General Motors files for IPO; requires supply chain efficiency, cleantech support to succeed

In an attempt to distance itself from its bankruptcy and shake for good its "Government Motors" nickname, GM has filed for an IPO.

In an attempt to distance itself from its bankruptcy last year and shake for good its "Government Motors" nickname, beleaguered automaker General Motors on Wednesday filed plans for an initial public offering with the U.S. Securities and Exchange Commission.

Since then, the company has slashed its brand offerings -- it's now down to just Chevrolet, Buick, GMC and Cadillac, dropping Pontiac, Hummer, Saturn and Saab -- and turned over top management, replacing them with less seasoned executives.

So what's in store for GM besides its big bet on green with the Chevy Volt? I dived into the company's S-1 form to find out.

First, a few statistical highlights:

  • GM has a global network of more than 21,700 independent dealers.
  • In 2009, the company (old and new) sold 7.5 million vehicles, or approx. 11.6 percent of worldwide vehicle sales.
  • Seventy-two percent of its sales were outside the U.S., with 38.7 percent coming from emerging markets, including BRIC nations: Brazil, Russia, India and China.

Here's a look at select risks for the new GM:

GM needs volume to succeed. The company's business model is built on volume. Succinctly, profitability won't be attainable unless it stays that way.

The automotive industry, particularly in the U.S., is very competitive, and our competitors have been very successful in persuading customers that previously purchased our products to purchase their vehicles instead as is reflected by our loss of market share over the past three years.

GM needs supply chain efficiency to compete. The second-largest automaker, GM needs to ensure that its size doesn't get in the way of good business. A number of big auto suppliers have experienced financial difficulty or insolvency post-economic downturn, and GM needs to navigate this minefield.

Suppliers have attempted to increase their prices, pass through increased costs, alter payment terms, or seek other relief...some have been forced to reduce their output, shut down their operations, or file for bankruptcy protection. Such actions would likely increase our costs, create challenges to meeting our quality objectives, and in some cases make it difficult for us to continue production of certain vehicles.

But not too much volume. GM says overall manufacturing capacity in the auto industry exceeds demand, and with "relatively high fixed labor costs" and "significant limitations" on automakers' ability to address them (read: unions), automakers may try to move more units with aggressive sales or feature bloat. Moreover:

In addition, manufacturers in lower cost countries such as China and India have emerged as competitors in key emerging markets and announced their intention of exporting their products to established markets as a bargain alternative to entry-level automobiles. These actions have had, and are expected to continue to have, a significant negative impact on our vehicle pricing, market share, and operating results, and present a significant risk to our ability to enhance our revenue per vehicle.

Future technology may not be adequately funded or even work. GM says it will invest "significant capital resources" to develop new tech, "heavily" in alternative fuel and advanced propulsion technologies between 2010 and 2012 to support the growth of hybrid and electric vehicles. But the market may not yet be ready for expensive green technology.

In some cases, the technologies that we plan to employ, such as hydrogen fuel cells and advanced battery technology, are not yet commercially practical and depend on significant future technological advances by us and by suppliers. For example, we have announced that we intend to produce by November 2010 the Chevrolet Volt, an electric car, which requires battery technology that has not yet proven to be commercially viable. There can be no assurance that these advances will occur in a timely or feasible way, that the funds that we have budgeted for these purposes will be adequate, or that we will be able to establish our right to these technologies. However, our competitors and others are pursuing similar technologies and other competing technologies, in some cases with more money available, and there can be no assurance that they will not acquire similar or superior technologies sooner than we do or on an exclusive basis or at a significant price advantage.

What happens in Washington matters. Fuel efficiency and greenhouse gas regulations are making a big impact on the auto business.

We are affected significantly by governmental regulations that can increase costs related to the production of our vehicles and affect our product portfolio. We anticipate that the number and extent of these regulations, and the related costs and changes to our product lineup, will increase significantly in the future. In the U.S. and Europe, for example, governmental regulation is primarily driven by concerns about the environment (including greenhouse gas emissions), vehicle safety, fuel economy, and energy security. These government regulatory requirements could significantly affect our plans for global product development and may result in substantial costs, including civil penalties. They may also result in limits on the types of vehicles we sell and where we sell them, which can affect revenue.

The big takeaway: Between mounting government regulation and obligations from its previous self, the new GM may not be as in control of its future as it appears.

The question: will it bite the bullet and move the cleantech needle?

This post was originally published on Smartplanet.com

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