You've come a long way baby
So, GM repaid the final $5.8 billion owed in government bailout loans. That's great. Of course, it might have been a bit nicer had GM returned the people's money with actual profits, rather than a government escrow account, but the perception of Government Motors is undoubtedly holding GM back. Paying off this debt helps remove that ugly blemish.
Nevertheless, $5.8 billion is pocket change. GM's real debt to America is the $50 billion government shares. The key to that debt is GM's IPO, which could happen later this year. Thus, paying off this debt could be a good first step towards that IPO.
But, is this payoff more about marketing than reality?
Aside from GM's government obligations, the automaker is also $27 billion short in pension funding. Might not an extra $5.8 billion in reserves have given IPO investors some comfort that GM can meet this $27 billion obligation, $12 billion of which is due by 2013 - 2014?
For instance, back in November I wrote Chevy Volt set to charge GM's IPO. In that post I cited a Fitch Forecast that seems to indicate that while GM could be profitable in 2010, auto sales probably won't increase enough to drive robust profits, and those economic conditions could extend for the next few years. While that could mean GM is profitable, GM might not be nearly profitable enough to meet their massive pension obligation (and I won't even get into what happens if a hurricane or terrorist attack causes a gas spike).
Of course, perhaps a stellar IPO could be a game changer, however, can a small government payback, coupled with a few quarters of relatively small profits - particularly considering GM's long term obligations - really be the key to a great IPO? Doesn't GM need more?
As I've argued before, I feel GM needs more juice, and something like the Chevy Volt, which GM announced today will go on sale in October, rather than late November as originally planned, offers the perfect amperage. Despite the Volt's near-to-midterm economic viability - dare I say lack of profitability - the Volt will be a successful hype machine, perhaps even more PR-potent than the Toyota Prius, and that publicity could be huge for a GM IPO, which is certain to be an emotional event.
Today, we've payed back our loans, GM can say. We've returned to profitability for two straight quarters, and we've just launched the world's most innovative plug-in vehicle - a full year before Toyota launches their plug-in Prius. This is the new GM. Don't just buy our cars, buy a piece of OUR company and OUR future.
Even a limited selling Volt is the perfect vehicle for such a message, and you know what, it might just work.
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