IndyCar Series and Motorsports and Sporting Events and Auto Racing

GM's move to IndyCar could cost up to $50 million

November 10, 2010

It would cost General Motors Co. $25 million to $50 million to get back into the IndyCar Series, according to motorsports business experts.

Reports began to surface this week that GM is considering rejoining the open-wheel series it left in 2005 as soon as 2012. IndyCar Series and GM officials declined to comment, but several racing sources said an announcement could come as early as Friday.

“They’ll have to invest heavily in [research and development] and do a lot of testing,” said Tim Frost, president of Frost Motorsports, a Chicago-based motorsports business consulting firm. “These programs aren’t cheap. That initial investment doesn’t include activation and marketing.”

GM will need up to 18 months to get ready to run the open-wheel series, Frost said.

“If they go through with this, it will be a very busy 2011 for GM,” Frost said.

IndyCar Series CEO Randy Bernard spent part of this summer lobbying Detroit-based GM to become the series’ second engine manufacturer. Currently, Honda is the series’ sole engine maker.

If its entry into IndyCar is going to help the automaker sell cars, GM has to be competitive with Japan-based Honda.

“They have to show they have the technology to compete with one of the best,” Frost said. “It’s not enough just to roll out onto the track. It will take a lot of time, effort and resources to get up to speed.”

GM is currently working on a deal to work with Target Chip Ganassi Racing for the 2012 season, sources said. Ganassi recently decided to maintain a partnership for his NASCAR team with Chevrolet rather than switching to Ford. It is unclear if GM has committed to working with other IndyCar teams.

GM is no newcomer to open-wheel racing. Chevrolet engines powered the winning entry in six consecutive Indianapolis 500s from 1988 to 1993. GM also won the Indianapolis 500 with an Oldsmobile-branded engine five straight times from 1997 to 2001. GM’s last Indy victory came as a Chevrolet-powered car motored to victory lane in 2002.

The automaker was less competitive in the three years following, and with financial problems mounting, it exited the sport in 2005.

This week, GM officials announced a shift in their marketing strategy, de-emphasizing the GM brand and playing up its four lines of automobiles: Chevrolet, Buick, GMC and Cadillac. As part of that move, GM officials announced they’d be killing the 37-year-old Mr. Goodwrench service brand in February.

In June 2009, GM filed for Chapter 11 bankruptcy as part of President Obama’s plan to shrink the automaker to a sustainable size and temporarily give a majority ownership stake to the U.S. government. The company needed $50 billion in U.S. government aid to make it through bankruptcy protection last year.

The bankruptcy filing was the fourth-largest in U.S. history and the largest for an industrial company. The company said it had $172.81 billion in debt and $82.29 billion in assets.

On Wednesday morning, GM reported quarterly earnings of $2 billion on $34.1 billion in revenue, its third straight profitable quarter.

Next week, three of GM's four owners — the U.S. government, Canadian and Ontario governments and a union health care trust — will sell 365 million shares, or about a quarter of the company's outstanding common stock, for between $26 and $29 a share. The IPO will raise about $10 billion for the three owners and allow the largest, the U.S. government, to reduce its stake in the company from 61 percent to just over 40 percent.

The reduced stake is symbolically important for GM, because some Americans resented the company's taxpayer funded bailout. The perception that GM stood for "Government Motors" has hurt the company's car sales, GM has claimed.

The U.S. Treasury will sell 264 million shares and will make about $7 billion if the shares sell in the middle of the $26 to $29 price range. The Canadian governments and union trust are expected to make about $3 billion.

GM also plans to raise $3 billion by selling 60 million preferred shares for $50 each. The preferred shares pay a set dividend and become common stock in three years. GM will use the money to shore up its pension plans and pay debt.

— Associated Press contributed to this story.

 

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