GM's toughest sell may be its own stock

By Doron Levin, contributor

FORTUNE -- If you're wondering whether to bet on the initial public offering of General Motors Co. expected sometime next month, a cross-section of opinion from professionals who advise individual investors is revealing: Financial planners are voting thumbs down.

GM, which emerged from bankruptcy in July 2009, remains an unproven investment for individuals, say several members of the National Association of Personal Financial Advisors. The Detroit-based automaker, although well financed with $50 billion of cash from the U.S. government, hasn't yet shown sustained profitability or that it can compete with Toyota, Honda, Hyundai and other foreign automakers.

Investing in GM shares would be doubly misguided for GM employees and dealers, for whom GM has said aside about 5 percent of the IPO shares, according to the planners. The GM family already has much -- perhaps too much -- riding on the company's reorganization, it doesn't need more risk.

"I have a lot of friends who worked for GM and still work for GM,'' said Ted Feight, a financial planner with three offices in Michigan in an emailed statement. "We got all of our clients out of (the former) GM at $38 a share. The writing was on the wall." He questioned the demand for GM stock, calling the IPO "political." Most of the shares in the IPO belong to the U.S. Treasury, which has a 61 percent stake.

Warren Ward, a financial planner in Columbus, Indiana agrees that politics may be driving GM's IPO more than its financials. "I have a sense the deal's being pushed before the company is really ready, as part of election season posturing," he wrote in an emailed statement. GM workers, he wrote, already own "enough" GM stock via the 17 percent stake held by the United Auto Workers union's health-care trust.

The risks of a post-bankruptcy investment

Investment professionals aren't favorably inclined to the risk inherent in companies that reorganize after a bankruptcy filing, which wipes out equity investors and often reduces debt obligations to pennies on the dollar. GM's credibility is further weakened because of widespread worry that the new company is just a better financed version of the old one, with many of the same bad habits and cultural weaknesses that drove it to Chapter 11.

"The GM reorganization is a bit like bankruptcy for a drug addict,'' said Jim Heitman, a financial planner based in Alta Loma, California. "You may have erased the debt, but the problems that led them down that road are still there. It is likely just a question of when they will make the drive of shame to Washington to ask for more money."

Fifth Third Asset Management, based in Grand Rapids, Michigan, sold its positions in GM equity and debt in 2006, according to Mitch Stapley, chief fixed-income strategist. Four years later, Stapley finds multiple reasons to avoid shares in the "new" GM. Chief among them are reservations about GM's management.

"Four CEOs in 18 months?" he said. "That's a real red flag in any organization. You're buying a management team and its ability to lead." Stapley said he is worried about GM's competitive position and grew more so when his father-in-law, a union electrician, dropped his usual "buy America" policy and purchased a car from the South Korean automaker, Kia.

For Stapley it was a Peter Lynch moment: "I said to myself: He bought a what?" To top of page