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Business Risks of GM's IPO Filing, SEC, sec, U.S. Treasury, u.s. treasury,

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On: Fri, Aug 20, 2010 at 10:02AM | By: Sherry Christiansen

Business Risks of GM's IPO Filing, SEC, sec, U.S. Treasury, u.s. treasury,

GM recently filed the paperwork for its upcoming initial public offering, and included in the filing was the S-1 documentation reporting risk factors for potential investors. Those considering the purchase of stock from the company should be most interested in the contents of the S-1 filing, listing the material risks to the future financial stability of the company.

The report is mandated by the SEC, and most companies actually overemphasize potential material risks in order to avoid any legality with the SEC that may result from under reporting. 

Risk factors commonly reported are economic fluctuations, commodity price, etc.  GM’s first couple of reporting factors would certainly fit into the more commonly listed, but when the nitty-gritty of the documents is examined, GM’s newly released S-1 filing is interesting reading to say the least.

According to Automotive News.com, below are a few of the excerpts of GM’s filing:

“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. We believe that this is due, in part, to a negative public perception of our products in relation to those of some of our competitors. Changing this perception, including with respect to the fuel efficiency of our products, will be critical to our long-term profitability. If we are unable to change public perception of our company and products, especially our new products, including cars and crossovers, our results of operations and financial condition could be materially adversely affected.”

GM’s situation is unique in that while the company is considered a new entity with a new balance sheet, history certainly plays a part, not only in the consumer’s buying decision, but, subsequently, in the future stock buyer’s summation of the corporation. While GM’s history is one possible disadvantage when it comes to future sales revenue, the company’s newness may be equally risky, particularly with the up and coming change in top executive Dan Akerson—which is identified in the report as one potential material risk.

GM’s S-1 filing reads: “The ability of our new executive management team to quickly learn the automotive industry and lead our company will be critical to Within the past year we have substantially changed our executive management team. We have elected a new Chief Executive Officer who will start on September 1, 2010 and a new Chief Financial Officer who started on January 1, 2010, both of whom have no outside automotive industry experience. 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, our business and financial results could be materially adversely affected.”

GM also admits in writing that the company’s financial reports may not be 100% accurate as it states: "At June 30, 2010 we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weakness in our internal control over financial reporting that continued to exist. Until we have been able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner."

GM also discloses that it will continue to be partially owned by the US Treasury, even after the IPO, which could cause the company to be at a disadvantage in the market place in that the company may be subject to following additional government regulations that competing automakers will not have to follow.

GM reports that expense reduction will not be a strong consideration as the company plans to increase its marketing efforts and to continue to pour money into research in order to keep up with competitors in providing safer, more reliable vehicles in order to capture higher customer satisfaction ratings.


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