Comparing the Two GM's: NewCo vs. Old GM (GMGMQ)

General Motors is still much of the talk since it exited bankruptcy protection early Friday.  This was a quick bankruptcy process and was well ahead of historic bankruptcy timelines, avoiding what many skeptics thought would be a long ugly process.  But the questions are still out there over what the situation is for the old GM under the “GMGMQ” ticker on the pink sheets and the new GM that is emerging post-bankruptcy.  We did a comparative presentation on each, but keep in mind that these will change daily or weekly and may not remain the case ahead.

Eight brands will now be four brands.  GM  is keeping Buick, Cadillac, Chevrolet, and GMC.  But so far, it has reached a tentative and unclosed pact to sell Saturn and Hummer and Saab deals are in the process as well.  Pontiac is being closed.

The new company will have a headcount in the U.S. of what looks to be 64,000 by year-end, down from 91,000 for 2008.  In the cuts, 35% of GM’s executive ranks are being cut with an emphasis on senior staff.  CEO Fritz Henderson unveiled a sweeping management revamp with many more cuts coming in the white collar part of its workforce to be a leaner and less tiered operation.

The new company also has reduction of what looks to be more than $40 billion in obligations.  This includes union-retiree health benefits being taken over for a union-run program.  As far as the debt, Henderson has pledged to repay loans from the U.S. government before that 2015 date.

Another key change is the plant count with the new GM operating 37 plants by the end of 2010, down from 47 last year.  Dealerships have been getting cut left and right, and that is expected to be around 3,600 after the restructuring is completed this year and next year.  The count was roughly 6,000 earlier this year.  We still think that the count on dealerships and total plants could ultimately be very different than today’s projections.  With some Delphi assets coming back under the new GM, that may already be headed toward a grossly different count.

We covered in detail that the NewCo GM plans to return as a publicly traded company via an IPO.  The soonest  its CFO telegraphed an IPO could even occur was a date of Q2-2010.  The ownership structure is currently very important for the NewCo and the OldCo GM.  The United States is majority owner with a stake of roughly 60.8% in the NewCo GM with $10 billion in debt and preferred shares.  The United Auto Workers fund owns roughly 17.5% of the NewCo, with 11.7% under Canada.  The Old-CO GM bondholders with some $27 billion in old debt will get a 10% equity stake plus warrants.  The old-co GM is being called General Motors Liquidation.

There have been calls for the old GMGMQ to be canceled, particularly after GM said that it sees little to no real value left even in the more optimistic outcomes.  But canceling this stock outright would go against what has happened in other cases as there is still some value implied for traders at least in the notion that it is effectively a warrant or long-term call option.  As the cases pile up from creditors against the Old-GM, the percentage stake of those shares and the warrants for new shares will of course come down as the company sells shares to pay for its old legacy obligations.

Some of these details may again look different as time goes on.  There is a mountain of creditors that will be chipping away a the future value of the GMGMQ.  As we noted in our “day trader race to zero” piece, the question is if the value will be anything by the time the last of the creditors ultimately gets paid.

Jon C. Ogg
July 13, 2009