GM reported third-quarter earnings today that were generally in line with expectations, but were good news nonetheless. Fleet is down. Incentives are down and pricing is up. All good stuff.
In light of all the good news from GM recently, I am being questioned about my earlier statement that I would have preferred to see the IPO next year, and also about the risk that if performance falters, investors will punish the stock.
Clearly there are many considerations that go into IPO timing. And with the US government as a major shareholder, this IPO is perhaps one of history’s most complex. Generally speaking, investors would have preferred to see more than three-quarters of profitability. A string of new CEOs doesn’t help either. Both go to issue of a track record, and more broadly, credibility.
As to the risk of the share price falling if future results disappoint, this is true of any company, not just GM. It is just more true immediately after an IPO.
But these are really quibbles. So far, the folks managing the IPO process seem to know what they are doing.
For investors, the good news is that vehicle sales appear to be increasing. Fleet sales are down and consumer demand is more than picking up the slack. This brings me to the big questions investors should be asking: (These have an admittedly North American bias…)
1/ Will the nascent recovery in vehicle sales continue?
2/ Will GM be able to maintain its discipline around costs?
3/ Will the cuts in incentives and price increases hold?
It is the last issue that is most interesting to me. It is possible that the car companies touting higher transaction prices and particularly increased options sales are misreading what the data is signaling.
We are doing some number crunching on this and I will report back.