By on August 6, 2010

We want the government out, period. We don’t want to be known as Government Motors.

GM Chairman and CEO Ed Whitacre channels his inner Rick “Bankruptcy is not an option” Wagoner in the New York Times, telling the taxpayers who put him in charge of a bailout-rinsed General Motors to get lost. Sure Ed, we’ll all go NSFW ourselves just as soon as we get our $49.5 billion back. Talk about putting the throat-clearing guttural in chutzpah…

But Big Ed wasn’t messing around, he was actually asking Treasury to just sell all its shares during GM’s forthcoming IPO. According to the NYT’s Nick Bunkley, Whitacre apparently believes that having 60 percent of the company sold at the initial offering

would be good for employee morale and would improve G.M.’s image.

I get it. The Government Motors jokes start getting old by the fourth hole, and you’re getting the cold shoulder at the country club. But what’s worse, being owned by the government or asking taxpayers to screw themselves by throwing all of their equity onto the IPO roulette wheel?

Either way, it’s not exactly Whitcare’s call. The Treasury tells the Times that

G.M. would control the timing of the offering but that the Treasury would “retain the right, at all times, to decide whether and at what level to participate in the offering, should it occur.”

Meanwhile, the government has given no indication thus far that it plans on selling its entire stake. As recently as July 5th, and as long ago as last November, administration officials have been indicating that the government’s participation in GM’s IPO would be limited to about the amount of equity needed to lose its controlling stake. Which means GM is having to pitch a large-scale sell-off.

Privately, G.M. executives say that underwriters and banks are reporting a great deal of interest from hedge funds and big money managers. Mr. Whitacre said Thursday that he thought “the appetite is going to be big” for G.M. stock and that the I.P.O. could be the largest in United States history, topping Visa’s.

But don’t worry…

“We’re trying to not tie it to any elections or anything like that, truly,” Mr. Whitacre said at the Center for Automotive Research’s annual Management Briefing Seminars. “We just want it to be right.”

You know, special. A defining moment that says “GM is a regular, old-fashioned American company again.” But the last time Ed Whitacre tried to engineer one of those, it simply blew up in his face. How big of a taxpayer shafting is Whitacre willing to risk in order to improve morale around the RenCen, and stop all those cruel Government Motors jokes?

Whitacre has been bragging about GM’s still-unreleased Q2 financial results, and clearly GM’s forthcoming $5b credit line has inspired him to feel more independent of the government paymasters (although he tells the DetN that “We’d take more [debt] if we could get it”). Whitacre has also been talking up his role in GM product planning, as BusinessWeek‘s David Welch reports that GM has plans for

small, youth-oriented cars for Chevrolet and a large prestige sedan for Cadillac, as well as the minivan and midsize pickup

But are these, along with the rumored Buick flagship and revived mid-engine Corvette speculation just part of a pre-IPO pony show that’s included President Obama’s recent auto-bailout Mission Accomplished tour? Given that Whitacre admits he’s (still) “not a car guy,” we have to guess so.

Should taxpayers buy the hype and put all their chips on an initial offering? Given that the UAW VEBA account and the Canadian and Ontario governments want out of GM as well, we’d have to argue that going all in on that big of an IPO poses huge risks. But then, the Obama administration isn’t balancing risks against reward… it’s making a political calculation. A full government exit at IPO would be good for GM and good for Democrats in the upcoming midterms… and the whole multi-billion dollar loss might just be lost in the celebration. Wouldn’t that be nice.

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27 Comments on “Quote Of The Day: Escape From Government Motors Edition...”


  • avatar
    segfault

    Hey, that’s great, why don’t you repay us the billions of dollars you took from the government, and then we’ll talk about it?

  • avatar
    jkross22

    I promise, the timing of the IPO and GM repaying money to the treasury will have absolutely nothing to do with the election, where there are a few Democrats already giving the party a black eye with ethics probes.

    We just want it to be right.

    Enter Joe Isuzu: You can trust me.

  • avatar
    gslippy

    Selling off the entire 60% government stake in GM might be ‘good for morale’, but it certainly cuts the umbilical cord that saved it.

    If GM leaves drydock too soon, it may just sink for good next time.

    • 0 avatar
      segfault

      “If GM leaves drydock too soon, it may just sink for good next time.”

      There are worse things that could happen, such as a second government-funded bailout.

    • 0 avatar
      gslippy

      @segfault: Agreed, but the government blew its political capital in this bailout. A second bailout is too politically costly for any politician to support.

  • avatar

    So you complain constantly that the company is owned by the government AND you complain that the company wants to end that relationship.

    • 0 avatar
      Daanii2

      The point is, the federal government should never have nationalized GM in the first place. Now selling the government’s 60% stake does not undo that problem. Not at all.

      Indeed, selling now gives up gains if GM does well. If GM fails, the government gets back in. GM is still too big to fail. So everyone profits but us, the taxpayers.

  • avatar

    Grandpa Ed’s actually right in this case. I know, it’s hard for me to believe too.

    The government needs to GTFO of GM now, and let the chips fall (plummet, probably) where they may.

    Even though it flew in the face of our country’s capitalist ideals, the feds gave GM one last shot to rebuild itself. That’s one more chance than it should have received — and one more chance than most other businesses would get — all just to save some union jobs… but that’s another thread.

    It’s time for the world’s most laughably inept car company to sink or swim on its own. If GM still can’t survive by itself — and that’s my bet — then so be it. Either way, it’s absolutely wrong and shameful to keep it on taxpayer-funded life support.

  • avatar

    Much as I want Treasury to 100% divest its share in GM (and the UAW’s VEBA to do so as well), a prudent money manager wouldn’t dump everything on the IPO market if he thought there was a good chance that the stock would go up. Wait a day or so to gauge demand and when the price hopefully goes up, then you sell all the shares, maximizing return.

    • 0 avatar
      gslippy

      Perhaps the opposite is true.

      Maybe Treasury thinks the stock will do nothing but tank after spiking on Day 1, so it could be that behind the scenes the government really does want out ASAP.

      GM’s delusions of grandeur may cause GM to believe the stock will be killer.

    • 0 avatar
      Robert.Walter

      This, my friends, is a perfect demonstration about why the stock-market on the whole is two things:
      - a place where for each winner there is a loser, and vice-versa;
      - a speculative crap-shoot…

  • avatar
    Caraholica

    Precious few IPO’s have traded above the opening price recently, and there are plenty of good reasons for the Govt to take it’s money and run. But it would lose the political leverage that it loves.

    I’m guessing that the smart money sees value in the non-US and maybe non-european GM car business, enough to close down the US if it comes to that.

    But, I really dont know, I’m not the smart money.

  • avatar
    Corky Boyd

    Neither Obama nor Geithner want to lose stakeholder status. There are two main reasons.

    1. When Chrysler folds, the administration wants to be able to force GM to accept a merger. The last thing Whitacre wants is the pension costs of Chrysler, the plants and its employees. And worse yet, its model lineup.

    2. The most important reason however, is the loss of leverage to protect the UAW. The UAW was Reason 1 in this takeover. And they know they have to remain the UAW’s guardian angel.

    On the other hand, Whitacre knows the moniker Government Motors or Obama Motors is costing them sales from the conservative half of this country. It’s more than being ribbed at Oakland Hills, it’s field reports from the zone, it’s Ford’s sales and earnings figures and it’s knowing the administration’s efforts to smear Toyota will eventually wear off.

    But Obama will win on this one, to the detriment of GM.

    • 0 avatar
      JimC

      Warning: no value added by this post. Stop reading now.

      —–
      Why wouldn’t GM want Chrysler’s lineup? Think of the “badge engineering” opportunities for classic names!

      Dodge Charger = new Pontiac GTO. Scratch that, Pontiac’s dead…

      Buick Regal = new Chrysler LeBaron

      Chevy Impala = new Dodge Coronet

      Slap a few pieces of chrome, wood grain, or fake hood vents and voila! No one would be the wiser.

  • avatar
    golden2husky

    “…On the other hand, Whitacre knows the moniker Government Motors or Obama Motors is costing them sales from the conservative half of this country. It’s more than being ribbed at Oakland Hills, it’s field reports from the zone, it’s Ford’s sales and earnings figures and it’s knowing the administration’s efforts to smear Toyota will eventually wear off…”

    A serious question: Does the “conservative” half care that much? My hard core Libertarian friend most certainly won’t consider GM, but my other, more traditional conservative friends/relatives/coworkers would still at least consider the GM product even though they didn’t really approve of the bailout. And all those loyal Chevy pickup buyers, are they really running to Ford?

    • 0 avatar
      Cicero

      As a small-government conservative allow me to answer that question. HELL YES!!!!!!!!

      GM should have entered bankruptcy like any other failing business would do. That tax money was used to engineer a transfer of the company’s assets to the government for the benefit of the unions is applling to me. Whitacre’s ridiculous lies about “every penny” having been repaid was the frosting on tha cake. Therse people are crooks.

      I will never, ever consider buying a Government Motors vehicle.

  • avatar
    musiccitymafia

    Look for motivation. Whitacre’s compensation package might reveal something. And future packages.

    What would stock options be worth if the government keeps their shares? What about if they sell?

    As he might say to himself “I’m only getting older so what’s the best play … now or in the next couple of years”.

    This is going to be one speculative IPO. I wonder who will look at the actual merits of GM … you know, mundane projections like sales, revenues, profits, and dividends.

  • avatar

    Damned if they do, damned if they don’t.

    The GM bailout has fallen off the political radar. Average folks aren’t thinking about it. If/when the IPO goes down, they’re suddenly going to want to know: did we get our money’s worth? Or did the Bush then Obama administration piss it away? No points for guessing.

    The usual Obama logic—it would have been worse if we’d done nothing—has lost its potency as memories of the abyss we didn’t fall into fade. The new meme: Obama, Democrats and (yes) Republicans are incompetent managers who spend OUR money like drunker sailors.

    In other words, the cumulative effect is worse than GM’s specific example. BUT if the GM has a bad IPO (and what other kind of IPO could they have?), the GM bailout once again becomes a poster child for government arrogance, socialism and all that stuff.

    The only politically viable option: GM must either hold off on the IPO ’til after the mid-term elections or it must be a success. Meaning not a catastrophic failure.

    That’s actually a lot easier than it seems. All Obama has to do: twist Wall Street’s collective arm until it screams—and buys GM stock. Does the Obama admin have enough political juice to force banks to buy GM (with taxpayer money)?

    Maybe, especially with those new reform laws hanging over their heads. But the Pay Czar’s abject failure to reign in Wall Street salaries is more instructive. The money mens’ panic and fear is gone. Without a proper crisis to manipulate, with electoral disaster around the corner, the Big O’s boyz will have a hard time making Wall Street do its bidding.

    Doing nothing is the simplest option. After the mid-terms, GM is someone else’s problem. I’m sticking with my original forecast. The IPO won’t happen. Of course, I could be wrong. Arrogance and stupidity are a lethal combination. As GM’s decline into bankruptcy and government ownership proved.

    • 0 avatar
      gslippy

      I love your boldness, RF. I was waiting for your take on this subject. If the IPO does not happen, that will be very indicative of GM’s lack of confidence in the future.

    • 0 avatar
      love2drive

      I agree completely. The risk of a failed IPO is too high for both the company and the government. They will stall it into next year, perhaps well in to next year. I don’t believe that the government really does want to get rid of its controlling stake, it’s too critical to keep in uncertain times. They could, as an earlier poster said, force a negotiation with Chrysler, or just as easily some other car maker, and have a seat at the table to protect union jobs. The collective bargaining arrangement has become hugely imbalanced by all this, and I think, for the moment, the US Govt wants it that way.

      Chevy truck buyers will keep buying Silverados. That’s not their issue. Their issue is the mass market, where brand loyalty is not as much of a driver, but where the real volume is. Those consumers have so many choices now, it will be hard for GM to be competitive. They don’t want to concede how much of a marketplace repositioning they need to consider. Making cars as good as others do isn’t enough. They have to build (and more importantly, design) better cars. If all they are is “just as good”, then they have to win on price, and be the best value for the money. This is the story of Japan in 70′s then 80′s, and now Korea in 2000′s. Start by giving people a better deal for roughly the same product, then work you way up the value chain. GM doesn’t want to admit it, but for the mass market (Chevy in particular), they’re competing with Hyundai.

  • avatar
    Robert.Walter

    Alternate definitions:

    “having 60 percent of the company sold at the initial offering”: Allows the Chinese to make their big move.

    “raise morale in HQ”: Get’s the Pay Czar off our backs.

  • avatar
    Tommy Boy

    My guess is that the IPO (perhaps divesting the whole amount) will occur shortly after the mid-term elections.

    No matter what, the taxpayers are going to take a several tens of billions of dollars bath on this UAW, err, I mean GM bailout. So Comrade Obama will want this to occur after the mid-terms (in which the Neo=communist, err, I mean Democrat Party already has enough albatrosses around its neck), but as far as possible away from Comrade Obama’s 2012 campaign so that the losses will be “old news.” Timing of the IPO to minimize taxpayer losses will be irrelevant to the calculus.

    Plus, after the mid-terms the Obama administration (particularly the “still under TARP” institutions AND the new regulatory takeover of the financial industry) will have maximum leverage to “persuade” institutional investors of the “merits” in investing in the GM IPO.

    So investment decisions for now will largely be based on political pressure, not investment merits — the losses will be passed on to mutual fund holders and such down the road, without Democrats’ direct fingerprints on them — in other words, a large portion of the losses will be laundered and passed through to unwitting retail consumers in 401k’s and the like.

    So we can think of this bailout as operating just like a VAT or the Cap & Tax legislation, in that the end consumer will pay the tax without knowing it, or at least no knowing the full extent of what they’re paying in subterfuge taxation.

  • avatar

    Tommy Boy,

    Don’t forget that the GM bailout was hugely unpopular with the general public who, quite rightly, saw it as unfair and un-American. And that was in the midst of tremendous economic anxiety.

    People don’t understand banks. Credit default swaps? Huh? They “get” a nationalized car company. If the GM IPO goes badly, the Republicans can use it as a poster child for Obama’s mismanagement of the U.S. economy. For years. And rightly so.

    Why would he take the risk? Unless the Prez can make the IPO LOOK like a success, he should avoid it entirely. Then again, GM and the Obama administration both believe their own hype. Could they be that stupid? They could.

    Obama’s juice after the mid-terms? Gone. Wall Street has been smelling blood in the water for almost a year. Not to mix metaphors, but GM is already a political third rail.

    GM is British Leyland. It will die a slow death, broken up and sold off piece by piece.

    • 0 avatar
      Tommy Boy

      Mr. Farago,

      Without getting into a lengthy political discussion (if not a diatribe), in a nutshell I’ve come to conclude that Obama is not a politician in the traditional sense, but is an ideologue on a mission and really really fully intends (to use his words) “to fundamentally transform the United States of America.” What else should we expect? His father was a communist, his mother radically Left, his mentor during his teenage years was a member of the Communist Party USA, and he’s spent his adult lifetime associating with the radical Left (e.g., Reverend Wright, Bill Ayers and numerous others, as detailed by numerous sources, notably Investors Business Daily and the New Zeal Blog).

      He was handed the auto bailout by George W, and leveraged it as a bone to throw to his union supporters, but I suspect sees it as a distraction from his main goals (de facto government takeover, directly or via regulation, of health care, finance and later the media). In other words, “fundamentally transforming” us from a free market private economy to one resembling the “corporatism” of Mussolini’s Italy.

      In this mission “mainstream” Democrat politicians have always been expendable, acceptable casualties in the cause. I don’t believe that Obama cares much about the (presumed) losses in November, so long as he retains enough support to sustain his vetoes of Republican efforts to rollback Obamacare, the financial takeover, etc. The legislation already enacted has left most of the power in the hands of regulators crafting regulations, i.e., the executive branch — so as long as he can sustain vetoes Obama can keep implementing his agenda. He may not even be that concerned with reelection since he can accomplish much (if not all) of his “fundamental transformation” in one term — if he gets two it just allows him to keep the new status quo in place, and as we know, once embedded government programs are near impossible to reverse.

      Hence my belief that they’ll use an IPO after the November elections to launder some of the taxpayer losses but to take the hit as long as possible before Obama faces reelection.

    • 0 avatar
      Steven02

      It would take something pretty catastrophic for the GM IPO to go badly. I am not saying GM will survive for the next 50 years, but there is no way that company is going to go down in the next 10. Looking at the balance sheet and the strong presence in China will tell you that.

    • 0 avatar
      love2drive

      The Leyland experience is probably a good analogy, you’re right. The process already started with selling the (sellable) brands. Buick will get sold to a Chinese car maker, so on. The only questions will be the order of sales/brands and to whom, over what time span. “The books” looking good ignores the leveraged side of the sheet in the name of controlling stock by key players who in the end are only looking for profitability, not the survival of a national company.

  • avatar
    Tommy Boy

    >>It would take something pretty catastrophic for the GM IPO to go badly. I am not saying GM will survive for the next 50 years, but there is no way that company is going to go down in the next 10. Looking at the balance sheet and the strong presence in China will tell you that.

    Steven02,

    Except that they still have the UAW on the premises, and its new boss King is already talking about regaining their “concessions.” So the taxpayer bailout merely kept the UAW alive from a higher base level than it would have had there been a non-politically engineered pre-packaged bankruptcy, which also means that it won’t take decades for the UAW to kill the golden goose, as it did the first time.

    The long-term viability of any automaker with the UAW on its premises is about the same as a diabetic with eating Krispy Kreme donuts on a daily basis. First the extremities go, and finally death occurs. And as Mr. Farago and others have observed, the political support for a second bailout is about zero, at least outside of the Michigan delegation.


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