General Motors (NYSE: GM) filed for bankruptcy in June 2009. I'm guessing you heard about that. And I'm also guessing you've heard about today's much-ballyhooed IPO.
But GM's IPO brings fresh news and, more importantly, gives us the building blocks we need to answer the ultimate question: Should you buy General Motors today?
Today's action
The numbers behind today's IPO are whopping. One of the United States' largest IPOs ever, GM sold about $18.1 billion in common stock and another $4.4 billion in preferred stock. The U.S. Treasury is cutting its stake from 61% down to 26%, much to the relief of the Obama administration, GM itself, and those of us who aren't wild about our tax dollars being tied up in car companies.
GM's shares popped as high as 9% upward today. A warm reception, but nothing too splashy for such a hotly anticipated IPO. The relatively subdued response from Mr. Market is great news for Uncle Sam, though, as it means underwriters did a good job of pricing GM's shares to the fullest. It would have been a financial disappointment and political nightmare for the Obama administration if GM had left money on the table by underpricing its IPO, leaving Wall Street to sop up much of the spoils.
From zero to $60?
So GM is back on the table for the little guy. Now what? Before General Motors filed for bankruptcy, I was bearish all the way down. And a quote from my Foolish colleague James Early in this morning's Wall Street Journal pretty well encapsulates my long-standing take on GM:
"The only way I'd touch GM is with a cold, dead hand severed from my lifeless body. ... GM has lost more money than it's made for shareholders over its life. If it's proven one thing, it's that it can destroy shareholder value."
But facts and situations change, and today's General Motors isn't the lumbering destroyer of shareholder value that it was two years ago. Yes, GM is still a cyclical business with high fixed costs, questionable internal controls, and a $27 billion pension shortfall. And, yeah, the automotive market remains as intensely competitive as ever with rivals Ford (NYSE: F), Chrysler, Toyota Motor (NYSE: TM), Nissan, and Honda Motor (NYSE: HMC) scrapping away.
Those risks and challenges are no joke, but neither are the subsequent changes for the better GM has gone through. Getting a new management team in the door was a great move, as was paring back the size of GM's brand portfolio. GM has also right-sized its cost structure, allowing it to reduce its breakeven U.S. production level from 15.5 million cars in late 2007 to around 11 million today. That leaves GM a far more profitable and much less cyclical business than in its prebankruptcy days. And while GM's European segment is still on shaky footing, GM holds the market-share lead in BRIC countries, including the world's fastest-growing vehicle market: China. Put it all together, and you're looking at a vastly superior, more profitable GM that is well-positioned to cash in an inevitable recovery in new car sales.
The Foolish bottom line
GM isn't a perfect business. Hey, it was bankrupt not all that long ago, after all. Still, for the contrarian willing to get his hands dirty, there's a lot to like in the new GM. I never thought I would say this, but you should give General Motors some serious consideration.
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