Hide your kids, hide your wife, and hide your husband. News and further developments surrounding GM’s impending IPO continue to leak out and this time, it concerns The U.S. Treasury. According to reports, the Federal financial arm has recently voiced concerns about foreign investors potentially buying too many shares in our favorite automaker. Because of the issue, the Treasury is considering limiting foreign investments in General Motors.

Now before we let out our collective gasp, we have to remember that the U.S. Treasury is still The General’s primary shareholder. Apparently, the Treasury’s primary reason for concern is the overarching political fallout. Foreign investors often hold large amounts of shares of U.S. companies. Usually, this is done to stabilize IPOs and increase prices through greater demand. If this scenario plays out for GM, then taxpayers could be frustrated that $50 billion of their money was put into a company only for foreign entities to buy up large shares of The General… and eventually benefit financially.

The other side of this double-edged-sword is that taxpayers would probably be able to sell more shares at higher prices without limits on investments from abroad. This makes the scenario quite difficult for the Treasury, as it must chose between getting maximum value for shareholders (taxpayer and foreign investment) or protecting the same shares from international takeover. The largest factor that will make the latter situation a little bit easier to unfold is the final fact that the Treasury is reported to only sell a fifth of its holdings come the IPO. By doing so, it will retain at least part ownership until all of its shares are sold (if ever), selling these at a potentially higher price down the road if there are no restrictions on investment. Whatever happens, this is sure to be a case study for years to come.

[Source: Wall Street Journal via Left Lane News]

This is the week when Dan Akerson officially takes the helm as CEO of General Motors, replacing Ed Whitacre. In hindsight, the timing was fairly predictable, although not many expected it. Whitacre was never intended to lead The General’s charge for the indefinite future, as his task was to restore the company back to profitability and, given the past two quarterly earnings, he has succeeded.

The GM board of directors, on which Akerson has served since July 2009, knew they would need to officially reveal the next CEO. The job required somebody who could successfully market the company to potential investors when it was time for the all-important Initial Public Offering (IPO), something Akerson is more than capable of: he has the attributes that should sit well with the wealthy crowd, given that they didn’t watch their previous shares of GM vaporize through bankruptcy.

Background

At the age of 61, Akerson has had a decorated career. He is a former naval officer, where he earned the reputation for being a results-driven individual. This is a quality GM needs when it comes to attaining our favorite automaker’s goal in the short- and long-term.

Akerson later earned his master’s degree at London School of Economics. He eventually went on to lead telecom giants such as MCI, Nextel and XO Communications. He’s also quite the mover and shaker in the financial investment community with the Carlyle Group, which he has been with since 2003.

Before taking on his position as CEO, he was the managing director and head of global buyouts for the Group. The experience and connections he has gained through working with The Carlyle Group will no doubt aid Akerson in pitching GM stock to first-round investors. The Carlyle Group was ranked as the largest private equity investment group in 2007 (during Akerson’s tenure) and its portfolio of firms employs over 415,000 people worldwide.

In With The “In” Crowd

Akerson’s private equity experience grants him respect in the investment cliques (a.k.a. Wall Street) and brings outside knowledge, point-of-view, and experience – attributes that GM veterans may lack. And while, at the age of 61, he may seem ripe for retirement, he is still young and energetic enough to hang around the halls of the Ren Cen for a while. He is also known to politically lean the conservative side.

Unfortunately, one of the drawbacks of yet another new CEO at GM is employees’ fear of even more change. Many significant shakeups and executive shuffles have occurred within the year GM has exited bankruptcy and another one could be only days or weeks away now that Akerson has take the reigns. However, outgoing CEO Ed Whitacre has vouched for Akerson – claiming he is ready to lead the company and that he already knows GM well, having been a member of the board of directors of the New GM for about a year.

An executive of a GM supplier commented that – above all else – the automaker needs stability in the executive level right now. Hopefully, Akerson can provide this stability and be the last new CEO for the next several years to come.

[Source: Freep]

The 90s

In the late 90s, Cadillac’s newest model – the Catera – was being criticized left and right for not living up to standards consumers (and the automotive press) expected from Cadillac. It wasn’t enough that the Catera didn’t meet sales targets; reliability, quality, and other issues were also plaguing the rebadged Opel sedan. GM knew that something needed to be done to repair Cadillac’s sullied image. And, as if things weren’t bad enough, the brand’s market share was on the decline and its customer base was getting older: the average age of a Cadillac buyer in 2000 was 67 years old.

1997 Cadillac Catera was a rebadged Opel Omega

The Meeting That Started It All

In late late 2000/early 2001, GM executives held an informal meeting to discuss Cadillac’s future. The brand’s image, products, dealers, and service experiences were all on the table. In less than two months after the initial meeting, managers realized that what Caddy needed most was a fresh start: a fresh image, a revised product portfolio, and a younger customer. In less than six months after that, senior managers agreed on a strategy. It’s this grand plan that became known as Art & Science – and it cost GM $4.3 billion.

Art & Science

The investment paid for new, more powerful engines, a new flexible rear-wheel drive platform (Sigma) that delivered sportier handling, the edgy design that’s prevalent on every Cadillac today (except for the Escalade), and a marketing budget.

The 2003 CTS was the first Cadillac to employ the Art & Science philosophy

The first Cadillac that delivered the Art & Science theme was the 2003 Cadillac CTS. It was built on an all-new platform (Sigma) and took Cadillac in an entirely new direction. From there came the STS sedan and first-generation SRX crossover, which were also based on the new Sigma platform and transformed Cadillac from that floaty-boaty vehicle your grandpa drives to a luxury brand that could jockey with the best from Germany and Japan.

Cadillac XLR-V

And we wouldn’t do the Art & Science program justice without at least mentioning the audacious XLR hardtop convertible that was as awesome to drive as it was to look at as well as Caddy’s performance models that wear the V badge, including the CTS, STS, and XLR.

The 2004 SRX was the first-ever Cadillac crossover

Today

Fast forward nearly ten years and Cadillac – to this day – is still undergoing a noteworthy renaissance. The brand just launched the CTS Coupe, arguably the most attractive Cadillac ever made, and has seen enormous demand for the all-new Theta-based SRX. At least four game-changing models are coming over the next five years, including a compact sedan (ATS) to take on the BMW 3 series, the next-generation CTS that will go head-to-head against the 5 series, a Lambda-based Escalade, as well as a flagship sedan. Whether the latter will be the Super Epsilon-based XTS or a model based on a premium version of GM’s Zeta platform is still up in the air.

The 2011 CTS-V Coupe is the newest addition to the Cadillac lineup

But Caddy is also trimming down: it will phase out two vehicles, including the the DTS and STS sedans, at the end of 2010. The discontinuation of the DTS, in particular, may upset owners of the antiquarian sedan who have come to appreciate the couch-on-wheels personality of that vehicle. However, it appears that Cadillac is positioning itself to compete directly with the sport-luxury marques from Germany, including BMW, Mercedes-Benz, and Audi. And the new model range should assist Cadillac’s nearly non-existent presence in Europe.

The RWD Sigma-based STS will be discontinued within the year

What’s more, GM’s vice president of global vehicle engineering, Karl Stracke, vowed to make Cadillac vehicles lighter than those of BMW in unsprung mass. Seeing that BMW is often the most popular luxury brand in the United States (it swaps with Lexus for the number one spot every few months), the strategy seems solid and will surely pay off. Perhaps the “soft luxury” segment is best left for Buick, but that’s a different box of bolts (you can listen to our conversation on the GM Authority Debate podcast about Buick and Cadillac brands here).

Do you think GM’s $4.3 billion investment in Art & Science at the turn of the century was worth it? Are you satisfied with the vehicles (and results) it has produced? Talk to us in the comments below.

The DTS, which uses GM's old K platform, will be discontinued this year when full-scale production of the Chevrolet Volt begins at the Detroit-Hamtramck Assembly Plant

The U.S. Treasury intends to sell only a fifth of its 304 million common shares as part of the IPO, bringing its ownership stake to less than 50 percent. This means that the Feds won’t dump all of their shares or cut all ties with The General at once. Instead, the Treasury will become a minority shareholder, increasing the chances of seeing a full return on its $50 billion investment in the largest automotive company in the world.

GM expects the IPO to go for as much as $16 billion. This would rank The General’s offering as the second-largest in U.S. history – only behind Visa, which raised $19.7 billion in 2008. The IPO will be led by Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., will include both, common and preferred stock.

The government will only sell common stock while GM will offer preferred shares alongside the IPO. In 2013, the preferred stock will automatically convert to common stock and all owners will be capable of receiving dividends from GM.

General Motors didn’t disclose the number of shares to be sold in the initial offering, or a price for the shares.

Should the IPO be a huge success, it could spur the go-ahead for rumored models, including a Lexus LS fighter from Buick, a BMW 7-Series fighter from Cadillac, as well as many more undisclosed blueprints awaiting launch. The General will also be subjected to more pressure in turning around the unprofitable European business unit.

If nothing else, it’s time to open that online brokerage account you’ve been holding out on. To read The General’s full IPO document, click here.

View Press Release

Breaking down the numbers, we see that the General earned a healthy $2 billion in earnings before interest and taxes (EBIT) with GM North America bringing home $1.6 billion of the purse. GM Global punched in $.7 billion, but GM Europe still suffered a net loss of $.2 billion – which is still an improvement from the $.3 billion loss last quarter.

Vehicles to thank for the company’s recent success include crossovers such as the Chevy Equinox, GMC Terrain and Cadillac SRX, as well as the very successful Buick LaCrosse. Globally, the Chevy Cruze has been pulling through for The General and will most likely add to the success when it is finally launched here in the States in the third quarter. GM’s popularity in China has also played a key role in The General’s second quarter success.

This good news also builds up for a successful IPO, which has been rumored to be filed as soon as tomorrow… or maybe not.

View Press Release

General Motors is working hard at preparing an IPO that will be one of Ed Whitacre’s hallmarks of his time with the company. Our favorite automaker is looking at 2010 to be the year it offers its shares to the public, while at the same time increasing consumer confidence in its vehicles as well as the firm’s financial position. There are numerous factors that dictate the potential IPO and how the public at large will react to it.

The economic situation, the status of the IPO market, as well as terms set forth by investment banks are all primary concerns for GM and particularly for Whitacre. Many of the reservations faced by the GM’s CEO, however, can be put to rest already. JPMorgan Chase & Co. along with Morgan Stanley, won the account to sell GM’s shares for a quarter of the normal rate, with GM paying .75 percent of the sale.

A Seller’s Market

Although selling to public shareholders might prove to be a challenge, GM is in control of dictating terms with representative banks. A smaller market for IPOs means that more banks want to sell GM’s shares, empowering companies (including The General itself) to negotiate the terms of its public offering. GM is looking to leverage this position to increase company recognition, reputation, and even sales. Stock sales might be the number one priority with JPMorgan and Morgan Stanley, but selling Cadillacs, Chevys, Buicks, and GMCs are nearly as important, if not more so. And in an interesting turn of events, GM wants the banks to use the underwriting fee of 0.75 percent to subsidize GM vehicle purchases for the employees of the underwriting companies.

This sort of hardball negotiations are just what Whitacre was going for. As if impressively low fees weren’t enough, Whitacre also wants to see GM’s sales to continue their upward trend, even faced with the possibility of confusing investment banks for marketing firms (or even clients). On the other hand, GM has its own plan and wants to introduce their “ideas as to how we [GM] can use the IPO to reposition GM and its vehicles within the investment community including your firm’s willingness to reinvest any portion of any underwriting fees into the purchase of GM vehicles for your employees and/or company use.”

In fact, doing this plays to GM’s interest in luring the investment community into giving our favorite automaker’s products another look, as evidenced by GM’s possible opening of a Manhattan showroom that would showcase GM’s latest models.

Government Interest

One key incentive in GM’s race to an IPO is to shed some government control. Uncle Sam has retained veto power over GM’s independent selection of the banks and subsequent terms, such as the fees, but this time around, neither required vetoing. At first round of the IPO, GM plans to sell 20 percent of the government’s stake, bringing the Treasury’s ownership significantly below 50 percent (from 61 percent currently).

On the other hand, the government also wants to limit underwriting fees to avoid paying banks bailed out by the government.

Way Forward

As we write this, GM is busy putting together a schedule, size, and marketing methods for the IPO. However, before these things can become important, our beloved automaker needs to carefully monitor its own performance, the economy, and the IPO market. The General wants to file a prospectus within the next month and is hopeful for a November IPO. At between $10 and $15 billion, it could be the second largest IPO in U.S. history.

[Source: Bloomberg Business Week]

After 36 months, ALG expects the 2011 CTS sedan to hold 55 percent of its original value, 9 percent above the 2010 model. The residual value of the 2011 CTS Sport Wagon is also predicted to be 9 percent higher than 2010 levels, with the 2011 model holding 54 percent of its original value. The CTS Coupe is projected to have the highest of the three models in the CTS portfolio, retaining 59 percent of its original value.

“Competitive products, innovative styling and a value driven pricing strategy are contributing to a resurgence of the Cadillac brand,” said Matt Traylen, ALG chief economist and client partner. “The introduction of the Coupe broadens the potential CTS customer base and elevates the Cadillac brand as a whole with emotional appeal, dynamic performance and enthusiast credibility.”

According to ALG, the higher projections are a result of lower incentives, tighter controls on inventory, and an emphasis on design – attributes that are especially present in the CTS Coupe.

View Press Release

Just when we thought GM has decided to not purchase or build its own finance arm, our favorite automaker has announced that it will acquire AmeriCredit. The move is expected to help consumers with tarnished credit get loans, increase the amount of leases provided to buyers, supply dealers with another borrowing option for their inventory, and strengthen GM’s public stock offering. GM CEO and Chairman Ed Whitacre expects the $3.5 billion purchase to close by the end of this year.

With loans totaling $9 billion from 800,000 retail customers, Fort Worth-based AmeriCredit is smaller than lending arms of Ford, Toyota, and Volkwagen. Nevertheless, this is definetely a start to put GM back in the game for sub-prime or non-prime borrowers. Sub-prime loans accounted for 18 percent of all new vehicle purchases in April and May, according to Melinda Zabritski, Director of automotive credit for Experian Automotive.

GM, which had $23 billion in cash as of March 31, plans to pay $24.50 in cash for each AmeriCredit share. Moreover, The General claims that 4,000 of its dealerships have already established some sort of relationship with AmeriCredit over the last few months.

Political Backlash… As Expected

As you would expect, some Senators got their panties in a bunch about the announcemt and instantly cried wolf. Of these is Senator Charles Grassley (R) of Iowa, who called on the Inspector General for the Troubled Asset Relief Program (TARP) to investigate GM’s acquisition of another company when it should be repaying taxpayers who are GM shareholders.

Thankfully, GM spokesperson Renee Rashid-Merem set Senator Grassley straight when she said “We are putting in place the foundation to sell more cars profitably. That increases the value of our company and eventually the return to shareholders and taxpayers.” It appears to us that Senator Grassley skipped (or maybe slept through) business 101.

The GM Authority Take

This is good news. A major automaker such as GM shouldn’t navigate today’s fiercely competitive automotive environment without its own captive finance arm, since decisions about when, where, and to whom to lend aren’t governed by the automaker itself, but rather by a “partner” bank such as Ally Financial.

Once approved by all the regulatory bodies, GM’s purchase of AmeriCredit should further strengthen consumer confidence in The General, which should boost the company’s market share and – consequently - IPO price.

General Motors had the highest transaction price in the industry through the first five months of this year, coming in at a full $1,410 above the industry average of $29,617, which is an increase of 3.8 percent over 2009 levels. The average industry increase was 3.7 percent, with the Big Three reigning in the highest transaction prices in the industry. Only Chrysler was below average (only by $7).

In the past, pickup trucks and SUV have made such results easily attainable for domestic brands, but increased competition and the effects of the recession have prompted domestics to find more credible ways of reducing inventory (read: making good cars) and lowering incentives. Furthermore, consumers’ thirst for technology options and their willingness to spend money doesn’t hurt either.

As you’d imagine, this is a trend The General would like to continue well into the future. GM’s continued success relies on maintaining or improving good practices such as delivering value and maintaining a fresh, technology-laden, and fuel-efficient product portfolio. Industry-leading results like these are just what GM needs now and into the future and will lead to a healthier bottom line in the long run, not to mention being a feather in The General’s hat when it’s time for its ever-looming IPO.

[Source: Autoblog]

• Buy the automotive financing arm of Ally Bank
• Create its own auto lending arm, or
• Partner with other banks and lenders

It looks like General Motors has come to a decision regarding the matter and is now in talks with banks about lending possibilities. Those involved with the discussions report that GM is exploring the matter with JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., as well as others about writing loans and leases on vehicles to help sales. Moreover, sources say that a GM buyout of Ally’s automotive lending arm or a launch of its own lending unit would be difficult at this point, in part because the U.S. Treasury, having bailed out both firms, is highly invested in each organization.

[Source: Business Week]