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GM shares fluctuate on second day


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GM shares fluctuate on second day

Associated Press / Associated Press

Detroit— General Motors' stock has risen to $34.49, above Thursday's closing price.

The automaker's stock reached $34.49 just before the closing bell on Friday. It closed Thursday at $34.19.

The stock fell as low as $33.11 in the first half-hour of trading on Friday, near its initial public offering price of $33.

Shares of General Motors have been fluctuating throughout their second day of trading as a new company, although they've stayed above their initial public offering price of $33. Early on, the shares looked like they were going to fall, but then the stock began a slow steady rise.

GM's stock dipped as low as $33.11 on Friday, more than 3 percent below Thursday's closing price, before climbing back to $33.88.

Investors and the U.S. government are watching how the market views GM. The company's stock went public Thursday amid an impressive turnaround 16 months after exiting bankruptcy protection.

The second-day share dip isn't surprising, although a drop below the IPO price could spell trouble because it would trigger computerized "stop loss" orders to sell millions of shares, said Scott Sweet, senior managing partner of the research firm IPO Boutique. He expects volatility for three or four days before the shares stabilize.

The shares jumped as high as $35.99 in their stock market debut before pulling back later on Thursday. Almost 457 million GM shares traded, about one tenth of all trading on the exchange. GM gained 3.6 percent to the end the day at $34.19.

The government is on its way to getting back at least part of the $50 billion it spent bailing out GM, which left bankruptcy protection last year with a balance sheet cleansed of its huge debt.

The government and GM's other owners sold 478 million common shares in the IPO for $33 each, bringing in $15.8 billion.

The government made $11.8 billion in the IPO by selling 358 million shares, reducing its ownership stake about 36 percent from 61 percent. It stands to make $13.6 billion — and lower its stake to 33 percent — if bankers exercise options for 54 million more shares. If the options are taken, the government will have 500 million shares left, and they must sell for $53 each to get all the bailout money back.

The bankers have 30 days to exercise their options, and if they do, it would add 72 million shares to the number now on the market, bringing the total to 550 million.

Sweet doesn't think uncertainty over the options is weighing on GM's stock price because investors know that banks are likely to buy and resell the additional shares.

Banks may be buying shares on the open market to keep the price from falling below $33, said Matt Therian, a research analyst for Renaissance Capital, which tracks IPOs.

A leaner GM earned $4.2 billion in the first nine months of this year, and its chief financial officer said it could post huge pretax profits if the U.S. auto market recovers to pre-recession highs.

Joe Phillippi, president of AutoTrends Consulting in Short Hills, N.J., said GM's stock has promise over the long haul because its expenses are so much lower than before bankruptcy and it's earning more money for every vehicle it sells.

Before bankruptcy, GM lost about $4,000 per car. Now it makes about $2,000 each.

GM says it is poised to earn up to $19 billion a year before taxes if the U.S. car market rebounds to the 17 million annual sales range, a record set in 2000. Industry sales this year are running at an annual rate of about 11.5 million in the U.S.

"In a sense, you're buying at the bottom of the auto cycle," Phillippi said. "So there's lots of upside in terms of volume." If GM can hold its 19 percent market share and keep making money on each vehicle, earnings should rise as the U.S. auto market slowly recovers, Phillippi said.

"We're in an up leg in the cycle. Assuming nothing blows up economically or politically or whatever, the stock is probably going to work its way higher," he said.

GM is not without problems, though. Its pension funds are far short of their obligations, and its European unit is still restructuring and losing money. Also, competition is heating up from crosstown rival Ford Motor Co. and Korean automaker Hyundai. Toyota Motor Corp., wounded by a string of safety recalls, is starting to make a comeback.

But Phillippi said GM has strong new products in its pipeline, including a gas-electric hybrid version of the Buick LaCrosse that's supposed to get 37 miles per gallon on the highway, a high number for a luxury car that size.

"They're going to have to do it on the merits," Phillippi said. "They're going to have to over-deliver on all of their promises."

From The Detroit News: http://detnews.com/article/20101119/AUTO01/11190404/GM-shares-fluctuate-on-second-day#ixzz161VxcVIn

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