Bailouts

Obama Motors' Ill-Timed IPO

General Motors is going public to boost the Democrats prospects in November, not to protect taxpayers.

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The General Motors IPO, the second largest ever, is arguably this decade's most hyped financial event. But it might also turn out to be this decade's biggest financial fiasco. Its timing is driven not by the financial needs of the company—or the interests of taxpayers who are poised to get royally screwed—but the election-year needs of the Obama administration.

The IPO will allow GM to sell a part of the government's share to investors on the open market. But floating an IPO now is the Obama administration equivalent of declaring "mission accomplished" after two months in Iraq.

It is true that GM is in better shape than it was last year at this time. It has had two profitable quarters in a row and earned $1.3 billion from April to June in contrast to $13 billion in losses the previous year. It has eliminated many superfluous brands, and its remaining product line is getting high marks on quality and dependability. It has done quite well in overseas markets, especially in China, where GM compacts such as Buick Excelle, Regal, and Chevrolet Lova have surpassed competitors.

But the company is by no means out of the woods. For starters, although it managed to negotiate lower wages and benefits from its unionized workers during bankruptcy last year, it did not get meaningful relief from its pension and health care obligations. That's because its bankruptcy was orchestrated by a union-friendly administration that changed the normal rules of the game that would have required GM's unsecured creditors—such as the United Auto Workers—to forgo most of their claims. That didn't happen in this case, so the company has unfunded pension obligations to the tune of $27 billion whose bill is due in 2014. Long term, this puts it at a major competitive disadvantage against its non-unionized overseas rivals: Toyota, Honda, Volkswagen, and Hyundai.

Investors might overlook this if the company were otherwise sound and on a growth trajectory. That, however, is not the case. Indeed, in its application to the Securities and Exchange Commission—which, guess what, will come through just in time to make an IPO possible before the November elections!—GM admits that its "disclosure controls and procedures and internal control over financial reporting are currently not effective." And this "could materially affect our financial condition and ability to carry out our business plan." Companies include all kinds of outlandish mea-culpas in their IPO applications to cover their derrières in the event of investor lawsuits. However, this one goes to the heart of the information that investors need to determine whether GM is a good investment, especially since it is going public after only two good quarters as opposed to the usual four. If GM can't guarantee its own numbers, how exactly are investors supposed to evaluate its worth?

Furthermore, GM's European Opel unit, which failed to obtain a viable bidder or a bailout from the German government, remains a cash-guzzler, having lost over a billion dollars since the company emerged from bankruptcy last year. Most crucially, however, J.D. Powers last week lowered its auto sales forecast for the rest of the year as well as 2011 because of worries of a double-dip recession.

All of this means that potential investors are likely to take a dim view of the company's prospects right now, making it nearly impossible for taxpayers who still have somewhere between $40 billion to $60 billion "invested" in it to come out whole. For that to happen, the Treasury's 304 million of the company's 500 million common shares would need to average $131 to $197 per share, notes Brad Coulter director at O'Keefe & Associates, a Michigan-based corporate finance firm. That would put GM's implied valuation at somewhere between $65 billion to $98 billion.

To understand just how absurdly high this is consider that Ford Motor Company has a market value of only $40 billion. "There is no rational reason for investors to choose GM relative to Ford right now," notes Francis Gaskin of IPODesk.com. But even if investors valued both companies the same that would still represent a 50% loss for taxpayers. It was always unlikely that taxpayers would ever recover their entire investment, but a more auspiciously timed IPO might at least have limited their losses.

Nor is the IPO's timing good for GM. The company is—rightly—eager to shed the sobriquet of Government Motors. So eager in fact that its outgoing CEO Ed Whitacre launched a campaign this spring misleadingly claiming that GM had paid back its government "loan" in full after returning only $6.7 billion. But even he thinks that the IPO is a dumb idea. He apparently wanted to wait until GM could command a better share price and then have the company go fully public at once instead of in several installments as per the current plan.

Whitacre expressed his misgivings at a recent Management Briefing Seminar in Michigan's Traverse City, according to Sean McAlinden of the Ann Arbor-based Center for Automotive Research. "And then 48 hours later he was gone," McAlinden says.

But Whitacre's departure won't change the risk–"a big risk in my mind," says O' Keefe's Coulter—that the IPO could turn into a PR nightmare for GM if its opening price is too low.

Even if the IPO turns out to be less of a disaster, the Obama administration's wanton disregard for both taxpayers and the company shows just how desperate it is getting to deliver some sliver of economic good news to angry voters ahead of the November elections. But its actions only bespeak the dangers of government bailouts. GM has a long way to go before it is truly back on its feet. It might make it—eventually—just as Iraq seems to have stabilized seven years after President Bush first declared victory. But as in Iraq, it will remain an open question as to whether the bailout was worth the risk and cost to taxpayers.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly columnist at Forbes. This article originally appeared at Forbes.

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  1. Buy a President, get a car company!

    What kind of a retard would buy these shares?

    1. Anyone who enjoys being bilked out of money in favor of unions.

      I hope every union stooge and apologist steps up and put their money where their mouth is.

      1. “I hope every union stooge and apologist steps up and put their money where their mouth is.” Me too.

    2. No one. Not even retards would want a piece of a company that sucks that bad, but that the government will bail out if it’s ever in troub…wait a second.

      1. Maybe the government will be the biggest investor, so that it can pay itself back the stimulus money is spent bailing out GM. Then the government can protect it’s investment by buying all it’s vehicles from GM at an inflated price.

        Profitz.

        1. The Fed will trade some treasury bonds for the GM stock – just to spread the risk/stupid.

      2. I’ll be first in line to be a GM bondholder. Look how they were treated the last time the government stepped in to hel… wait a second.

    3. Maybe they’ll make it a mandate, the way they did with health insurance.

      (My sarcasm is tinged with the fear that they might actually do it.)

      1. A “Reason-able” policy that would be a compromise between free-market and whatever the hell we have now (and therefore highly desirable) would be to just make every family buy 1 GM car. Seems fair and that is all that counts.

        Besides isn’t that what the second part of the stimulus is for? They can use it to give to GM so that GM can pay off the first loans. There is a huge multiplier involved I’m told.

        1. A.) Define “family”, please.
          2.) So how many members of the “family” go to jail if the mandated car is not purchased?

          1. Oh, yeah: “…’Reason-able’…”
            Drink!!!

          2. One man, one woman..oh…yeah I see your point.

      2. That’s not funny.

    4. They ought to give them out to California state workers in lieu of salary. They should also fill the UAW’s pension fund with these fucking shares.

      1. +100

      2. Awesome idea!! Let those creeps have them!

      3. Nice idea, buddy. Where do you live? We’d like to discuss this with you face to face, as it were.

      4. One of the funniest/sad things I ever read

    5. “What kind of a retard would buy these shares?” There are plenty arguing for Anarchy on a previous thread, that would.

  2. Caption Contest!

    “Whoa look at the damage I just did to that car! Let’s get the hell out of here!”

    1. “I told you assholes The Volt would be fun to drive. Wheeeeee!”

      1. “Daddy left me out in the sun too long.”

        1. I can’t seem to drive this thing out of the ditch.

    2. “Whoa look at the damage I just did to that economy! Let’s get the hell out of here!”

    3. “You see me rollin’, you hatin’…”

    4. “Whoa look at the damage I just did to that car! Let’s get the hell out of here blame the previous owner!”

    5. “LOOK AT ME! I’M HAVING FUN!”

    6. “Out of my way, or these Secret Service guys will shoot you!”

    7. “Just two more people bound to get pulled over”

    8. “This is fun, but it really should be a bumper bus or light bumper rail.”

    9. Whoa look at the damage I just did to that car[company]! Let’s get the hell out of here!

  3. This should be a lesson to those who think that the government should run important sectors of the economy (like healthcare) or the whole damn thing. The government makes economic decisions based not on economic reality, but on political calculation. That doesn’t work.

    It should be a lesson, but of course it won’t be.

    1. The short response I give to people is, “It’s political solution to an economic problem. What do you think went wrong?”

      Usually the repsonse I get is a confused cocker spaniel. Or crickets.

  4. Good God this drives me crazy. Various Obama administration folks and editorialists keep trying to push the idea that bailing out GM was a good idea, just because the car company isn’t now bleeding red ink. But the auto industry still suffers from global overcapacity, GM still makes some of the worst cars in the business, and I’m not sure there’s any good reason to think they won’t have to bailed out again whenever the next recession comes. If people don’t want to spend their money on GM cars, why have we been forced to spend it on GM tax breaks?

    1. The “bailout was a good idea” works because, as a whole, our country is ignorant of history and unable to connect dots from one decade to the next.

      Instead of GM, consider Chrysler. Reagan & Co’s bail out of Chrysler in the early 80’s is still regularly promoted as a successful government intervention. But it’s just not true. If we had let Chrysler go under back then, it probably would have been bought out by a Japanese competitor.

      Instead, the government intervened and what happened? Chrysler got bought out anyway. First by the Germans, then the Canadians, and now the Italians. The Reagan bailout didn’t save Chrysler at all, it just postponed the takeover from the early 80’s to the late 90’s and changed the buyer from Asia to Europe.

      It would have been a lot more efficient to let the Japanese take it 30 years ago.

    2. “…. just because the car company isn’t now bleeding red ink.” So you trust the government to tell the truth?

  5. Frankly, I was amazed they put two profitable quarters together. I wonder if they would have been able to do that without Obama essentially nullifying millions in debt obligations, however.

    1. The two profitable ones were during the height of cash for clunkers. They are about to report some dismal earnings before the IPO. Not to mention what a ginormous money loser the Volt is.

      Makes you wonder who the genius is who thinks it’s ok for Obama to keep using the “car in the ditch” metaphor during his speeches.

      I would suggest they avoid car metaphors for a while.

    2. It’s easy to make a profit when your capital is free.

    3. Obama essentially nullifying millions in debt obligations, however.

      You misspelled “billions” there. As in 30 of those billions. Oh, and the important qualifier “secured” belongs in there as well. To distinguish from the “unsecured” qualifier used for the union obligations which were not nullified.

    4. Also note the Fed Gov’t just bought a few fleets of new cars.
      Can you guess what make????

  6. Yes, but what does Sikha Dalmia explain?

  7. Maybe the government will be the biggest investor

    I expect the Fed to put a floor under these shares, one way or another. But I’m bitterly paranoid. Or, possibly, paranoiacally bitter.

  8. There will always be someone out there to buy the stock. Could be daytraders just to make a quick buck.

    I hate shorts but it would be great to see this IPO shorted down to a penny.

    1. Shorts typically are prevented from selling a stock under $5.

      …although I know how you feel.

    2. but it would be great to see this IPO shorted down to a penny.

      That billion$$ payout would come with the title of ‘scapegoat’ until 2012.

    3. It is unpatriotic *not* to short.

  9. I’m wondering – how much money did they get from the government(s)? Unless I’m reading it wrong (it’s been a while since Financial Accounting), this sure looks like they had negative equity of $107 billion on June 30, 2009. Now they are claiming positive equity of $23 billion.

    I thought they “only” got about $25 billion total from the US, Canadian & German governments. Was the rest debt that was wiped away in bankruptcy? Or am I missing something here?

  10. The government won’t let GM go into bankruptcy and kill their union contracts. It inflicts CAFE standards on it ensuring that GM cannot concentrate on making the few models it has that actually make money. And it insists that GM invest billions in a hopeless green elephant money pit known as the Volt.

    It is not a car company. It is a fucking social welfare program.

    1. I think the joke goes “It’s a retirement and health care plan that occasionally makes shitty cars.”

      1. Sadly, they actually do make some decent cars. The Cadillac CRS and the Chevrolet and GMC pickups and SUVs are good cars. So is the Corvette for that matter. But note what those cars have in common; they are all big engined cars that run afoul of the CAFE standards. Thanks to the CAFE standards, they can’t concentrate on doing what they do well. And instead have to lose billions trying to compete with the Japanese and the South Koreans making cars that cannot be made cheaply enough with a union overhead.

        1. I like my Chevy work van much better than the Fords. It handles better, and has a tighter turning radius, which is very important on a full size van. The side cargo doors, however, are reminiscent of 1970s Mopars. The hinges for the side doors were about $70 per half, and $50 for the hinge pin. With two hinges per door, and two doors, you’re looking at $760 to replace all of the hinges and pins. I just replaced one hinge pair, and used a hardened steel bolt as a pin. But I still had to get my body man to do the work.

          As far as the CAFE standards, on the new Camaro with the LS 3 engine (the nasty fucker), they have a double overdrive trans, and the engine misfires one cylinder per rotation over a certain speed. That’s how they get around the MPG.

        2. I’ll admit that GM has definitely improved in terms of quality not just in the Cadillacs and Corvette’s, but they still continue to combine a self-destructive business plan (thanks Unions!) with boring and sometimes downright offensive vehicles (hello Aztec, I’m looking at you) which is a big part of the reason they owe we taxpayers $67 billion. Nothing would make me happier than for this to change by them paying it all back and then surviving in the market by selling cars that people want.

          I don’t see either of these things happening.

          Sometimes a bad business has to fail no matter how big it is or eventually everyone suffers. Plenty of car companies have failed before, there’s nothing guaranteeing success for GM. Obama won’t be around forever and it’s not an automatic that the next president will open up the checkbook again.

          Hopefully they will learn from their upcoming mistakes with the Chevy Volt.

  11. What people are ignoring is that there’s still a healthy market in old GM stock. It’s the most retarded market ever, and it pops up on every mention of the Volt or an IPO even though its holdings are basically a 9-hole golf course in New Jersey, some parking lots and a bunch of debt and asbestos claims. FINRA’s had to halt the shares before, and they changed the name from GMGMQ (the Q is for bankrupt) to MTLQQ (the QQ is for really, really bankrupt) just to confuse stay-at-home stock jockeys who though it was still GM. But people nonetheless confused “Motors Liquidation Corp.” for something worth hundreds of millions of dollars.

    Considering the above, yes, there are enough idiots out there to buy real GM shares.

    (And for the life of me, I can’t understand how academics look at this or May 6th, 2010 or October 19, 1987 and see perfectly efficient markets as a valid base case, but what do I know?)

  12. it would be great to see this IPO shorted down to a penny.

    An improperly valued(!) stock will fall on its own; the shorts are just smart enough to see it coming.

  13. this sure looks like they had negative equity of $107 billion on June 30, 2009. Now they are claiming positive equity of $23 billion.

    Pay no attention to that man behind the curtain…

  14. LOL, thats actually kinda funny when you think about it.

    http://www.anonweb.at.tc

  15. The General Motors IPO, the second largest ever, is arguably this decade’s most hyped financial event.

    Mildly off thread, but does this decade begin or end in 2010?

    If this decade is only nine months old, then saying the GM IPO is the most hyped whatever in this decade is a bit overblown. For Christ sake, we’ve still got 92.5% of the decade to go.

    The hell with government motors & UAW anyway!

  16. I don’t get it, is GM selling shares or is Obama dumping his shares, normally a company goes IPO to raise capital. In this case, the money goes back to the Treasury. Who owns GM now, I understand it is 60% Obama, 6% Canada and the balance is owned by the Union members. What a fucking mess !!!

    1. …and the balance is owned by the Union members

      You know, I was talking to this progressive who said that the workers should own the “means of production”. Well, here’s their chance. I asked him why, in the past, the unions have consistently rejected stock in lieu of…, and he couldn’t give me an answer.

      1. I can give you an answer. Unions and the people in them are fucking stupid beyond belief…just not quite that fucking stupid!

  17. I belive Old GM went bankrupt and screwed $90 Billion investers money, not counting the common stock shareholder. This was banks, bond holders and vendors.

  18. Maybe every new GM car sold in North America will have warrants for 500 shares in the glovebox.

    1. And those warrants will be better used as toilet tissue.

      1. Give them to the squeegy guy when he cleans your windows. He’ll love ’em. [of course he’s crazy and will really love them]

  19. 44 people like this.

    1. Be the first of your friends.

      Then they’ll know how cool you are.

      1. I don’t have any virtual friends. Maybe I should get some. Will it give my life more meaning?

        1. More meaning than what?

          1. More meaning than a motherfucker

  20. 44 people like this.

    I’m with people.

    I especially like the part where the stills from the video links cover the first five inches of text?on every page.

    Fine work as always, Kochtosquirrel.

  21. According to the TARP summary by ProPublica, the left-leaning journalism nonprofit, GM/GMAC has about $60 billion of taxpayer funds outstanding, Chrysler another $11 billion.

    http://bailout.propublica.org/…..ng-program

    Saw Bob Beckel the other day pushing the spin that the GM bailout was a great success, and just about threw up.

    1. “Saw Bob Beckel the other day pushing the spin that the GM bailout was a great success, and just about threw up.” Yes, he is one ugly bastard!

  22. Meanwhile, all the braying about GM’s “return to profitability” has emboldened the UAW to start making noises about clawing back the concessions they made.

    ps- Would somebody please tell that stupid twat Granholm batteries are not “clean technology”?

    1. “ps- Would somebody please tell that stupid twat Granholm batteries are not “clean technology”?” He’s not the only one we have a (w)hole country out there that “thinks” it is.

  23. Hey! Who do you think you are? The Investment Barry has checked the profit to earnings ratio and now is the time to issue.

  24. THe IPO can’t happen before the election. Noise will be made about how it’s coming, but excuses will be made to shield the voters from the reality of the situation till at least after the midterms.

  25. The General Motors IPO, the second largest ever, is arguably this decade’s most hyped financial event.

    Remember the Google IPO?

  26. it would be great to see this IPO shorted down to a penny.

    It would be even sweeter to see the IPO suffer an epic fail due to a lack of buyers because only a handful of progressives turn out to be stupid enough to buy that stock at the IPO price — right before the election.

    one can only dream …

    1. Wait a minute, you’re saying only a handful of progressives are stupid?

      1. Well, not every stupid progressive invests.

  27. So, exactly what would be a good time for the IPO, since you are certain this isn’t it?

    1. Like any IPO: when it’s a good investment. It might not ever be a good investment, in which case “never” is your answer.

      1. No way.

        The best time for an IPO is either when:
        a) you need cash to make some investments that are so compelling it’s worth paying the equity premium and foregoing some level of ownership, or
        b) you’re pretty sure the going’s good and you’re not going to get a better price for a good long while.

        IPOs are not an indication that you think your company’s a good investment; that’s stock buybacks.

  28. They would have to be at least as “safe” as Treasuries, right? There’s probably a deal in the works for the Fed to loan ZIRP to JPM to buy GM stock. They’re already doing it with long-term Treasuries.

  29. Well if anything, Obama has proved the point that screwing up the US isn’t just for white Presidents.

  30. Nobody bailed US out!

    1. Same here!

      1. Ditto!

        1. Don’t forget me.

          1. Nary a dime in bailouts for us!

            1. Not one thin dime for us, either!

              1. All three of us went belly-up. No bailouts saved OUR asses.

                1. At one time, we were riding high in the luxury-automobile industry… but we didn’t get government money to survive.

          2. screw you bail out begging teet suckers!!!!

            1. yeah…..*snort*…what he said!!

              1. Why didn’t West Germany bail US out?

                1. Good thing Volkswagen bought US!

                  1. We get no bailout from U.S., either. Is maybe because nobody believe Yugoslav car at least as good as Russian?

  31. studebaker? kaiser/frazer? packard…hudson….they no gone, they exist plenty here inworkers paradise of cuba!!!but the trabant…es meurte.

  32. Yugo suk, Yugo home now, yugo go now you suk

  33. We don’ get-a no bailout even though cars from Italia better than Yugoslav parte di merda di fetore.

  34. “All of this means that potential investors are likely to take a dim view of the company’s prospects right now, making it nearly impossible for taxpayers who still have somewhere between $40 billion to $60 billion “invested” in it to come out whole.” Taxpayers don’t have money invested in GM, the government does . When you send your money into the tax collectors it is fucking gone, it no longer belongs to you. Nor will you see a benefit from it. Even if GM pays the government back,the “taxpayers” will never see it or benefit from it. The money will just be spent on some other worthless bullshit to buy votes.

  35. yeah, but don’t you realize???!!! The costs of doing nothing would have been far worse!!! Obama had to do something!!

  36. My thoughts exactly. But even with this being poorly timed and even being pushed off until after the Nov. elections which raises even more risk for the company – I think people will buy these shares – they just might not be people from the U.S. and Canada.

    Options are always better (more valuable) when held and not exercised. The government should just hold on to this force the company to wait until better market conditions before the IPO – it is just too quick.

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