GM's IPO: Another Step in Recovery -- Not the End of the Road
General Motors' pending initial public offering has the hallmarks of being a success. With the shares nearly ready to begin trading on Wall Street, today GM increased the size of the IPO to 478 million common shares, up 31% from the previously planned 365 million shares. Just yesterday, the auto giant boosted the range of the common share price to $32 to $33 a share from the initial range of $26 to $29 a share.
GM did so, according to news reports, in response to strong investor demand, a positive sign that may quell critics who have argued that the Detroit automaker acted too quickly in cobbling together its IPO. They say that to ensure greater revenue from the offering, GM should have instead logged a few more profitable quarters. But, as has been widely reported, GM's stock sale is as much politics as it is business.
The Obama administration is anxious to get out of the car business, and GM is eager to shed the epithet critics have ascribed to the company -- "Government Motors." And while Thursday's stock sale won't eliminate government ownership by a long shot, the U.S. Treasury will no longer hold a majority stake in the company, reducing its claim to about 40% from the current 61%.
Still Needed: Customer Loyalty
The nearly $14 billion offering isn't the end of the road for GM's problems, however. Though the company has managed to return to profits after years of losing money, the U.S. auto market remains intensely competitive. And as Toyota Motor's (TM) numerous recalls have revealed, a company is never far from a devastating misstep that can damage even the most well-cultivated brand. Toyota's image for quality and safety has taken a hit (as have its U.S. sales). Still, the Japanese automaker enjoys a commodity GM hasn't yet regained: customer loyalty.
To accomplish that, GM must continue to make cars, trucks and other vehicles that customers want and to build them well. Recent product introductions, including the revised Buick LaCrosse sedan, new Chevrolet Cruze compact and refashioned Chevrolet Equinox small SUV, show promise, but they aren't the best in their respective classes. Asian automakers and crosstown rival Ford Motor (F) continue to churn out superior products that better appeal to discerning consumers and critics alike.
GM must also wrestle with the fallout from its decision to slash thousands of dealers from its franchise network. When it exited bankruptcy in July 2009, the automaker had about 6,000 dealerships in the U.S. A plan to cut that to about 3,600 fell about 900 short after Congress intervened last December by requiring GM to institute a formal appeals process. GM ended up with 4,500 dealers after all the cuts were finalized in October, a number many experts say is still too high.
Still Needed: A Leader Who's Passionate About Cars
GM will also soon have to renegotiate contracts with the United Auto Workers union. The bankruptcy process eliminated antiquated work rules and excess job classifications that kept union labor employed even in times of slack demand. But the union rules were a drain on GM's finances. With contract negotiations in the offing next year, the UAW will likely demand some givebacks now that GM is once more profitable.
Less pressing but nonetheless important is GM's need for a leader who exhibits a demonstrable zeal about the cars and trucks the company designs and manufactures. Ford's Alan Mulally and Sergio Marchionne at Chrysler Group are far more charismatic and enthusiastic about the auto industry than GM CEO Daniel Akerson, who's too-buttoned down to be a "car guy."
Akerson, who has deep experience in private equity as a former director at Carlyle Group, may prove to be effective at leading GM through its IPO, but the automaker's longer-term prospects require the passion for automobiles of someone like Bob Lutz, who oversaw design at GM for more than eight years before being relegated to an advisory role last December by then-CEO Edward Whitacre.
Akerson's tenure as CEO is expected to be longer than that of Whitacre (10 months) and Whitacre's predecessor, Frederick "Fritz" Henderson (eight months), but whether the 61-year-old Akerson can produce results long-term isn't yet clear.
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GM in the last year has made a remarkable comeback. Though the company's survival seemed highly uncertain at points, the federal government's decision to step in and save GM and Chrysler -- and thousands of jobs -- may go down as one of the best policies it has ever pursued.
"It shows that despite all the criticism, at times you do need [to help] ... those entities that are critical for a country's economy to function," says Jesse Toprak, senior analyst at TrueCar.com.
Whether U.S. taxpayers will receive full repayment for the nearly $50 billion loaned to GM through the government's bailout remains to be seen. For now, at least, the nation's largest automaker appears on its way to a brighter and more profitable future.
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