The Bull in GM Bullishness
The banks that helped with General Motors' IPO have an interest in making the company look good—even making it seem as if GM stock might rise enough for taxpayers to get back their bailout billions. Here are some more reasons why the hype isn't quite convincing ...
'Banks in GM's IPO Bullish on Outlook'! [Wall Street Journal] Last graf, best graf:
Money managers say it is common for analysts who work for an IPO's underwriters to issue upbeat reports, in spite of reforms adopted in 2003 that were meant to bolster analysts' objectivity. "I would be astounded if they were anything but bullish," said Jack Ablin, chief investment officer at the Harris Bank unit of BMO Financial Group, which didn't underwrite the IPO or buy shares in it.
Particularly unconvincing is the analysis of Credit Suisse, which predicts GM will catch up with Ford because in two years GM will "refresh" a lot of products. Surely it matters more if the refreshed products are any good.
To get a sense of what to expect, I bought the most recent Consumer Reports buying guide. GM is doing better than I thought—most of its products have "average" reliability, though CR's results have a certain Woebegonish quality this year. Nevertheless, seven GM products, including three Cadillacs, are worse than average for reliability, and only one (the Camaro!) is better than average. Ford, meanwhile, has at least seven cars better than average, including bread-and-butter volume cars like the Focus and Fusion (though there's no guarantee that Ford's new Euro-based Focus will continue this recent tradition). Only two Fords are worse than average ...
P.S.: Some "average" GM cars, like the Chevy Impala, tend to have lousy ratings in the models that are three or four years old. That could be because quality has been improving. Or it could be because Impalas don't hold up ...
P.P.S.: One additional risk for GM investors not mentioned by the WSJ: GM is very China-dependent. A third of its worldwide production is in China. If the Chinese market crashes, GM is in trouble ... On the other hand, GM is already starting to export Chinese-built cars. How soon before a China-built Buick comes to the U.S.? Don't tell Michael Moore ...
P.P.P.S.: GM stock is trading at about $36 a share. It has to hit $53 for the government to make back its bailout investment. I'm not saying that is the test of whether the bailout was worth it, given the jobs saved. But it's a test of something, and Obama has made a reasonably big deal of it ... 2:29 p.m.
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Joe Klein denounces hyperventilation and "self-righteousness." Write your own snark line! ... Maybe start here ... 4:07 p.m.
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