even the people, or at least some of the people who ran GM) are not stupid. That is why they launched and nurtured GM’s extensive Asian operations and didn’t even consider selling those operations when they desperately needed to raise cash.

It is far too glib to say that the one thing potential investors in the GM IPO need to know is that in the first half of 2010, GM sold 1.2 million vehicles in China and 1.1 million vehicles in the U.S. Potential investors should know far more about a company than its sales levels. But GM now sells more cars in China than in the U.S. While we may see a quarter now and again in which those numbers reverse, the secular trend is clearly toward GM’s becoming a much more China, and Asian, focused company. (Note that Buick survives, despite selling fewer cars in this country than did Pontiac, because of Buick’s success, and panache, in China.) So while the points on which Mr. Ingrassia touches in his article are important, one misses the opportunities presented by GM when one focuses on its domestic operations, whether those operations are successful or dismal.

Am I endorsing the GM IPO? Not necessarily, or at least not overly enthusiastically; too much depends on the world economy about which I am not sanguine. Note, however, that, even in a weak world economy, China grows at double digit, or near double digit, rates. I will be looking to achieve a small foothold in GM at the IPO (at my diminutive size, success in this goal is doubtful) and probably will be adding as the months and years go by. As I own Honda, Toyota, Nissan, and a very small position in Ford, and have for years, I also hope to own GM. But I look to GM, unlike the former four, almost as a growth stock. In any case, the new GM looks like one of those stocks, like HMC, TM, and NSANY, that my children will eventually own.

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