Sunday, April 16, 2006

Perhaps GM isn't dead yet.

The Investor Relations Blog has a very good summery and discussion about GM's recent "Tahoe Apprentice" website promoting the Chevy Tahoe SUV. The website allowed surfers to create their own ads for the SUV. Not surprisingly many trolls created negative ads, that decried the thought of purchasing an SUV.

As GM noted on its corporate Fastlane blog

Early on we made the decision that if we were to hold this contest, in which we invite anyone to create an ad, in an open forum, that we would be summarily destroyed in the blogosphere if we censored the ads based on
their viewpoint. So, we adopted a position of openness and transparency, and decided that we would welcome the debate. (citation)

The GM blog, which includes postings from GM Vice Chairman Bob Lutz, is a model for corporate investor relations and public relations. The fact that the companies top brass understands the need for openness and the appearance of honesty and fair dealing harks back to the days of Lee Iacocca at Chrysler. If top management gets it then perhaps there is hope for GM.

As is the stock price is quite low (It's trading at %78 of book value), as are GM bonds. People who are interested in a speculative investment in General Motors would be better off buying GM bonds that GM stock. GM has many $25 par bonds listed on the NYSE, including convertible debentures. Any event that is good for GM stock will be equally good for GM bonds, which are all trading well below par. In the event of bankruptcy, the bondholders (senior capital) will be far better off than the junior capital (share holders).

Right now a GM 7.5% $25 bond (Due 07/01/44, callable 06/30/09) (GMS) trades for $15.08 giving it an effective yield of 12.5%. It's possible to assemble quite an impressive income portfolio out of the publicly traded GM Bonds. The convertible bonds are less interesting because their conversion prices are so high (typically in the mid 60s or higher) as to not come into play.


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