Will Detroit Benefit From the Automotive IPO Trend?

There's a new trend for Detroit businesses: IPOs. It began last November when Reuters reported that the beleaguered automotive corporation General Motors GM had the largest IPO on record, raising over $20 billion. According to The Detroit News, Delphi intends to follow suit, as the company filed for a $100 million IPO last week. That $100 million figure is a mere placeholder for the company while it gets its filings in order. Ultimately, Delphi might raise billions. Ally Financial (formerly GMAC) also has plans for an IPO according to the Wall Street Journal, filing with the Securities and Exchange Commission only a day after Delphi. Ally may sell up to $5 billion of the U.S. government's stake in the company. Then there's Chrysler. Chrysler filed with the SEC for an IPO months ago,Yahoo reported, and originally intended to go public in the second half of 2011, but CEO Sergio Marchionne said back in March that the IPO may have to be delayed. Still, it seems likely that Chrysler will become a publicly traded company once again. How will the city of Detroit be affected by these IPOs, and how should investors react? Detroit has much to gain from the automotive IPOs. Companies seek to go public for a variety of reasons. A publicly traded company often has an easier time acquiring capital with which to finance expansion and general operations. Further, publicly traded companies are often able to attract better management. Yet, Detroit's IPOs have greater potential – the potential to shift an image. After its IPO, General Motors was able to reduce the federal government's ownership stake significantly, perhaps boosting its reputation in the eyes of bailout-wary consumers. Ally financial will attempt to do the same when it goes public. Publicly traded companies simply have a tendency to have more notoriety and a better image. They have the Wall Street Media – the CNBC's and Bloomberg's of the world – freely advertising for them. Ford F has benefitted tremendously from the fact that it was able to stay public. Popular media figure Jim Cramer has regularly recommended the stock on his Mad Money television show. Anyone who regularly watches CNBC should be very familiar with the name "Alan Mulally." Investors may see the string of automotive IPOs as a bullish sign for the automotive sector. Traders who believe that investment thesis may wish to consider Fidelity Select Automotive MUTF. MUTF is an ETF that attempts to return a value corresponding to the general strength of the automotive sector, and may prove profitable if the automotive sector does well. Detroiters should welcome the IPOs, and investors should pay close attention as these automotive companies return to publicly-traded status.