Projections for GM include some big, unrealistic numbers
If taxpayers are sinking almost $70 billion into GM, one would hope that we have a chance of being repaid. At least we can hope to get most of our money back, right?
Well, those hopes rest on a series of assumptions, and they’re not necessarily realistic ones. In a conference call for bondholders on Friday, financial adviser Eric Siegert said the cash infusion from the government implies an equity value of $69 billion for GM. The government would own 72.5 percent of GM’s stock, theoretically worth $50 billion. (The government is writing off some of the money it’s already given GM, and will leave about $8 billion on the balance sheet as debt.)
The shares being handed to other parties, such as bondholders and the United Auto Workers, are also being valued based on that $69 billion equity figure. But how realistic is it?
Not very, say Antony Currie and Rob Cox, writers at BreakingViews.com:
GM’s market cap only reached around $60bn back in its heyday in 2000 when the Motown manufacturer reported about $21bn of earnings before interest, tax, depreciation and amortisation. That was when low gas prices fuelled profitable SUV sales; GM had eight brands and a massive captive financing business, GMAC, which brought in a third of earnings.
The further they take this analysis, the worse things look for us taxpayers:
So for taxpayers to be made whole, the new mini-GM would have to produce earnings sufficient to support an enterprise value of at least $95bn — the sum of a $69bn market cap and its $26bn of consolidated debt and preferred stock. Using market valuation multiples of five times profits, that means New GM must generate ebitda somewhere in the order of $19bn annually.
That would require boosting annual sales to some $150bn — almost 50% more than the entire company is expected to generate this year — and matching the whopping 14% ebitda margin that Toyota achieved in its best year ever. It requires a vast leap of faith — or an audacity of hope — to believe that can happen.
GM’s offer to bondholders includes some warrants that can be exercised if the company’s valuation reaches $15 billion and others that can be exercised at $30 billion. Even so, a group of “Main Street” bondholders reckons that its members are being offered just 13 cents on the dollar. Alas, though, the bondholders’ low hurdles look a lot more reachable than the high bar that’s being set for Uncle Sam to make money.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
Just what is the status of the $70 billion “cash infusion” to GM? Is it a loan? If so, is it senior to GM bonds?
Or is it common stock? Preferred stock? An outright grant? Some mixture of these?