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

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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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  • Throwing money away!
    Providing engines to Indycar might sell a couple of Volts to the 5 people living inside the I-465 loop who still actually watch the series on Versus. Anybody here look at the TV ratings for Indycar? Car sponsors are leaving like it's diseased. $50 million dollars in taxpayer money is a lot of cash to be throwing down the marketing "black hole" that is Indycar. I'm certain that if Honda wasn't turning a profit on their outsourced engine deal with Indycar, they would be gone too. Then Indycar would be the equivalent of the Soap Box Derby... or the new Dallara wouldn't have wings, it would need a sail. GM has been making a lot of good moves since the bailout. I guess it's time to make a stupid one now that they are about to go public again.
  • Great Marketing
    GM is going to have a guaranteed 2 years of solid marketing worldwide due to the buzz (esp south (America and Europe) created by this series whether they fail or succeed. If they advertise for the IRL then they can draw more Americans to be fans of a sport that Ford is not involved in... BRILLIANT! and definitely CHEAP!
  • Chief....
    damn..sorry about this...have to sell your Chevy now.
  • GM
    Three words.....Welcome Back Cosworth.
  • not unrealistic
    For the less informed among you, $50M is not that far off. Maybe just a bit high, but not by much. You don't think Chevy gets to jump in, outsource everything and reap all the benefit do you? Get a grip. They'll be writing lots of checks for R&D, and no one to my knowledge is doing testing these days for free. No one. GM must have some good reasons for jumping into this series. Though I'm not sure what those might be.
  • Not Buying This
    50 million? That's a joke. They aren't going to design and build the damn thing in-house, you know. You do know that, don't you?

    Better find yourself another motorsports consultant.
  • Welcome Back GM
    Would it not be great to be represented in 2012 by an American manufacturer (GM/Chevy), a Japanese brand (Honda) and a European brand (Fiat)? That is a distinct possibility.

    I am gratified at the way the IZOD Indy Car Series keeps moving forward steadily.
  • Badging
    For all we know, GM could have a V-6 turbo now. And also, you have to consider the option of engine badging.

    $50 Million??? Sounds like an inflated fictional number to me.
  • Not Just Indy
    If they're beefing up involvement in all forms of motorsport, I don't understand how it would require $50M in investment in IndyCar alone. Seems to me that a lot of the infrastructure & human resources can be split across IndyCar, NHRA, NASCAR, Grand-Am, & all other forms of racing they're investing in.

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