P&A Providers & Administrators
MenuMENU
SearchSEARCH

The Break-Even Equation for GM

October 27, 2010
4 min to read


As General Motors Co. plans its initial public offering for next month, and readies its "road show" for the sale next week, some bankers and analysts say the shares could reach a high enough price for the U.S. to come close to breaking even on its 2009 bailout of the carmaker, The Wall Street Journal reported.


But there's one big caveat: The stock would have to remain at that price over the many months or perhaps years it will take the government to sell its GM majority stake.

Ad Loading...


The U.S. Treasury is under pressure from banks underwriting the deal to maximize the number of shares it sells in the IPO, which is expected to take place about Nov. 18, said people familiar with the situation. The banks want to make sure there are enough shares to meet investor demand.


The Treasury is seeking to sell roughly $6 billion to $8 billion of its GM stock through the IPO, with other sellers taking the entire deal to a total of roughly $10 billion to $12 billion.


The government paid $40 billion for its stake, and risks political fallout if the share price sinks due to releasing too many shares at once on the market. That could send a signal the Obama administration won't recoup its investment.


While estimates of GM's stock valuation vary widely, one analyst at a research firm focusing on distressed companies said GM has a current implied market value of about $70 billion.


That calculation by Kirk Ludtke of CRT Capital Group LLC in Stamford, Conn., indicates a value for the U.S. stake of $35 billion, roughly $5 billion short of what the Treasury still has invested in the Detroit auto maker.

Ad Loading...


Ludkte said his measurement is based on the current trading price of GM's public debt. He thinks GM's market value could even top $82 billion six months after the IPO—potentially enough for the government to show a small profit.


The CRT calculation is in line with what some others are saying. Two bankers close to the IPO estimate the market value could be $60 billion to $70 billion.


Linda Killian, a principal of Renaissance Capital LLC in Greenwich, Conn., which specializes in IPO research, estimates GM's valuation at $50 billion to $70 billion, yet added that the chances of the government breaking even are "low."


Because the IPO should take place at a discount to the market price, the government is likely to show a big loss in realized proceeds on its sales on IPO day.


If the IPO is priced at the $50 billion level, that would equate to a U.S. loss of approximately 38 percent on the first batch of shares it sells.

Ad Loading...


Also, because there will be so much GM stock still to be sold even after the IPO, that will weigh on its valuation, Killian said. "Potential buyers are going to take that into consideration," she said.


Former investment banker and ex-White House auto czar Steven Rattner said Wednesday that any losses the U.S. will sustain from its investment "will be single digit" billions.


GM plans to launch its road show presentations to institutional investors for the IPO shortly after Election Day next Tuesday, in hopes of pricing and selling the shares shortly before Thanksgiving.


As part of the road show, GM Chief Executive Daniel Akerson, who took his post Sept. 1, will lead two teams of senior executives who will try to persuade investors to buy the stock, said people familiar with the matter.


One team will include GM Vice Chairman Steve Girsky, finance Vice President Dan Ammann and North America President Mark Reuss.

Ad Loading...


The other will include Chief Financial Officer Chris Liddell, manufacturing chief Tim Lee and product chief Tom Stephens. Akerson will trade off between the groups.


Stops are planned at about 10 cities in the U.S., Canada and Europe, but not Asia, said the people familiar with the plans.


Akerson and Girsky already have made trips to Asia and the Middle East in order to talk to investors and money managers.


Some money managers say they would be leery of GM stock at the price levels being discussed.


"Would I jump at the GM deal? Probably not," said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. He said the "overhang of government ownership" results in a "management straitjacket" that could require GM executives to "get permission every time they want to extend a bonus to somebody."

More Industry

Orange electric vehicle charging station.
Industry•by Lauren Lawrence•October 20, 2026

Charger Network Growth Slows

Despite a projected increase in public EV chargers in 2026, charging infrastructure remains a top concern for consumers as the gap between the most and least EV-friendly places remains substantial.

Read More →
Fan of $100 bills atop a white envelope
Industry•by Hannah Mitchell•October 13, 2026

Lenders, Consumers Take on More Auto Loan Risk

September records loosened credit access the most in over a decade as buyers took advantage of the conditions to afford trading, though loan applications fell.

Read More →
Red type R Honda civic parked on road.
Industry•by Lauren Lawrence•October 13, 2026

Next-Gen Hybrids in Sight

Dealerships can expect to see revamped hybrids from Honda next year as the company rolls out a new system and model lineup.

Read More →
Ad Loading...
Dodge ram emblem on orange vehicle exterior
Industry•by Hannah Mitchell•October 6, 2026

Gem State Stores Change Hands

A larger auto group founded in the industry’s early years sold two franchises to a neighbor group that's on a growth spurt.

Read More →
Graphic of model car driving on fake road.
Industry•by Lauren Lawrence•October 6, 2026

Charging In Motion

Honda has been researching wireless in-motion charging for electric vehicles since 2025, and new technology developments have put it a step closer to a final product.

Read More →
front grill of a Ford truck with blue Ford emblem
Industry•by Lauren Lawrence•September 30, 2026

Twin Cities Stores Sell

Minnesota-based Walser Automotive Group made what it called the most significant acquisition in its history with a three-rooftop deal in Minneapolis.

Read More →
Ad Loading...
Diesel engine on a production line in a factory
Industry•by Hannah Mitchell•September 29, 2026

U.S. Auto Sales Still Below Prepandemic Levels

Mobility Global industry observers don’t expect the market to return to the higher volumes that became routine before Covid but to stay well below its potential.

Read More →
Front of red tesla car.
Industry•by Lauren Lawrence•September 22, 2026

The Powertrain Shift

Electric-vehicle owners are backpedaling, according to new data, with product availability driving many to shift back to gas-powered engines.

Read More →
White BMW SUV driving on road.
Industry•by Hannah Mitchell•September 15, 2026

Achromatic Autos

The shades that dominate the U.S. car market don’t call attention to themselves, though grayscale may have plateaued after a 30-year upswing, research shows.

Read More →
Ad Loading...
Line of eclipse SUVs in parking lot.
Industry•by Lauren Lawrence•September 15, 2026

Used-Vehicle Affordability Worsens

Listing prices in August defied seasonal trends, rising above $27,000 for the second time this year.

Read More →