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GM IPO Filing Cites Business Risks, Including Smaller Dealer Network

August 19, 2010
3 min to read


DETROIT - General Motors Co.'s 734-page filing to go public featured standard warnings to investors about the risks facing the automaker -- including a weak sales outlook, regulatory changes, oil price volatility and supply base stability.


But some of the risks GM is required to disclose to investors are a little more telling about where the automaker stands a year after bankruptcy, Automotive News reported.

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They include less than robust internal financial controls, uncompetitive pay for senior management as a result of caps imposed by GM's government bailout, and the harm that GM's shrinking dealer body could do to U.S. sales and market share.


At the end of June, there were about 5,200 GM dealers in the United States, compared with about 5,600 at the end of 2009.


The automaker initially wanted to reduce the number of dealerships by about 3,600 to 4,000 over the long term. In 2009, GM terminated franchise agreements with more than 2,000 dealers. But under a new federal law, GM agreed to reinstate more than 700 of them. Some dealers also have been reinstated through a federally mandated arbitration process.


The company now intends to reduce the number of U.S. dealers to about 4,500 by the end of 2010.


“We anticipate that this reduction in retail outlets, brands and dealers will result in cost savings over time, but there is no assurance that we would realize the savings expected,” GM said in the prospectus. “Based on our experience and the experiences of other companies that have eliminated brands, models and/or dealers, we believe that our market share could decline because of these reductions.”

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In the summer of 2009, former GM CEO Fritz Henderson told Congress that GM would save about $2.5 billion per year by cutting 2,500 dealerships. But dealers argued that 80 percent of those savings were tied to the cost of selling vehicles, not from money spent on the dealership network.


The GM filing also cites recent management changes atop the company -- the primary reason the filing was delayed by at least three days -- as a major risk.


GM abruptly announced last week that Daniel Akerson, a GM director since July 2009, will succeed Ed Whitacre as CEO on Sept. 1 and as chairman by year end.


GM's CFO, Chris Liddell, joined the automaker on Jan. 1.


Akerson, a former telecommunications executive and most recently a senior executive at The Carlyle Group, and Liddell, formerly of Microsoft Corp., have no automotive experience.

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“The ability of our new executive management team to quickly learn the automotive industry and lead our company will be critical to our ability to succeed,” GM told potential investors in the filing.


“Within the past year, we have substantially changed our executive management team. We have also promoted from within GM many new senior officers. It is important to our success that the new members of the executive management team quickly understand the automotive industry and that our senior officers quickly adapt and excel in their new senior management roles.”


If they are unable to do so and as a result are unable to provide effective guidance and leadership, GM said, its business and financial results could be materially and adversely affected.

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