GM’s Redemption Song

It is now being reported that it is “very likely” that GM will return to the S&P 500. This event is huge in every possible meaning of the word. The return would expedite taxpayers getting paid back, boost GM stock in both the short and long term, and mark the final redemption of the company. Although, it seems logical that the company would go back to the S&P 500 they face stiff competition for the spot from Facebook, who launched their IPO last May. This news comes at the same time that GM plans to expand truck plants, which will only raise profit in the future, said one executive. If and when GM gets added back to the S&P 500 will be the true end and the closing of the book to their 2009 bankruptcy. If this goes threw it will only be up and up for the Detroit three. Source: http://www.autonews.com/apps/pbcs.dll/article?AID=/20130501/OEM/130509990/gm-redemption-seen-culminating-in-return-to-sp-500-index#axzz2SElKYk51

3 comments to GM’s Redemption Song

  • GM is trading at the high end of its one-year range of $18.72 – $32.44. For taxpayers to make an outright profit the per share price would need to be rather higher. However, on an opportunity cost basis, if GM had not received DIP financing from the US Treasury to help it escape from Chapter 11 bankruptcy (restructuring) rather than be closed down via Chapter 7 bankruptcy (dissolution), then there would very significant costs. In particular, all of GM’s pensions would have shifted to the US Pension Benefit Guaranty Corporation, to the tune of (say) $20 billion. Many suppliers would also have ended up in Chapter 11 or Chapter 7, with penion obligations likewise ending up the the PBGC. In addition, we’d lose tax revenue with a smaller manufacturing footprint here, and probably be paying more for vehicles, too.

    I’ve not tried to pin down numbers and put all this in a spreadsheet, but my sense is that taxpayers are already in the black.

  • tommd13

    I believe that GM’s restructuring from chapter 11 has created a much more solid company. Coming back from Chapter 11 proves that GM’s new management and techniques have been very efficient whereas Facebook is the first company of its kind to go public. Facebook has been volatile in its stock pricing and I believe that GM would be a better fit, not to mention it is a historic company.

  • andrew

    That overall question is the interesting point. Should the S&P 500 stick to history or move on with the times. As we have come to learn over this course Auto companies are very cash dependent. When times are good, they are great, when times are bad, they are worse. On the other hand a business like Facebook does not face these unsure economic issues. As long as they keep their subscribers up, they will have advertising and they will make money. Thus, the S&P 500 faces an interesting predicament.