The GM IPO is expected to raise approximately $13 billion (all figures are in USD) for the company and the taxpayers of Canada and the U.S. (both governments owe a stake in the company). With pricing of a common share set to be between $26-$29/share, the GM IPO is an eagerly awaited event for the company, underwriters and governments alike.

However, for the average investor, the rule of thumb is always avoid an IPO-unless you can miraculously find a sufficient number of shares from the issuer and flip them on day 1. But even if one were to find shares for the GM IPO, the larger question is whether investing in the auto industry is a good long term bet?

The Bureau of Transportation Statistics tracks the total number of miles driven by each type of vehicle. Passenger car mileage has fallen since 2005 in the U.S. Since this drop began pre-2008 recession, it simply cannot be argued that the drop in mileage is the by-product of a struggling economy especially since it is worth noting total passenger car mileage continued to increase during the 1991 recession. In contrast, total transit mileage has gone up every year since 1996.

A small sample size hardly makes a trend but if you believe municipalities will get denser, many suburbs built on the real estate bubble will shrink and people will be environmentally conscious, this is hardly a good sign for auto makers and not just GM.

The saving grace is China. But the caveat is that the Chinese government has required many auto-makers to joint venture with local manufacturers. Thus, GM in China is actually a 50/50 joint venture between GM and Shanghai Automotive Industry Corporation. Lots of potential sales but only half the profit (as a complete side-note, reverse engineering in China also occurs in cars. On the streets of Shanghai, there are cars built exactly like the old Audi 5000?s. The story I was told was that the Chinese government bought an old Audi plant and shipped it piece by piece to China to produce knock off Audi’s).

This is not to say that GM may not have turned itself around from building boxy and unreliable vehicles. But is the golden age of the automobile over and will auto makers struggle just like many other mature industries?

(Just a remainder to enter to win a copy of The RESP Book. Post a comment on my review of the book and enter to win. Last day is Friday. Good luck!)

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