August 12, 2010

Good News: GM Posts Profit; Bad News: Obama-Induced Lousy IPO Market May Mean It Remains Govt. Motors

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 1:18 pm

GovernmentMotors0609This is going to require a lot more investigation than yours truly has time for at the moment, but it seems that if #1 were as good as indicated, #2 might not be happening:

  • #1, Via AP — “GM posts $1.33 billion profit, a sign of strength” (Update: Changed at 12:45 p.m. to “GM posts big profit; CEO says he’s done his job”)
  • #2, also Via AP — “GM CEO Whitacre says will step down Sept. 1″

(Both links are dynamic and will probably change throughout the day.)

But there is another possible reason why Whitacre is leaving.

We’re told that the government really, really, really isn’t involved in GM’s management. Hmm. I guess that means we’re supposed to assume that there’s absolutely no relationship (of course not, there couldn’t possibly be) between Whitacre’s imminent departure and this quote from last week:

APGMWhitacreQuote0810

I suspect that the White House’s car czar and cronies had a hard time digesting that level of antagonism.

Despite the apparent good news on the financial front, there’s a teeny-tiny problem with having Whitacre around after the blurt-out just noted. AP item #1 about GM’s profit reports that the failure that is Obamanomics has adversely affected the climate for the initial public offering that would “get the government out, period.” The AP’s quoted expert also dropped a bombshell — apparently without qualification — that may not survive future AP revisions (bolds are mine):

Although GM is performing well, the timing still isn’t right for it to sell shares in the next few months because of the sputtering economy, said Scott Sweet, senior managing partner of IPO Boutique in Tampa, Florida, which advises investors on IPOs.

Several recent IPOs have been postponed because of concerns that they won’t get a high enough share price, he said. He also said the Obama administration is pressuring GM to sell prematurely to influence the November congressional elections. Last week, Whitacre said the elections are not being considered, and the government has repeatedly said GM is in charge of the sale timing.

Saying that GM “is in charge of the sale timing” is NOT the same as saying “we’re not trying to influence the timing,” is it?

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6 Comments

  1. While I’m certainty happy for the workers at GM (although I still think they and the country as a whole would have been better off in the long run if GM had been left alone) this is bad news in the sense that it will be used by the left as evidence that that the government can run business better than the private sector and in that it will be used as propaganda to justify any and all planned bailouts.

    For the life of me, I can’t see how they managed any profit. There certainly has been nothing new, innovative or special about their product line since the bailout and I certainly have not see much difference in their business practices in general. The only thing I can think of is that it’s a result of the combined savings from losing workers and dumping several product lines added to the moderate improvements in the consumer situation.

    Comment by zf — August 12, 2010 @ 6:17 pm

  2. [...] early afternoon post at my home blog dealt with Government/General Motors’ profitability and CEO Ed [...]

    Pingback by BizzyBlog — August 12, 2010 @ 6:48 pm

  3. I know people are a little cheery about GM turning a profit but a reality check needs to be made here from two angles.

    1) Just because you declare profit on paper doesn’t mean you made a profit if you don’t disburse that in a dividend.

    2) More importantly and related to the accounting gimmicks touched upon in 1) is declaring a profit in relation to what? The claim being made here is this is the first time in 6 years GM made a profit, color me stupid but didn’t GM pay a dividend in some of those previous 6 years? Correct me if I’m wrong but as far as the IRS is concerned via the accounting rules, which are very flexible, if GM doesn’t have anything to charge off like writing off bad debts, carrying forward losses from prior years, capital expenses, depreciation, etc. a taxable event occurs whether or not a dividend is paid out to the shareholders. Since GM went through a bankruptcy emerging essentially as a new company, there are no carry forwards for them to charge against profits like the old GM could do to shield its earnings against taxes.

    It seems to me they are conflating apples with oranges by claiming GM made a profit.

    compliments of
    Johnny Raincloud

    Comment by dscott — August 14, 2010 @ 5:32 pm

  4. The reason why I am just a wee bit cynical of the (new) GM posting a profit here is two fold.

    1) GM presumably at the urging of Obama’s flaks attempted to deceive the American People just a couple of months ago that they had repaid some government loaned money when in fact they pulled a fast one by using loaned money from another government loaned account to pay off that one.

    2) If a company is attempting to take a run at an IPO, they want to present the best possible cash flow to get the highest price for the stock being offered. Now there are ethical things you can do and some not so ethical in presenting the health of the company. Prior to the IPO in order to increase cash flow you can defer maintenance, you can slash R&D expenses, you can time your inventory restock at bare minimum that are not sustainable, defer retirement contributions, etc. You also can massage the numbers by not disclosing future charges that were deliberately put off to the next quarter, or advance the charges to previous quarters with the full knowledge that the IPO cash flow snapshot is looking at the next quarter or year. The government itself already pulled that fast one itself.

    Maybe someone in the know can speak to my suspicions. Since GM already tried to pull a fast one the onus is on them to prove the numbers they are presenting are actually real and not made up.

    Comment by dscott — August 14, 2010 @ 5:54 pm

  5. #3, dividends on common stock aren’t treated as expenses under GAAP. They affect retained earnings/accumulated deficit.

    Comment by TBlumer — August 14, 2010 @ 6:27 pm

  6. [...] what you don’t want to see before an IPO. (Note: The reference is to CEO Ed Whitacre’s announced departure effective September 1 — [...]

    Pingback by BizzyBlog — August 20, 2010 @ 7:46 am

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