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With IPO ahead, how much is GM worth?

Price puts it on par with Ford

At the Stevinson Chevrolet West dealership in Lakewood, Colo., customers walked past a sign announcing General Motors Co. has paid back its US government loan in full, ahead of the original schedule. At the Stevinson Chevrolet West dealership in Lakewood, Colo., customers walked past a sign announcing General Motors Co. has paid back its US government loan in full, ahead of the original schedule. (Matthew Staver/ Bloomberg News)
By Sharon Silke Carty
Associated Press / November 3, 2010

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DETROIT — If investors pay what General Motors hopes to get for its stock in a planned IPO, they’ll have to buy the logic that the company’s stock-market value should be similar to its closest competitor, Ford Motor Co. But Ford is making far more money these days, its US market share is rising while GM’s is falling, and GM’s new management team has little auto industry experience.

Ford’s market value — calculated by multiplying its current share price by the total number of shares outstanding — is almost $50 billion. GM’s total would be close to that if it is successful in selling a portion of its shares in an initial public offering later this month somewhere between $26 and $29 a share. That price range was confirmed Monday by three people briefed on the sale who asked not to be named because a formal announcement has not yet been made.

But is GM really worth as much as Ford right now? Ford has been working on a rebuilding plan for five years. It earned $1.7 billion in the third quarter, its sixth consecutive quarterly profit. It also managed through the financial downturn without taking taxpayer money, a big plus in the minds of American car buyers.

General Motors Co. is still in the early stages of its restructuring, having emerged from bankruptcy protection just 16 months ago. The company has had four chief executives in less than two years, and still must find a way to pay back more than $50 billion in taxpayer money it took to help survive the economic downturn. It has only posted profits in the last two quarters, totaling $2.2 billion.

But the key to being a successful investor is guessing how a public company’s stock will perform in the future. Share prices are “like a photograph; they’re a picture in a moment in time,’’ says Linda Killian, founder of IPO research firm Renaissance Capital.

Here are a few points investors may want to consider:

Share Price: Joe Phillipi, president of AutoTrends Consulting LLC in Short Hills, N.J., said he’s counting on GM’s bankers to price its shares a bit below what they hoped to get so average investors can quickly see some share price growth. He’d like to see them start trading closer to $26 a share than $29.

David Whiston, an auto equity analyst with Morningstar Inc., considers both GM and Ford to be attractive investments because of their potential for sales and profit growth when the global economy hits full stride.

Debt: GM emerged from bankruptcy with very little debt for an automaker its size. The company has just $5.4 billion in debt, and it doesn’t have any major repayment deadlines until 2015.

Ford, on the other hand, has about $21 billion in debt. In 2006, chief executive Alan Mulally mortgaged the entire company — everything from the plants and buildings to the trademark on the Ford blue oval to help finance its restructuring. That helped Ford avoid taking a government bailout, which many taxpayers seem to appreciate. But eventually the automaker will have to pay that money back.

Global presence: In China, the world’s largest car market, GM is the clear winner. It’s sold 1.7 million vehicles there so far this year, totaling 12.9 percent of the Chinese market. Ford, meanwhile, has sold just 419,000 cars there, making up 3.1 percent of the market.

Ford is doing better than GM in Europe, but that market is considered mature and established, and unlikely to provide any big gains in sales in the coming years.

Brand image: Both automakers are offering stronger products than ever before, but their different paths through the downturn carved images in consumer minds. Many Americans resent that GM took taxpayer money and see it as a weak competitor. That’s despite the fact that outside experts like Consumer Reports say the company is making strides in reliability and overall quality.