Taxpayers sold one third of their holdings in General Motors on November 18^th, when GM became a publicly traded company (on Wall Street) again. I’m sorry to report that we lost money on the deal. We only got $33 a share on our stock, and to break even we would have needed to make $44 a share. There’s still a possibility we could break even when we sell our remaining shares, if the stock value miraculously reaches $53 a share (which will happen if GM gets back to its all time high value of $56 billion – which it achieved in 2000). Thursday the stock price closed up $1.19 at $34.19, which is much lower than the major price spike that occurs with most IPOs (Initial Public Offerings).

The GM Bail-Out

Just to refresh everyone’s memory, US taxpayers bought 61% of GM for $40 billion in June, 2009 when the company declared bankruptcy. Existing shareholders (many of them GM employees, retirees, and dealers) and bondholders were essentially wiped out in the bankruptcy. The value of existing shares became worthless. GM bonds are now trading at one third their face value. However once the bankruptcy proceedings finish in three to six months, bondholders will divide up 10% of the preferred stock – based on the total face value of the bonds they hold.

Once Bitten Twice Shy

The 700,000 GM workers, retirees and dealers were offered the first chance to buy 800 shares at the initial price of $33. According to NPR, most of them weren’t very enthusiastic – especially the ones that got wiped out in June, 2009 (see http://www.npr.org/2010/11/17/131392809/gm-faces-mixed-reviews-over-public-stock-offering). GM sees no reason why people wouldn’t want to buy their shares because they have been a profitable company for the last three quarters. They were able to earn this profit by wiping out a lot of their debt (including their debt to their bondholders) in the bankruptcy, significantly reducing their workforce, forcing their remaining workers to accept lower wages and benefit cuts, and of, course, reducing the benefits they had promised their retirees.

Does It Make Sense to Invest in Auto Stocks?

I personally would be more excited about an IPO if a company owed its profitability to innovation, rather than screwing over its workers and creditors. The only innovation they can point to currently is their electric car, the Chevy Volt, which retails for $41,000.

The Volt

In my mind a $41,000 automobile qualifies as a luxury car. I honestly can’t imagine who would buy stock in an auto company whose future depends on a rapidly shrinking sector of the population who can still afford luxuries. I don’t own a car myself, and none of my friends have bought a new gas-powered car in years – a person would have to be crazy to take on that kind of debt in an economy overshadowed by extreme job insecurity. My friends who can afford the cost of a second hand vehicle can’t afford to drive it much with gasoline at $3 a gallon – a price that will only go up now that oil companies themselves finally admit that Peak Oil is real.

Ironically a $41,000 electric vehicle may also prove quite expensive to run, given that the cost of electricity is also rapidly increasing – and will skyrocket when the federal government enacts a carbon tax on coal and gas fired power plants (which we all know is inevitable – the US is no longer strong enough economically to be the odd one out when the rest of the world agrees on a climate treaty).

Investing in Public Transportation and Carbon Fiber Cars

The people I talk to who are buying transportation stocks are investing in companies that manufacture bicycles, motorcycles, motorbikes, busses and trains. Let’s face it – by 2020 the vast majority of Americans will be getting around by foot, bicycle, motorcycle and public transportation – because the fuel to run an automobile will be way too expensive.

If I were investing in an auto company, I would put my money in Tata Motors in India. In 2013 they expect to release a composite carbon fiber car that will sell for $2,200 (US dollars) and get 90 miles to the gallon (see http://zambianchronicle.com/?p=164).

There is a really interesting article in the Miami Herald (http://www.miamiherald.com/2010/11/20/1934630/gm-stock-deal-smells-like-a-lemon.html) by Michelle Singletary, who seems to agree with me that GM stock is going nowhere. She observes that a number of Internet trading sites are already “pumping up” GM stock, as they did with the stocks of other bankrupt companies, such as K-Mart and WorldCom. She says they do so in the hope less-informed investors will buy them. “In the end,” she says, “it’s only the pumpers who make a profit.”

---