President Obama's Favorite Car Company

Thanks for responding to yesterday's article about GM'S IPO. Let's get right into your responses...

I am just curious as to how a common average investor gets a chance at buying shares of GM. How would you go about it? - Tom

It's difficult for everyday investors to get in on an IPO before shares hit the major exchanges. Unless you are a preferred customer of an investment bank, or have a broker that has the right connections you'll just have to buy at the market price once the company goes public.

Since I've gotten a lot of questions regarding investing in IPOs, I put together a Special Report that explains the basics. You can access a PDF of this free special report on IPO investing here.

What a great company, it screwed it's long time employees by filing bankruptcy but, the big guys still got their bonuses now they want to do it all over again after they dumped all their obligations. I thought that the object is to pay all your obligations first and then if there is money left, you get a bonus. If I ran my personal life that way, I'd be out on the street. By the way, I have never been a GM employee. - Kathy

I read your article on GM IPO, was wondering if you feel like that is a purchase to sell or hang onto for awhile.  Was also wondering what your thoughts were on GM IPO driving Ford stocks up? - Tom

My holding period would really depend on the stock's performance after the IPO. I don't think the GM IPO will have much of an impact on Ford's F stock.

I think GM's doing a lot of things right - just not nearly as many as Ford, which is why I don't think GM is a buy with their IPO. When it comes to American car makers and their ability to make cars people want to drive - it's Ford, Ford, Ford. 

 

Let's do a head to head comparison:

 

Fiesta vs. Aveo. Not even a game at this point. The Fiesta gets rave reviews by press and owners while the Aveo is the clunker of GM's fleet and about to be canned.

 

Focus vs. Cruze. The Focus has history but the Cruze looks good. It's close, that's for sure. 

 

Fusion vs. Malibu. Ford wins again.

 

Mustang vs. Camero. Ford leads again with a redesign of the Mustang years before GM decides to do the same with the Camero. I'd hazard to say the Dodge Challenger would edge out the Camero here.

 

Ford F150 vs. any GM truck. Ford's been leading this category for years. It's not about to stop now.

 

??? vs. Volt. I want to like the Volt, I do, but they scrapped the sporty design and then slapped on a price tag in excess of a Mustang GT. No thanks GM.

 

Ford Credit vs. ...Oops, sorry GM, you sold your control in GMAC (now Ally). Your loss, while Ford is generating hundreds of millions from their finance wing. 

 

Ford increasing market share for 2 years running vs. GM, still the leader but decreasing market share. 

 

Ford repayment of debt and no bailout money vs. "Government Motors" handout. This gets GM's bottom line in order a lot quicker than Ford but don't underestimate the good will, and positive image, generated by Ford within North America for being the only car company to do it without a handout. 

 

I like what GM is doing and they are getting better. The Cruze is proof of that and they have managed to strengthen brands like the Malibu and bring in hot designs for the Camero. But to me it looks like they've been playing catch up to Ford, in terms of design, quality, and the feel of the drive since Alan Mullaly took over at Ford, which is why I still see GM as risky money. 

 

If there's any pullback on Ford with the GM IPO, I know where my money is going. - Sean

I enjoyed reading this email quite a bit, thanks for the comparisons Sean. I tend to agree with you that I prefer Ford over GM as a long-term investment. However, I still think GM's stock could be a profitable investment after its IPO.

Why would anybody invest in this company?  What happened to the last stock holders and bondholders? They got zip and it could happen again.  No Thanks. - Jake

Valid points Jake, but I don't think GM will go bankrupt again in the near future. Remember that sometimes the most disliked companies have the best performing stocks - look at BP BP the stock is up 60 percent since its June 25 low of $27.02.

I completely understand anyone who doesn't like GM because of what the company did to prior stakeholders, that's why I called GM an 'unpopular company' in yesterday's article. But the fact remains that this company is moving on with an IPO after its prior bankruptcy so now investors have to decide what the future holds.

I'd love to write an article about socially responsible investing and compare the relative returns of 'virtuous' vs. 'sin' stocks. Any ideas on this subject? Send me your thoughts at: editorial@smallcapinvestor.com.

I am a fairly new investor because I am a college student. I have started to learn about IPOs, what they are, that sort of thing. If I wanted to invest in GM's IPO, do I have to wait until it hits secondary markets like the NYSE? Where can I buy the initial offering between $26-$29? - Joe

Joe, check out the free special report on IPO investing that I mentioned above. Yes, you'll have to wait until GM hits the major exchanges before buying.

You ask for comments so I'll take the easiest of many. I'm surprised that you said,

"If you haven't realized the obvious yet, GM is one company that the U.S. government won't let fail. So if you want to invest with the full backing and support of the U.S. government - then you should definitely consider picking up shares of GM when they debut."

Just look at what happened to the equity and debt holders when GM went into bankruptcy. Your comment almost sounds like to government is guaranteeing your investment when this is clearly not the case. - Bob

You're right Bob I'm not suggesting the government will guarantee your investment. But I do think it'll do what it can to help GM succeed, and I think that support will help shareholders of GM over the next year (regardless of what happened in the past).

As just one example, we know that President Obama has a very cozy relationship with the United Auto Workers union. They endorsed him and I'm sure voted for him, in large numbers. In kind, the Federal Government granted the UAW a minority stake in GM. They currently own about 17.5% of the company. So, it wouldn't be prudent for Obama to let GM sink while one of his largest constituencies (unions) still owns part of the company.

Ok, that's it for comments today. Let me know if you have any ideas on socially responsible investing, and in particular how this strategy could be of benefit (or be detrimental) to small cap investors at: editorial@smallcapinvestor.com.