GM's IPO: All systems go

[NINETY EIGHT REGENCY]

GM's IPO: All systems go

BY SUSAN TOMPOR

FREE PRESS BUSINESS COLUMNIST

The General Motors IPO is a go and, surprisingly to some, turned out to be way popular to boot.

"The IPO is in fine shape," said David L. Littmann, senior economist for the Midland-based Mackinac Center for Public Policy.

Investors, he noted, proved to be enthusiastic about the new GM's prospects, profitability and product lineup. And GM has benefited from the cost-cutting after going through bankruptcy in 2009. One attractive feature for investors: Many expect GM's profitability to be even stronger once U.S. car and truck sales take off from low levels.

"They're finally focusing on what they should have been focusing on a generation ago," Littmann said.

But does a healthy IPO guarantee that the new GM and its stock will be successful longer term?

Not necessarily, according to Littmann. I talked with Littmann Wednesday before he spoke at the 2011 Economic Forecast Lunch for the CFA Society of Detroit.

Longer term, Littmann said, GM's success still will depend on tax rates, inflation and interest rates, and whether consumer confidence rebounds strongly.

If inflation shoots up in a few years, as Littmann expects, we'd see higher interest rates that would make cars and trucks less affordable.

"There's no confidence that any tax cuts across the board would be permanent," Littmann said. "Without consumer confidence, the U.S. economy cannot grow at or above the 3% threshold that would reduce unemployment."

Right now, though, the GM story and the Ford story are hot.

Many now expect GM's stock to "pop" or go up -- possibly 10% -- once trading begins today on the New York Stock Exchange.

"The consumer is in a pay-down debt mode, but car sales are so low that has to go up just from replacement," said Vincent Farrell, chief investment officer for Soleil Securities in New York. Farrell would not speak on specifics of the GM IPO because Soleil is part of the underwriting syndicate.

Farrell, who also spoke at the CFA Society luncheon, said he's concerned that household debt as a percentage of income remains far too high so consumers are forced to watch spending.

Farrell said the U.S. economy is in what he calls a "growth recession" -- meaning that the economy is seeing moderate growth but not strong enough to bring down the unemployment rate, which he sees still being in the 9% range a year from now.

What happens to the new GM stock after today?

Much of that answer will depend on the road ahead for the U.S. consumer and economy.

link:

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