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11/18/2010 The Wall Street Journal GM IPO Soaring, But GM As An Investment?

NOVEMBER 18, 2010, 12:26 PM ET

Associated Press

General Motors clearly isn’t having a tough time finding buyers — when it comes to its stock. Shares are up about 7%

on its first trading day as a refurbished public company, and that’s after the offering was increased and the price

raised.

But not everyone is enthusiastic. Earlier, I wrote

skeptically about the initial public offering in this

Writing on the Wall column, and reached out to

potential investors. Almost all contacted were

less-than floored with the prospect of owning G.M.

Evan Kirkpatrick, a financial adviser in Seattle, said

he’s not surprised with the early gains GM has

made in the market today, but “with the

government remaining a significant shareholder

after the IPO, the uncertainty risk exceeds the

potential gain for our clients,” he said. “I wouldn’t

be surprised to see the hype surrounding the

offering lead to high volume and potentially rapid

gains, but we prefer more predictable”

investments.

Perhaps not surprisingly, advisers in Michigan were less skeptical. David Aquilina, an adviser in Troy, Mich., said GM is

really a “new company” and that there will be “tremendous drive to get it right” but cautions all bets are off if we get a

double-dip recession.

“The GM IPO is a long term hold, and that they will be an owner along with the U.S. government,” Aquilina said. “UAW

and CAW, each with a vested interest in seeing the company do well.”

Robert Barone, who heads Ancora West Advisors in Reno, Nevada, said much of GM’s problems have to do with a

customer base “loaded” with debt.

“GM is facing a saturated car market in an industry with loads of capacity,” Barone said. “There is a reasonable

probability that they will still have trouble competing due to the high fixed costs involved in U.S. production.

“Unless GM can reinvent itself, and become a low-cost manufacturer of quality vehicles at competitive prices, the IPO

will more than likely turn out to be a poor investment over the next decade.”

Bill Smead, manager of the Smead Value Fund, sees GM at the mercy of a bigger macroeconomic picture, one that

doesn’t favor the remade car company.

“Along with emerging markets and commodities, these cyclical companies show you it’s late in the party,” Smead said

“In my time in the investment business, I have never seen such a ridiculous premium put on this kind of additional risk.”

GM IPO Soaring, But GM as an Investment? Blech. - Deal Journal - WSJ http://blogs.wsj.com/deals/2010/11/18/gm-ipo-soaring-but-gm-as-an-inve...

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And even retail investors were cool to the offering.

Becky Sturm, who owns a beauty shop in St. Paul, Minn., said she doesn’t want any part of “bailed out” companies and

this extends to the products they buy as well.

“I have purchased GM cars and trucks my entire life, but being a small business owner and witnessing the behavior

during and the mismanagement of the companies that were bailed out by our government, I will never purchase or

recommend another GM car in my lifetime.”

Like Sturm, Elizabeth Cohee, an attorney in Oakland, Calif., isn’t recommending the products or the stock.

“GM has shown that they believe themselves to be immune from adherence to the standard practices that provide even

a modicum of protection to the average investor,” Cohee said. “A certain amount of trust is required when a company

asks investors to finance their operations; GM has demonstrated that they are not worthy of that trust.”

GM IPO Soaring, But GM as an Investment? Blech. - Deal Journal - WSJ http://blogs.wsj.com/deals/2010/11/18/gm-ipo-soaring-but-gm-as-an-inve...

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