I guess after about a year and a half of dancing around the truth, the Associated Press decided that confession of some of the truth about Government/General Motors is good for the soul.
Conveniently, the AP's de facto partial confession, delivered via reporter Sharon Silke Carty, comes as the success of the company's initial public offering seems assured.
Carty's confession consists of four reasons why investors should consider avoiding the stock once if it indeed makes it to the public markets (and yes, the original uses all caps where indicated):
Reasons to sit out GM's initial stock offering
... the world's most charming used car salesman couldn't cover up major concerns hanging over GM's initial public offering on Thursday.
... Critics say GM is speeding into its IPO before it has proved that its structural problems are fixed. Other IPOs often leave the investing public a little slap-happy: Each newly minted stock certificate could turn into the next Walmart or Apple, but it's rare that one does.
Here are some reasons investors may want to sit this one out:
EVEN WITH AN IPO, GM IS STILL GOVERNMENT MOTORS
... This stock offering will only reduce the government's stake in GM from 61 percent to 43 percent. It will take more stock offerings, staggered over the next few years, before the U.S. government is out of the car business.
For shareholders, that means GM may not always put investors first. Political priorities may trump their demands. [1]
... YEARS OF FUZZY MATH STILL NOT FIXED
GM admits it doesn't have great control over its finances. It said so in a long list of potential risk factors spelled out in its stock registration statement with the Securities and Exchange Commission. [2]
... MEET GM'S NEW STEPBROTHER, THE UAW
The United Auto Workers union has gone from a drag on the company to a part owner. How the new relationship will play out is still unknown. [3]
... ELECTRIC VEHICLES AREN'T A SAVIOR [4]
Notes:
- [1] -- Up until now, the press has been treating the IPO as a "See I told you so" exercise (as in, "see, the company isn't failure, and the government's takeover was really okay. And this IPO will leave the government as a minority owner"). Now that it's on the verge of success, we learn this from a professor quoted by Carty: "The government is absolutely going to call the shots, even if they are below 50 percent." Thanks, Sharon.
- [2] -- Though material weaknesses in internal control (the technical term Carty should have employed) have been present at GM for a long time, the press has rarely acknowledged their existence. Even after almost a year and a half of the government calling the aforementioned shots, many of them are still there. At most other companies, this would be treated at least as a bit of a scandal. At many, it would be cause for wholesale housecleaning.
- [3] -- The UAW will protest that their health plan owns a share of the company, not the union itself. Okay, fine. But that doesn't change the fact that the press has as far as I've seen never acknowledged the drop-dead obvious conflict of interest the union has when it negotiates with GM archrival Ford (one chance missed was noted in August 2009 at NewsBusters; at BizzyBlog). Of course the untion will be tempted to bargain harder with Ford, especially if its GM and Chrysler members and their respective health plans are worried about those two companies' viability being compromised -- especially if they are seriously underperforming.
- [4] -- So "electric vehicles aren't a savior"? Who knew? Certainly not the White House, which has been touting green cardom as a primary reason for getting and staying involved in auto company ownership.
It's also odd that Ms. Carty managed to write a 1,700-word article about the IPO without using the word "China," given that as of the middle of last week, GM was "in the final stage of talks to sell equity to long-time Chinese partner SAIC Motor Corp in conjunction with its landmark initial public offering." This should be a fifth concern for investors, as that will make it three political entities (don't forget Canada) whose primary concerns are political and not necessarily financial.
Here's a final point to make about IPOs that the most of the establishment press has avoided like the plague: GM is simply not the type of company that would be ordinarily be considered a good IPO candidate, based on the criteria that are usually considered:
- (For established companies) A strong record of growth, particularly growth in earnings -- In GM's case, less than one year of positive numbers wouldn't cut it, especially since its market share is slipping. The annualized future earnings growth benchmark for companies going public is usually at least 15%-20%. Though you never want to rule it out, that doesn't seem particularly likely in GM's case.
- (For start-up and early-stage enterprises) Being in an entirely new and pioneering industry in its early stages -- Obviously, that's not GM.
AP's partial confession comes nowhere near to making up for its mostly consistent reality avoidance during the past 18 month in news stories about GM.
Cross-posted at BizzyBlog.com.
