How General motors came back from the brink

The largest share offering in US history begins today and marks the rebirth of the car-making giant

General Motors, the giant car maker, races back on to the US stock market this morning, after the biggest share offering in American history, and investors were falling over themselves to get a piece of the company.

Just a day after saying it would raise the price of its shares, GM yesterday decided also to increase the number of shares being sold, resulting in billions of dollars extra for its current owners, the US and Canadian governments and the unions representing thousands of retired workers. It is on course to raise $23.1bn, giving the company a market value around $50bn.

Last night, as it set the price for ordinary shares at $33 apiece, the top of its increased range, analysts were already weighing in on the long-term prospects for the company, which since last year has called itself “New GM”. Its pit stop in bankruptcy allowed it to shed thousands of workers, billions of dollars in pension and healthcare liabilities, underperforming factories, unwanted dealerships and four of its eight brands, including Pontiac, Saturn and the notorious gas-guzzler Hummer.

Some $6bn of the IPO proceeds will go to funding obligations to retired workers, helping to resolve a structural problem that had hobbled GM for a generation: it is supporting five times as many retirees as it has employees.

“The old joke was the GM was the world’s largest [health management organisation], which just happened to also sell cars,” says David Whiston, a car industry analyst at Morningstar. “Healthcare costs in the US had just gotten out of control. The company has $5bn in hourly worker costs annually now, compared to $16bn in 2005... The company has posted well over $4bn in net income so far this year. This is a very, very different company.”

After years where it lost around $1,000 on every car it made in North America, GM now turns a profit of around $3,000, and with car sales in the US recovering from the effects of the recession, analysts are forecasting its margins can expand. As importantly, it has had some sales successes, with popular models such as the Chevrolet Traverse mini-SUV and the Buick Lacrosse, a luxury sedan, and has generated some buzz around its forthcoming Chevy Volt, an electric car.

Mr Whiston said he expected the shares to rise towards a fair value of $44. “Old GM” bonds which are still trading, and which will eventually convert into New GM shares, suggest that the stock could be worth in the high-$30s.

Both the Bush and Obama administrations feared that the collapse of GM and its cross-town rival Chrysler would have effects far beyond the companies themselves, as suppliers folded and hundreds of thousands, or possibly millions, of jobs were put at risk. As a result, Wall Street bailout money was redirected to the car industry, and the process of remaking GM began in December 2008.

The US taxpayer has held a 61 per cent stake in GM as a result of the restructuring. To break even on its investment, the Treasury must get an average price of $44 per share, but it decided that it would rather sell more shares now, at a price which risks an ultimate loss to taxpayers, instead of waiting. Its stake is being cut to about 33 per cent, against the earlier planned 43 per cent. GM has been eager to shake off the moniker “Government Motors”, while the Treasury is keen to extricate itself from major interventions in the private sector.

GM sold 478 million common shares at $33 each, raising $15.77bn, as well as $4.35bn in preferred shares, also more than initially planned. Including an overallotment option, which will be settled over the next few days, GM looks set to raise $23.1bn - the biggest initial public offering ever.

What it means for GM's rivals

The ease with which General Motors has found buyers for its initial public offering bodes well for rival Chrysler's own planned return to the stock market, Sergio Marchionne, Chrysler chief executive says.

Speaking in Los Angeles ahead of the city's auto show, Mr Marchionne said Chrysler would not bring forward its IPO plans, pencilled in for the second half of 2011, but would study how GM shares perform. "It will give us the logistics of what this market is looking for, as far as pricing expectations," he said. "This will give us a great, great precursor for the Chrysler IPO. I'm delighted, it couldn't have gone better."

And the executive launched a full-throated defence of the auto bailouts, saying Chrysler had already added 12,000 jobs since bankruptcy and that had an even bigger effect on the economy. "I don't care what multiplier you use, one-to-four, one-to-seven, including the pizza guy.

"If you go far enough down the chain, I think the multiplier effect is huge. It just reinforces the fact that President Barack Obama did the right thing. He saw it."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Dakota Johnson as Anastasia Steele in Fifty Shades of Grey
Bafetibis Gomis of Swansea City is stretchered off at White Hart Lane
Jerry Seinfeld Comedians in Cars Getting Coffee
peopleSitcom star urges men to be more supportive of women than ever
Life and Style
Living for the moment: Julianne Moore playing Alzheimer’s sufferer Alice
Jay Z
businessJay-Z's bid for Spotify rival could be blocked
footballLouis van Gaal is watching a different Manchester United and Wenger can still spring a surprise
The spider makes its break for freedom
ebooksA special investigation by Andy McSmith
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Arts and Entertainment
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle v United player ratings
Life and Style
love + sex
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot