Looking for proof that politics are an overriding concern for GM during its forthcoming IPO: look no further than a report by Reuters which claims that
GM’s roadshow is set to begin on Nov. 3 and will last two weeks, the sources said. The IPO is expected to price on Nov. 17 and debut on Nov. 18.
Now why would GM wait until the day after midterm elections to file? Well, it could be so GM has time to file 3rd Quarter financial data before offering shares to the public, but GM’s CFO has already warned that 3rd Quarter results will be worse than results from the first half of the year. In other words, waiting to file is likely to materially hurt the IPO (and taxpayers’ chance of payback). But if GM launches its roadshow the day after elections, it won’t turn the midterm election into a referendum on the auto bailout, a situation that would surely exacerbate the already-strong anti-incumbent trend in American politics. And clearly protecting craven pols is far more important than maximizing the return on “investment” for taxpayers, right?
On the other hand, the IPO’s timing might not even matter so much. After all, estimates of a $20b+ IPO are proving to be as unrealistic as we’ve always thought. According to Reuters
The final value of the IPO has not been set but one source said early plans for the IPO envisioned selling $12 billion to $16 billion in common stock and $3 billion to $4 billion in preferred stock that would convert to common stock under a mandatory provision.
And why not? Gaskin’s Iporeport on the GM offering notes that “Investors don’t like surprises,” and GM has offered plenty of unpleasant surprises. FOr example, the fact that Ed Whitacre appeared in several GM commercials led investors to believe that he would stay around post-IPO, and his recent decision to step down is hardly reassuring. Furthermore, the government and GM are clearly not on the same page, as Whitacre suggested an all-in IPO that the Treasury clearly wasn’t behind. Declining market share, “one time” gains in the first half, the Volt’s many issues, and concerns about new CEO Dan Akerson all make Gaskin’s list of worries. The conclusion:
GM should trade at a discount to Ford which means a 50% loss on the government’s “investment.”
Which, in turn, hurts GM’s chances of future success. If GM is worth less than the $50b the taxpayers invested in it, it will be almost impossible to claim that the bailout was reasonably successful. Which also helps explain why the roadshow won’t start until after elections. Like the bailout itself, GM’s IPO is turning out to be another fear-based play in which preserving the status quo (politically this time, rather than economically) overrides any other concern, such as responsibility to taxpayers. Should we have expected anything else?
I still have a hard time believing GM will follow through with an IPO in the near term. Throwing themselves on the mercy of the market – with all the concerns listed in EN’s article – seems foolhardy. I don’t think they’re really ready to leave momma yet.
A post-election plan also means they could recind the plan immediately after the election.
If you take the pre-November rush off the table, why on Earth would GM even bother with an IPO at this point? Why not wait until next year?
the banksters who are buying it back rinsed of liabilites don’t want to have to overpay. this whole process has been a scam that began over ten years ago, Red Ink Rick bankrupted it on purpose (belongs in jail), during that tiime the banks stripped it of assets and took the cash. now they take it back clean of environmental, wages and benefits, lawsuits, extraneous dealers, etc…
someday I’ll write the book.
And someday I’ll buy that book, buickman!
Thanks for the explanation. In other words, we’ve abandoned all pretense of this being ideal timing for an IPO solely for the good of GM.
Good article. If I may summarize: The timing of GM’s IPO allows those seeking re-election to claim success in the absence of a result that will likely refute said claim.
This is political manipulation at its sleaziest.
I think you are right, but I think GM believes the IPO will not yield the desired financial results regardless of the timing. Their comment about untrustworthy financial statements should scare off any serious IPO investors.
Somebody answer this please. When the IPO takes place, is the US treasury obligated to sell a portion of thier 62%? Or does GM just pay them back?
What shares are sold in the IPO differs. Ed Whitacre apparently wanted an IPO in which all the shares of GM would be sold to the public in the IPO. That’s very unusual, and was vetoed.
What GM will probably do is sell some newly issued shares (for which GM receives the money) and let its current shareholders sell some of their shares. Probably more of the former than the latter. Usually about 10% of the company is sold in an IPO.
As to when the US government can sell its 62%, the securities laws are a little complicated, and there will be a shareholders agreement that may restrict sales as well. But generally, after the IPO the US government can sell its shares on the open market whenever it thinks it will get the best price.
Also, I haven’t looked at the GM IPO paperwork, but I know that the US government cannot own more than 50% of GM’s voting shares when it goes public. So maybe it will have to sell enough of its shares in the IPO to get below 50%, or convert a portion to non-voting shares.
US Treasury needs to sell the shares. To sell something you need a buyer. GM could buy the shares and put them into Treasury Stock (not to be confused with stock bought by the US Treasury) but if GM had the money to do that, hey wouldn’t have needed a bailout would they.
Ipos?
Did Apple buy them?
If so, they should be calling it iPOS.
So if the IPO had come before the election (as everyone thought it would), it would be politically motivated. If it comes after the election (as now appears the case), it is politically motivated. Can’t win, huh.
It should be quite obvious that GM’s IPO is being rushed for political purposes. GM is not in a sound enough (or stable enough) position to merit an IPO little more than a year after bankruptcy proceedings. If the owners of GM (ie, primarily the US government) were really interested in getting the most back on their investment (bailout) they would wait until the company reported several quarters of strong financial results … until there was some stable leadership at the top of the organization … and until the North American car market was in better shape.
No, they can’t win. They’re liars either way. However, they can claim “victory” by saying, “We bailed out GM, and look at how good they’re doing.” Play the same song long enough, and everybody will not only like the tune, they’ll pay the piper.
Marc, GM won. They got a $60B buyout and avoided a real bankruptcy. The taxpayers have lost so far, and unless GM fetches the right numbers, it’s the taxpayers that will continue to lose.
Its obvious risk abatement on behalf of certain politicians. Its the smart political move in the face of uncertainties surrounding both the economy and the overall health of the automotive market.
As it stands, its very unlikely that GM’s IPO will be termed ‘profitable’ to the taxpayer, especially with the pundits likely to tear into the numbers. By having the IPO day after election it can reduce the risk of negative backlash while maximizing the positive political benefit of claiming government is smart steward of private industry.
If I was a politician I would do the same…
However, if GM’s welfare is the priority it would be more rationale for the economy and the automotive market to be on stable footing before an IPO is released. From a business perspective it there is no rush for an IPO. I think most people, especially the White House, had thought it we would be in much better shape economically then we are right now.
…The problem is General Motors’ accounting methods are so convoluted that it is very difficult to determine whether the company is truly profitable. Accountants can twist the numbers to meet management’s scenario du jour. It reminds me of the old vaudeville tailor joke: “You want a blue suit? Abe, turn on the blue light.” In the Financial Times, Tony Jackson has pointed out that GM is forecasting returns on its pension investments of around 8.5% a year. Jackson has noted that such a prediction “stands in curious contrast to the conventional prudent assumption, which is that pension assets should give a risk-adjusted return equal to the yield on Treasury bonds. And the US 10-year Treasury yield is now just 2.6%.” Let’s not forget that the U.S. stock market has averaged 0% – zip, nada – over the past 11+ years. If I truly believed that my investments would average an 8.5% per year return, I’d probably be out shopping for a Bentley Continental GT … which wouldn’t help General Motors any. “To put that from another angle, GM’s annual payments to its US pensioners are running at $9.3 billion. On US fund assets of $85 billion, that ostensibly requires a return of 10.9%.” Good luck with that. Mr. Jackson draws this conclusion: “Emerging like a butterfly from the chrysalis of bankruptcy, GM is being excitedly touted as worth $60 billion-plus. But closer inspection of its gigantic pension fund suggests that in the long run, the business may be worth nothing at all.” A big monetary junkyard … so to speak…</i>
http://www.joesherlock.com/blog.html
To pay $9.3 billion a year to pensioners from $85 billion in assets you need returns of 10.9%… ARE YOU AN IDIOT!!! That assumes the pensioners LIVE FOREVER and you need to continue the payments in perpetuity.
Those who post comments on TTAC, and especially about the GM IPO, seem to not have the faintest of a clue when it comes to finance. Please go back to gapping spark plugs and hold off your stupid comments on IPOs, pension funding, etc.
And what about new retirees joining the pension plan Jjster? You ever think about that? Granted there will be fewer joining the retirees over time because the employee count is down. But with those new guys and life expectancies being what they are the plan is underfunded according to everyone who rates pension plans. Don’t call someone an idiot until you think everything through.
I don’t think that the new-ish employees (10 or so years) have
a defined pension. I think it’s a 401k with some company match,
but no guarantee of a monthly stipend.
I think it was 2007 when the first of the second tiered employees were hired.
Mikey, I was referring to salaried employees.
“…if GM launches its roadshow the day after elections, it won’t turn the midterm election into a referendum on the auto bailout, a situation that would surely exacerbate the already-strong anti-incumbent trend in American politics… ”
Uhm, wrong IMHO.
Ya’all are thinking waaaaaaay tooo deeeep. It’s got nothing to do with politics except in the sense that the elections are a big news event that takes place on a known date. That permits GM to follow the time-honored tradition of publishing bad news on a day when that bad news will get little, if any, attention.
If there were no elections scheduled the announcement would have been made late on a Friday afternoon.
The actual near-term timing is irrelevant, and I agree that an IPO is certainly more than a political tool. GM’s eventual stock price will be tracked with a microscope. Friday/midnight announcements won’t make any difference if the company is performing poorly.
<b>GM is just a hedge fund in disguise</b>
http://www.ft.com/cms/s/0/de9f2c4a-adfe-11df-bb55-00144feabdc0.html
The new CEO coming from the Carlyle group is a worry I would think for even the average people who might be willing to buy shares or not, so many questions and so few answers for the average joe?
LOL jjster6??? >>ARE YOU AN IDIOT!!! That assumes the pensioners LIVE FOREVER and you need to continue the payments in perpetuity.
Those who post comments on TTAC, and especially about the GM IPO, seem to not have the faintest of a clue when it comes to finance. Please go back to gapping spark plugs and hold off your stupid comments on IPOs, pension funding, etc.
If you are able to read, the quote is from the august FINANCIAL TIMES:
GM is just a hedge fund in disguise
http://www.ft.com/cms/s/0/de9f2c4a-adfe-11df-bb55-00144feabdc0.html
…But investing that money safely in Treasuries would yield just $2.2bn, leaving an annual shortfall of more than $7bn. Those forthcoming contributions of $4.3bn and $5.7bn are not plugging the gap. They are running to stand still.
Part of the problem is common to all venerable and declining companies – too many pensioners and not enough workers. At the last count, GM had 531,500 pensioners in the US to 87,500 active employees.
In other words, each worker has to support six pensioners. And that leaves out the 83,500 who have left the company and have yet to retire…
The article makes sense, but it’s probably above the aforementioned’s level, “stupid”, “idiot” or not.
So, TTAC’s position is that we’d all be better off if GM and Chrysler had cratered, taking down a massive chunk of the domestic industry’s supply chain, probably sinking Ford, and causing massive bleeding for foreign makers who rely on that supply chain for US assembly?
How about this: Without GM, Ford wouldn’t exist. Without Ford, the marketing companies that do their trade shows wouldn’t exist. Without the marketing companies that do their trade shows, my business wouldn’t exist. And without my business, the people who bend our sheet metal, powder coat our parts, host our web site, make our pizza and fix our cars would all be out of luck too.
The bailout was about protecting the economy as a whole, not about saving GM and Chrysler specifically. We get it – TTAC hates GM. TTAC readers hate GM. And TTAC and TTAC readers appear to hate anything the government does – presumably until a Republican is in the white house again.
But that’s a really bad reason to advocate a path that would have dealt a body blow to an economy that was in the midst – if you remember – of a massive credit crunch, and was on the brink of a great depression-level downward spiral.
Noooo ….not all of us hate GM. But other than that small oversight, your comment,is bang on.
Do you think that if GM and Chrysler had been shut down then the vehicles they would have sold would have disappeared from the market? Other companies like Ford would have sold more cars to make up for GM being out of the market. It’s not a zero-sum game, people would have just bought cars from other companies. Plus the other companies would have been healthier with better sales and more profits. Short term it would have been very painful but in the long run everyone would have been better off, except the UAW.
People seem to forget that Bush made the bailout possible by extending bridge loans. As well, the conservative federal government in Canada as well as the liberal provincial government in Ontario also chose to be partners in the bailout. So, 4 governments out of 4 that faced the choice to bail out or let fail chose the former.
I don’t think TTAC hates GM per se. TTAC’s masthead has, for the most part, been quite firmly libertarian. I admire the consistency, even if I don’t agree with the message itself. I don’t think you’ll ever get people of that stripe to admit that the alternative has value, any more than you’d get them admit that the New Deal was a good thing, or that Reagan/Thatcher did more harm than good. It’s part and parcel of the libertarian belief structure.
What I do admire is that there’s precious little “Government Motors” or similar partisan nonsense from the masthead itself. The commentary? Not so much, but that’s the nature of the beast.
Addendum, since I can’t edit my comment:
There’s three schools of thought on this: the libertarian, the pragmatic (where you are) and the progressive. Personally, I fall into the middle (because I’ve grown up) though I lean heavily towards the latter when I get all misty-eyed. I’d have liked to see the government go through General Motors like a swig of castor oil and make them into a progressive maker of the kind of vehicles we’re going to need as the world changes.
That two relatively conservative governments (the Bush administration and the Harper parliament) bailed them out initially, and aside from the Hail Mary Volt they’re not really building any of the, ahem, Pelosi-mobiles that people like me wish they were tells you all you need to know about the bailout and the drama that came after it: it really was an exercise in risk-aversion and harm-minimization that would be foremost on the agenda of any rational, pragmatic government, rather than some Green/Union/Democrat over-conspiracy. And to it’s credit, you don’t see that kind of nonsense from the editors, either
Other companies like Ford would have sold more cars to make up for GM being out of the market
Eventually, after the economy crawled out of the crater and the supplier base was re-established.
Even Ford, Honda and Toyota were rooting for a bailout of GM and Chrysler. They didn’t do this out of a need for PR or because they’re idiots, they did it because they knew that when a major player or two in a heavily interwined market goes south, especially in the middle of a recession, they might just get dragged down with it.
Leaving the market to solve problems is a lot like trusting mother nature to sort out overpopulation. Yes, it works, in the grand scheme of things and on a long-term scale. But the corrections to get there are pretty painful. Both for selfish and altruistic reasons I would like not to have to live through a brutal market correction and would rather much prefer a guided correction where the chance of people, myself included, getting put through the wringer is minimal.
When change occurs, even change that would be considered beneficial, the near and not so near term problems can be really damaging. Think about the reunification of Germany. When the wall came down the radical change caused serious challenges. In time, the system “reset” but the path was tough…the collapse of the auto industry would have caused massive ripples throughout the economy.
TTAC’s position is that we’d all be better off if GM and Chrysler had cratered, taking down a massive chunk of the domestic industry’s supply chain, probably sinking Ford, and causing massive bleeding for foreign makers who rely on that supply chain for US assembly?
I can’t speak for TTAC. But the idea that GM and Chrysler would have cratered but for the government support, and thus released economic Armageddon, seems overblown to me. In November 2008 if President Bush had let things take their natural course, GM and Chrysler would have sought bankruptcy protection, the “good parts” would have been saved, and cars would continue to have been made.
Instead, we pissed away billions for months, put government people like Steve Rattner in charge who don’t know the first thing about turning around bankrupt companies, and then did the bankruptcy thing anyway. And, in no coincidence, saved the golden-plated pensions and health care of GM and Chrysler retirees. A political payoff at the cost of a hundred billion dollars.
Its such a shame it didn’t turn out that way, eh MikeAR ?
The premise of this article is one-sided. Not only might the course of the IPO influence the choices in the election, but it could also be the other way around. For example:
“Gee, GM really looks like a dicey proposition. But here at the teachers’ pension plan, we really want the democrats to win, so we will hold our noses and get in to drive the share price up, even if we lose money in the long run.”
Or:
“Gee, after cleaning up the balance sheet, GM looks good, and we should really get in. However, let’s hold off until after the election, just so that the stock price takes a tumble. That sure will help our buddies from the tea party.”
It really is better for everyone to avoid such complications.
—
Ceterum censeo Generales Motores et Chryslerum fuisse conservandos.
(Latin for: As an aside, I believe GM and Chrysler had to be saved.)
I’m still highly dubious that there will be an IPO. The only possible justification: take the hit after the mid-terms ’cause taking it any later will hurt the President’s re-election chances. On the flip side, a failed IPO would be a perfect springboard for a congressional counter-insurgency against the Dems profligate ways.
In any case, I expect Government Motors (yes I said it) to go the way of British Leyland: sold off piece by piece over a long period of time. After the IPO (or no) Buick and GMC are next to go. GM wil eventually be Chevy.
Meanwhile, is it libertarian to believe in the free market?
No, just mildly delusional.
All actions have direct economic costs and societal costs. The “free market” is not very good at dealing with those societal costs. That is where appropriate, measured regulation is needed. The historical record is littered with countless examples of what happens when the good of everybody is ignored for the enrichment of a few.
For everyone who thinks the free market failed, just remember we really don’t have a free market anymore. It never was completely free, at least within living memory, but it has become less free and more regulated as time goes by. What we have now is crony capitalism where poilitical influence trumps everything. A perfect exampla is ethanol, it will never be competitive but billions are wasted on it.
As for the inane post of the day, the winner is Psar. Just imagine the hubris of anyone who will say he knows best what everyone can drive. It’s wonderful to be so sure that you have all the answers. I just wish I was so smart that I know what’s best for everyone. That worked out well in the Eastern Bloc didn’t it? Remember the Trabant and the other great Commie cars? Grow up, realize that you and your kind don’t know best for everyone. Humble up a little and admit it, your grand schemes for equal outcome don’t work. There are always some more equal than others.
I don’t see GM getting ‘parted out’. Who would buy the various divisions? Other than Buick, which seems like a no-brainer to go to China, what does GM have that people would want? GMC is just Chevy with a trim package (and for all the flack Mercury used to get, I’m surprised that no one calls GMC out about this), and Cadillac has nothing of value in the portfolio other than the CTS line (which is great, but do you buy a company for one car?).
For everyone who thinks the free market failed, just remember we really don’t have a free market anymore
You never did. The free market is just as much of a fiction as “real Communism”. It can’t exist outside of an academic textbook because about five minutes after the “market” opens you’ll start to see certain players gain power, and then use that power to coerce and control the market, becoming a de facto government.
What we have now is crony capitalism where poilitical influence trumps everything<
That’s what you always have—you just don’t realize it. You’re so busy being afraid of government involvement in industry that you give industry carte blanche. Instead of the cronyism happening within a government building, it happens in boardrooms instead. It’s how power works, and it why “free marketeers” are just as delusional as Maoists: they fail to take into account human nature and the tendency for power to accumulate among the few who know where the levers are, be they party bosses or robber barons.
Just imagine the hubris of anyone who will say he knows best what everyone can drive
You have no concept of the term “grey area”, do you? It’s either Karl Marx or Ayn Rand for you, isn’t it?
No where did I say that GM should be the only carmaker, only that it would perhaps be helpful to have a state-owned manufacturer that was a little more progressive and proactive; one that would develop sustainable transport solutions before they’re commercially viable and give them a head start. incubating them past the “first quarter returns” myopia that dominates industry and shielding them from the “damages our business model” generated sabotage that dooms many progressive offerings.
That’s a long, long way from the Trabant, and that you’re unable to unwilling to make the distinction just shows that perhaps you need to take the ideological blinders off just a little.
By your metric, the Internet was a government-sponsored entity that was used by the elites , and thusly something that should never have happened. We should have left things up to GE and CompuServe: after all, the market knows best.
Psar, selective deiting is a winderful tool, your kind use it a lot. You said that we never had a real free market, guess what you agreed with me. In my next sentence what did I say? I said there never was a truly free market. You are the one who needs to grow up, your utopian socialism with an elite knowing what is best for the masses has never and will never work. Are you familiar with the concept of self-interest? It exists and it can’t be wished away. Your only reason to think that your socialism would be a great idea is if you happen to be one of the elites who gets to tell others what’s best for them. Trust me you won’t be one of them and you surely won’t like your utopia so much.
Socialists want a new feudalism with them in the castle on the hill. You might be a servant in the castle but that isn’t the same as owning it. Government is not a parent and we aren’t children, except you maybe. And i sure don’t want some arrested development sophomore like you telling me how I can live my life.
golden husky: That is where appropriate, measured regulation is needed.
Bailing out a failing company is an entirely different animal from regulating a particular sector of the economy.
psharjinian: It can’t exist outside of an academic textbook because about five minutes after the “market” opens you’ll start to see certain players gain power, and then use that power to coerce and control the market, becoming a de facto government.
You are assuming that this company will remain in power forever. The automobile industry refutes that contention quite neatly. GM had over 50 percent of the American market in the 1950s and 1960s. It strongly influenced everything from the style of vehicles to their content level. GM even influenced the color choices offered by manufacturers.
The old joke around Detroit was that GM product planners deserved their high pay because they were planning not just for GM, but the rest of the industry, too.
Yet GM began losing market share in the mid-1960s, and process accelerated in the 1980s. The free market asserted itself – as increasing number of customers sought something other than what GM produced, other manufacturers gained power.
The one government anti-monopoly action that could have helped ensure greater competition in the auto industry – breaking off Chevrolet from the rest of GM – was not taken in the early 1960s. Instead, Truman Administration filed suit to force the DuPonts to divest their holdings in GM. The Truman Administration won, and the DuPonts began divesting their GM holdings in the late 1950s. The result was that GM lost a strong outside influence that had provided guidance to management. The DuPonts could afford to take a long-term view.
GM management and the Board of Directors became increasingly insular in the 1960s through the 1980s (by which point Ross Perot was famously deriding the Board of Directors as “pet rocks”), and we now see the results.
You’re so busy being afraid of government involvement in industry that you give industry carte blanche. Instead of the cronyism happening within a government building, it happens in boardrooms instead.
The difference is that the free market takes care of companies that are run for the benefit of cronies, not customers. (Well, until the government decides to bail them out with taxpayer money.)
The only truly eternal being is a government-run program or company.
Here in Pennsylvania we have the Philadelphia Gas Works, which is a government-run utility that provides natural gas to customers. It was created to prevent private utilities from “gouging” customers. It is rife with cronyism and poorly run – to the point of allowing many customers to skip their bills for months, because it would be “unfair” to make them pay for a necessity when they can’t afford it (never mind that they have cable TV and deluxe cell phone service). Any private company run along those lines would have gone bankrupt. And that would be a GOOD thing.
psharjinian: No where did I say that GM should be the only carmaker, only that it would perhaps be helpful to have a state-owned manufacturer that was a little more progressive and proactive; one that would develop sustainable transport solutions before they’re commercially viable and give them a head start. incubating them past the “first quarter returns” myopia that dominates industry and shielding them from the “damages our business model” generated sabotage that dooms many progressive offerings.
Which will never happen, because any state-owned auto maker will serve its government masters, and they will be interested in what gets them re-elected, first and foremost. Why do you think GM is already offering an IPO? The Obama Administration and Congressional Democrats want the issue out of the way before the November elections, if possible.
They want to proclaim, “Mission Accomplished!”
(Which may be more appropriate for GM’s situation than President Obama realizes – oops!)
The simple fact is that most “progressive” solutions are not workable, which is why no one is willing to put his or her own money on the line. Customers do not want them. Many “progressives” are still wailing about the GM EV-1, which, if it had been released to the general public, would have been a commercial flop because it was impractical and expensive. There was no real-world demand for the EV-1, despite what Ed Begley, Jr. and his cohorts may believe.
Yup, here we go. Ed crying about how the taxpayers got screwed by saving 300,000 jobs and 2 million elderly persons pensions and health care with a small $50 billion rescue. Yet, where was he crying when the banks stole $750 billion and then another $4 trillion after that? Nowhere. Because that bank rescue was a bailout of his trust fund and if that didn’t happen, he would have to actually get a real job instead of sitting in front of the pool typing on his computer all day.
Sometimes the intellect displayed on this site is simply dazzling.