DETROIT — If investors pay what General Motors hopes to get for its stock in a planned IPO, they’ll have to buy the logic that the company’s stock-market value should be similar to its closest competitor, Ford.
But Ford is making far more money these days, and its U.S. market share is rising while GM’s is falling and its new management team has little auto-industry experience.
Ford’s market value — calculated by multiplying its current share price by the total number of shares outstanding — is almost $50 billion. GM’s total would be close to that if it is successful in selling a portion of its shares in an initial public offering this month somewhere between $26 and $29 a share.
That price range was confirmed Monday by three people briefed on the sale who asked not to be named because a formal announcement has not yet been made.
But is GM really worth as much as Ford right now? Ford has been working on a rebuilding plan for five years. It earned $1.7 billion in the third quarter, its sixth consecutive quarterly profit. It also managed to get through the financial downturn without taking taxpayer money, a big plus in the minds of American car buyers.
GM is still in the early stages of its restructuring, having emerged from bankruptcy protection 16 months ago. The company has had four CEOs in less than two years and still must find a way to pay back more than $50 billion in taxpayer money it took to help survive the economic downturn. It has posted profits in the past two quarters, totaling $2.2 billion.
But the key to being a successful investor is guessing how a public company’s stock will perform in the future. Share prices are “like a photograph; they’re a picture in a moment in time,” says Linda Killian, founder of IPO research firm Renaissance Capital. “Investors need to look at things differently.”
Joe Phillipi, president of Auto Trends Consulting LLC in Short Hills, N.J., said he’s counting on GM’s investment bankers to price its shares a bit below what they hoped to get so average investors can quickly see some share-price growth.
He would like to see them start trading closer to $26 a share than $29.
GM emerged from bankruptcy with little debt for an automaker its size. The company has $5.4 billion in debt, and it doesn’t have any major repayment deadlines until 2015.
Ford, on the other hand, has about $21 billion in debt. In 2006, chief executive Alan Mulally mortgaged the entire company to help finance its restructuring. That money helped Ford avoid taking a government bailout, which many American taxpayers seem to appreciate.
