The Truth About Cars » Treasury The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Mon, 14 Jul 2014 16:00:14 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Treasury U.S. Treasury Continues Sell-Off of GM Shares, UAW Sells Warrants Tue, 13 Aug 2013 19:46:56 +0000 ten_dollar_bill_American_back

Continuing its divestment of the shares it obtained in General Motors for bailing out the automaker in 2009, the United States Treasury told Congress yesterday that it has sold $876.9 million dollars worth of GM stock last month, somewhere between 23 and 26 million shares, based on the trading prices during July. By those calculations, the U.S. government still holds about 136 million shares of GM, which closed yesterday at $35.98. At the rate that Treasury is selling off its GM shares, the government’s equity will be completely divested by early 2014. The government originally held a 61% stake in GM following the $49.5 billion bailout, over 500 million shares. By selling some of those shares, Treasury has recouped $34.6 billion of the $49.5 billion.

Also yesterday, the UAW’s health care trust finalized it’s sale of 45.4 million warrants that allow the holder to buy GM stock at a price of $42.31 before the end of 2015. The warrants were sold for $171 milion. According to the Detroit News’ David Shepardson, they were sold in a “modified Dutch auction” and can now be purchased on the open market. Shepardson told TTAC that large institutional investors were the likely buyers. At the offered price of $3.85 per warrent, GM stock would have to rise over $12 a share from its current price for it to be profitable should the purchasers exercise their rights. Since the UAW had no problem selling the warrants, it stands to reason that at least some of those large investors think that GM, or buying the warrants, which can be traded, is a good bet.

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Treasury Unloads GM Stock Wed, 05 Jun 2013 15:24:15 +0000

Now that the GM share finally is trading a wee bit above its IPO price, The Treasury is eager to bail from the bailout. The government’s  fiance department announced “plans to sell 30 million shares of General Motors Co common stock as part of its ongoing effort to wind down the government’s stake in the bailed-out automaker,” Reuters says.

On June 6, the formerly disgrace stock will rejoin the S&P 500, which usually provides a lift, because index funds must buy the stock. That’s when the gov’s shares will sold, along with 20 million shares of GM stock held by the UAW Retiree Medical Benefits Trust.

Nonetheless, the “government looks certain to end up billions of dollars in the hole on the cost of the bailout,” Reuters says.

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Car Fight: Chrysler Calls Out Tesla – Who Paid Up First? Thu, 23 May 2013 20:12:19 +0000

Ommm – ummmm

The first thing they drummed into me when I started as a copywriter for Volkswagen: “Never use superlatives. They only get you in trouble.” Now, Elon Musk is in trouble over who was first to fully pay back the government loan. 

Yesterday, Tesla wired $452 million to repay the remaining portion of its DOE loan with interest. The company told Reuters it is “the only American car company to have fully repaid the government.”

Chrysler fired back four hours later: “Not exactly, Tesla.”

Having repaid $7.6 billion in federal loans in 2011, Chrysler said today : “Tesla’s information is unmistakably incorrect.”

america tweet

Musk went on Twitter and came back with a retort that will enrage red, white and blueblooded  Chrysler fans. He said Chrysler is no U.S. car company, it is a division of Fiat and besides, Chrysler never fully repaid its loans.

Says Reuters: “The U.S. government recouped about $11.2 billion of its funds. In 2011, Treasury said it is unlikely to fully recover $1.3 billion owed by Old Chrysler.”

All I can say: Stay away from superlatives. They only get you in trouble.

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Treasury To Unload Remaining GM Stake Tue, 26 Feb 2013 16:40:34 +0000

The U.S. Treasury has begun a sale of its remaining stake in General Motors, with a goal of selling its remaining shares by March 2014. Currently, the government owns more than 300 million shares in the auto maker, equivalent to a 19 percent stake.

A statement released by the Treasury says that the U.S. government

“intends to sell its shares into the market in an orderly fashion and fully exit its remaining GM investment within the next 12-15 months, subject to market conditions.”

According to the Detroit News, the government has managed to recoup $29 billion from its $49.5 billion bailout. To break even, GM would have to get $72 per share, an unlikely scenario. Currently, GM is trading at $26.35 a share, which would result in a $12 billion dollar loss for the government. GM’s last stock sale occurred when prices were around $33 per share. J.P. Morgan and Citigroup will be  handling the sale for the Treasury and are expected to make about $3 million in commissions. And of course, once the government is out of GM’s hair, matters relating to executive compensation will be a matter for the company, rather than legislators.

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Treasury Won’t Sell GM Stock, Hopes For Pick-Up Sat, 22 Sep 2012 11:48:08 +0000

Throwing investment advice of eminent experts such as the LA Times editorial board and former GM CEO Ed Whitacre in the wind, the Treasury will not sell its holdings in GM as recommended, but hold on to the stock. Why? For the same reasons that prompt smaller scale investors to hold on: The Treasury “expects the stock to rise in the future due to a roll-out of several new vehicles,” people familiar with Treasury’s thinking told Reuters.The chorus that urged the Treasury to unload GM at a $16 billion loss begun a week ago and grew louder by the day. According to a Wall Street Journal report, GM execs want higher salaries and their corporate jets back, which won’t happen as long as Uncle Sam is breathing down their necks.

Says Reuters:

“One major factor analysts cite that could boost GM shares early next year is the planned rollout of highly profitable large trucks. “

The new trucks generate a profit of $12,000 to $14,000 per vehicle according to analysts. While the Volt won’t save the planet just yet, gas-gobbling BOF Silverados might save the Treasury from a major loss.

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GM Execs Want Their Jets Back, Want Taxpayers Take A Bath Mon, 17 Sep 2012 11:54:01 +0000

GM wants the Treasury to sell its GM shares at a huge loss, says the Wall Street Journal.  Nothing doing, says the Department of the Treasury. It does not appear to need the cash (it can have it printed if needed) and is holding out for a slightly smaller loss.

Reportedly, GM offered to repurchase 200 million of the roughly 500 million shares the U.S. holds. The remaining shares would have been sold through a public stock offering.

According to the report, GM’s attempt to talk DC into dumping its stock is driven by image reasons. U.S. taxpayers kept GM afloat with a $50 billion bailout in 2009 and now own 26.5% of the Detroit company, says the WSJ, and it continues:

“But GM executives have grown increasingly frustrated with that ownership, and the stigma of being known as “Government Motors.” Executives have said the U.S.’s shadow is a drag on its reputation and hurts the company’s ability to recruit talent because of pay restrictions. Privately, executives are also irked at the continued curbs on corporate jet use.”

The folks at the RenCen will have to fly commercial and wait for pay raises a little longer. According to the Journal’s information, Washington has written off breaking even at $53 a share, but “Treasury officials would consider selling at a price in the $30s.”

At around the time the plan was floated, the GM share traded at around  $20. Selling then would have incurred a loss of around $16 billion. Selling at above $30 would bring the loss into single digit billion territory.

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Everything Sells At The Right Price… Even Bob Lutz’s Advice! Sat, 23 Apr 2011 15:51:03 +0000

An earlier report, stating that Bob Lutz would be returning to GM as a consultant was true… but so was the news that Treasury opposed GM’s plans to pay its longtime executive, who retired a little over a year ago. Speaking to the press at the New York Auto Show, Maximum Bob confirms that he is on the board of Lotus, and revealed that he is doing “pro-bono” work as a consultant for GM’s new product development boss, Mary Barra. According to Automotive News [sub], the prospect of Lutz returning as a GM consultant (ala Fritz Henderson) caused such a stir at Treasury, that he decided to work informally at GM, without pay. Given that Lutz’s heavily-hyped products have yet to return GM to steady retail market share growth, perhaps GM is finally paying him what he’s worth?

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“Government Motors”: The Exit Strategy Tue, 19 Apr 2011 22:21:09 +0000

With GM’s share price slipping below $30, the cries are going up again around the internet about the government’s stake in the bailed-out automaker. Thus far the Treasury has remained mum on its exit strategy, only indicating that it would emphasize speed rather than maximum return as it charted the course for its sell-off. But now, Reuters reports that “a big chunk” of the government’s 33% remaining stake in GM could be sold “in the summer or fall.” With the government’s shares “locked up” until May 22, that could mean the government is bailing as quickly as possible at a time when GM’s stock is hitting post-bankruptcy lows, and its CEO offers little in the way of explanations beyond blaming the Japanese tsunami and rising fuel prices. The Wall Street Journal figures taxpayers would lose $11b on its “investment” in GM equity if the government sold at today’s prices (the stock must hit $53 for break-even), but reports that political motivations outweigh fiscal considerations. The White House does not want “Government Motors” to be an issue in the next election.

A Treasury spokesperson insists that

Planning for the sale of our remaining GM stock is still at an early stage and the IPO lock-up does not expire until late May. At that point, we will consider all of our options, based on our twin goals of protecting taxpayers’ interests and exiting as soon as practicable.

But, once you get folks off the record, the real issue emerges:

Government officials are willing to take the loss because the Obama administration would like to sever its last ties to the auto maker, the people familiar with the matter said. A summer sale makes it more likely Treasury could sell all of its stake in GM by year’s end, avoiding a potentially controversial sale in the 2012 presidential election year.

So how does the White House expect to sell early and not lose its shirt? Well, for one thing, it’s premature to use today’s stock prices as a measure because the sale likely won’t happen all that soon. The WSJ reckons that

a sale in May is unlikely because Treasury would need time to put together a deal once the May share sales restriction lifts.

Another issue: on April 21, the former bondholders of Old GM will receive warrants and stock, and will likely sell them, placing further short-term downward pressure on GM’s share price. June? Not likely either, as Bloomberg [via Automotive News [sub]] cites sources who claim

The U.S. Treasury Department will wait for General Motors Co.’s first-quarter earnings before deciding whether to sell more of its investment in the nation’s largest automaker

The second quarter doesn’t end until June 30, and earnings won’t be publicly reported until August. So much for June. Starting in July GM becomes eligible to file an S3 with the SEC (allow Treasury to sell shares without having to address SEC comments), but it would be strange if the government sold shares of a publicly-owned company after viewing earnings that hadn’t been publicized. Unless you enjoy a soft spot for conspiracies, you can rule out July.

Starting in August, GM’s Q2 earnings will be out, it will have an S3 filed, and the government will have had time to structure a deal [according to Reuters]. If gas prices aren’t making headlines, the government will likely think very hard about selling at this point. The only issue: an August sale would have to take place in the first half of the month, as Wall Street takes the second half off. Trading should be closed through Labor Day, meaning Treasury could have to wait into September if it doesn’t pull the trigger in early August. Then, after the Treasury sells its “big chunk,” its remaining stake would be locked up again, meaning a final exit might not take place before December.

Is the remainder of this year a good timeline for Treasury to pursue as it seeks to exit its unwanted ownership stake in GM? On face value, it’s not ideal, with gas prices continuing to threaten, and worries about executive shuffling and incentive dependence taking the shine off GM’s stock. More than anything else, GM needs to signal a sense of consistency to investors in order to calm fears about the restructured company’s ability to rebuild its empire. More time would help calm those jitters (provided things go reasonably smoothly in the interim), meaning waiting could be in the taxpayers’ fiscal interest.

But since politics seems to be driving the sale, and the future can’t be counted on to give GM time to prove its stability in its “new normal,” the sale will happen sooner. And luckily, the Treasury does have one ace up its sleeve, as Reuters explains:

GM is expected to join the S&P 500 index . Such an inclusion would likely generate additional demand from portfolio managers who benchmark their holdings against the index. The U.S. Treasury might be able to sell additional shares based on this demand in what is known as an index inclusion trade.

Will increased demand from institutional investors as a result of an S&P500 listing be enough to buoy GM’s stock? Maybe not. But then, the White House has insisted for some time that recouping its investment was not the main point of the bailout, and that as an emergency economic measure, it was already “worth it.” At this point, there’s not much choice but hope they’re right, but the very question about how to time the government’s exit raises an interesting point: even after a government-backed bankruptcy and a cash injection of tens of billions of dollars, GM’s position remains uncertain and its future remains unclear. If The General collapses again, and investor pessimism indicates that it’s a possibility, will the “emergency economic measure” still have been “worth it?” Will another such measure be forthcoming? Regardless of how much the treasury loses when it exits GM, this question will dog the auto industry for some time to come.

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The Invisible Hand Of The United States Treasury Mon, 01 Nov 2010 16:41:57 +0000

Ever since it became clear that the government would rescue General Motors and Chrysler, the Treasury Department has made it clear that it would stay out of “day to day” decision making at the rescued automakers. Allowing the rescued firms to operate independently was a political calculation based on the desire to keep politics from affecting sales at the two rescued automakers, but according to a Reuters special report, Treasury has not been able to keep its hands completely out of important decisions concerning the future of the two firms. Particularly in terms of setting up GM’s Initial Public Offering, Reuters found that the Treasury made important decisions affecting

its speed and size, the fees paid to the bankers and the potential involvement of offshore investors

Though this has kept the IPO out of election season and all of its potential for political problems, there is some downside to the Treasury’s involvement, particularly because it will not be exiting its equity position in GM until about 18 months after the IPO. As a result, analysts predict problems securing investors in a firm that may still be subject to ongoing government control. Morningstar’s David Whiston tells Reuters

I’m sure that there will be some institutional investors, and even some individual investors, that it scares away

Earlier political backlash against the auto bailout is also affecting decisions surrounding the IPO, including whether or not GM’s forthcoming IPO roadshow should make use of private jets, after the automakers received bitter criticism for arriving at the initial bailout hearings in separate private jets. GM plans to continue to use commercial flights as its sells its IPO around the country, but that could change. According to Reuters

Nothing has to be set until the road show begins, but if the bankers have their way, the taxpayer-owned automaker will use private jets for the IPO, sources said.

Said one person involved in the deal: “It is nuts to think people are going to go wait through security lines. And the possibility you would have a missed flight and that that would affect your ability to sell stock? It would be the stupidest decision on the face of the planet.”

“It’s just dumb. It would be so penny-wise, pound-foolish it would be ridiculous,” said the banker.

Government ownership has also complicated GM’s advertising policies, particuarly in regards to preventing backlash against politically-themed advertising. According to the report

GM quietly dropped a plan for a commercial for the Chevy Cruze small car that would have featured Sarah Palin, the polarizing Republican politician, and her comic doppelganger, Tina Fey

Treasury may not have directly intervened in the decision, but its mere ownership of The General clearly affected the decision to keep politics out of advertising. After Ed Whitacre became the company’s CEO, Treasury became more hands-off, allowing the former AT&T exec to run the company as he saw fit. Prior to Whitacre’s ascnt to GM’s top spot, however, CEO Fritz Henderson had far more government interference to deal with. For example, Henderson’s plan to move GM headquarters from the Renaissance Center to nearby Warren, MI, was scuttled by the White House auto task force.

But even Whitacre had to temper his desire for independence with a cooperative approach to GM’s largest stakeholder. Whitacre was infamously eager to push the government out of itst ownership stake during the initial offering, but faced pushback from the government. At that point, it became clear that Treasury would be running the IPO, with investment bank Lazard (former employer of Auto Task Force head Steve Rattner) as its principal adviser. Because Whitacre cared less about which banks underwrote the IPO and more about getting rid of government ownership, one source tells Reuters that the IPO underwriting bids

opened a lobbying circus for Treasury.

Goldman Sachs created a real problem for Treasury when it pushed fee bidding to the ultra-low point of .75 percent. But because of Goldman’s unpopularity in the wake of the Wall Street bailout, Treasury was unwilling to go with the investment bank, even though its fees were lowest. Instead of settling on Goldman, Treasury used its low bids to drive down fee requests by the eventual lead underwriting firms, JPMorgan and MorganStanley. BofA/MerrilLynch and Citi were eventually added as lead underwriters as well after leading GM’s quest for a $5b revolving line of credit, despite protests from JPMorgan and MorganStanley. And the addition of Citi was not inconsequential:

The U.S. Treasury, which owns 61 percent of GM, also owned 12 percent of Citigroup’s common stock. At its core, that set the government up to be potentially both a buyer and a seller of GM stock.

Another area in which the Treasury has played a major role in the lead-up to GM’s IPO: determining which foreign investors could be courted for the IPO. Reuters explains that GM’s Chinese partner SAIC was key in allowing foreign ownership stakes in the new GM:

Bankers involved in the deal argued that funds like the Kuwait and Qatar investment authorities could serve as “cornerstone” investors that could buy and agree to hold a big chunk of the deal in an otherwise tough market.

But the Treasury was sensitive to the potential backlash. Had U.S. taxpayers bailed out GM to subsidize its purchase by foreign governments in the Middle East, Singapore and China? After all, the GM IPO was expected to be priced at a discount of up to 20 percent from what bank analysts determined would be its theoretical value.

By September, the question became more pressing because GM’s partner in Shanghai, Chinese automaker SAIC, had expressed an interest in buying a “single digit” stake, sources said.

That trial balloon put the pressure on Treasury to clarify how investors would be treated. After deliberations involving Bloom and Herb Allison, a former Merrill Lynch executive who was then overseeing the Treasury’s bank bailout fund, Treasury delivered its verdict late on a Friday in mid-September.

In a statement posted online, the Treasury said the GM IPO would be open to the widest range of investors as it looked to “maximize returns” on its stake. The bankers had a green light to pitch the likes of Kuwait and Qatar.

By early October, GM IPO bankers had kicked off meetings with sovereign wealth funds, according to people with knowledge of the proceedings.

GM has since met with Singapore-based GIC and Temasek Holdings, Kuwait Investment Authority, Qatar Investment Authority and the Abu Dhabi Investment Authority, despite early worries over political backlash against foreign ownership of the bailed-out firm.

But GM had already become used to managing the government’s concerns, whether big or small. When Whitacre pounced on subprime lender AmeriCredit, creating a new in-house finance unit, the government was concerned about the move’s effect on former captive finance unit, GMAC.

GM did not consult the Treasury during the discussions and the government was troubled at the last-minute notice before the announcement, people familiar with its thinking said.

U.S. officials were also concerned about how the deal would affect Ally, which is 56 percent owned by the Treasury and remains a major lender to GM, the sources said.

And government backlash even extended to Whitacre’s day-to-day decisions, even if the pressure didn’t always come directly from Treasury.

Whitacre, an enthusiastic outdoorsman, even brought [board member and adviser  Steve] Girsky along on a weekday trip to Windsor, Ontario, to get a Canadian fishing license so he could fish both sides of the Detroit River, according to a person with knowledge of the trip.

On the return back through the tunnel that connects Windsor with Detroit, Whitacre and Girsky were stopped by a border patrol agent who seemed puzzled by their story. “Let me get this straight,” he said. “You work for GM and you took off on company time in a company car to get a fishing license?”

The constant pressure of keeping the government happy wore on Whitacre, according to Reuters’ sources, and when the government made it clear that it would not completely exit its ownership stake during the IPO, Whitacre’s frustration boiled over, and he quit suddenly. Not only was the uncertainty bad for GM’s image, but more troubling still, it raised the question of who was really in charge of GM’s future. After all, if Whitacre was the government’s hand-picked choice to run GM and he was leaving over frustrations with the government’s interference, what would future CEOs face?

With Whitacre gone, and the government poised to remain a major shareholder in GM for at least another year, questions over the Government’s role in running General Motors do not seem likely to disappear. Indeed, if GM uses private jets for its IPO roadshow, or if foreign firms take major stakes in the re-launched form, political backlash could push the government into taking a more active role at the automaker. And investors like The Gordian Group’s Peter Kaufman will be stuck asking tough questions without obvious answers.

Are they running this company for profit to shareholders or for other, more political, goals? As long as the government runs this company, that will be a key question.

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The Auto Bailout Explained Tue, 05 Oct 2010 22:39:37 +0000

While some have questioned why TARP was used to support the automotive industry, both the Bush  and Obama Administrations determined that Treasury’s investments in the auto companies were
consistent with the purpose and specific requirements of EESA.  Among other things, Treasury
determined that the auto companies were and are interrelated with entities extending credit to
consumers and dealers because of their financing subsidiaries and other operations, and that a
disruption in the industry or an uncontrolled liquidation would have had serious effects on financial
market stability, employment and the economy as a whole.

Translation: credit dependence killed the car companies. And from the 0% Red Toe Tag Sales to GM Daewoo’s $2b currency gambling loss, the glove fits. It’s a lesson that isn’t brought up often enough, and it’s one of the only passages of note in the Auto Industry Financing Program section of Treasury’s two-year TARP retrospective [PDF here]. Otherwise, the document is swallowed up in accounting for the billions spent on banks, despite the fact that

We now have recovered most of the investments we made in the banks.  Taxpayers will likely earn a profit on the investments the government made in banks and AIG, with TARP losses limited to
investments in the automobile industry and housing programs.

So, why not explain why projected auto rescue losses were reduced to $17b with more than just a footnote? [#2 on Figure 2-B shown above]

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Quote Of The Day: Escape From Government Motors Edition Fri, 06 Aug 2010 21:46:15 +0000

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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GM Asks IPO Underwriters To Buy Its Cars Wed, 14 Jul 2010 20:10:36 +0000
Bloomberg reports that GM has already pulled off one of the ballsiest IPO moves ever, by asking banks bidding to underwrite its IPO to use fees to subsidize the purchase of GM vehicles by its employees. According to the report, a GM document sent to bidding banks solicited

ideas as to how we can use the IPO to reposition GM and its vehicles within the investment community including your firm’s willingness to reinvest any portion of any underwriting fees into the purchase of GM vehicles for your employees and/or company use.

Winning bidders JP Morgan Chase and Morgan Stanley refuse to comment on whether or not they agreed to this condition, but considering their fees of .75 percent is a quarter of what they would normally charge, the fact that GM even asked shows a lot of chutzpah. Says Joe Phillippi of Autotrends

That’s hardball. After beating them down on fees they want another pound of flesh. It does sound a little unusual.

The details of GM’s IPO should surface next month, when GM files its prospectus ahead of a planned November IPO. If The General snagged a fleet deal from its underwriters, the Treasury would have to approve the deal… and it has already reportedly nixed an arrangement that would have paid GM’s IPO underwriters in company equity. But then, the two underwriting firms have already committed a billion dollars in credit to The General, an amount that is likely to far exceed their fees for the IPO. In short, government-rescued banks seem more than happy to bend over backwards for the government-owned automaker. Is anyone surprised GM thought it might get a few extra sales out of the deal too?

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Treasury Hires Lazard As GM Moves Towards IPO Mon, 31 May 2010 16:22:22 +0000

The Detroit News reports that the Treasury Department has hired Lazard Frères & Co. as an advisor to GM’s forthcoming IPO sale. And with news of the hiring comes confirmation that GM’s IPO really is coming soon: the investment bank will receive half a million dollars, according to the DetN, but that amount will drop to $250,000 if the IPO isn’t completed within one year. If you’re one of the GM boosters who believes that an IPO will repay all or most of the government’s investment in GM, it’s time to start saving those pennies. You have less than a year now to put your money where your mouth has been.

If you are a GM optimist, you are not alone. Last Friday the Treasury revised its estimated loss on the $85b auto bailout to $24.6b from $28.2b, on the strength of GM’s profitable first quarter, and overall improvement by the domestic automakers. The Congressional Budget Office had previously pegged auto bailout losses at $30b. Total losses on the TARP program that funded the auto sector bailout have also been revised downwards to $105.4b, driven largely by improved valuation outlooks for Citigroup stock.

Lazard’s advising of the Treasury Department on GM’s IPO will include

valuing the government’s assets, offering advice on potential transactions and analyzing alternatives for disposing of the assets

This will help Treasury negotiate one of the toughest decisions in the entire auto bailout: how to time its sale of GM equity. Previous reports have indicated that the Treasury will not try to time the sale to maximize taxpayer value, but will instead try to dump the stock as quickly as possible. Certainly, the political environment seems to favor dumping stock at a loss as much as it does recapturing every last bit of value in GM’s equity.

Doubtless Lazard will try to navigate a compromise between an expeditious public offering and making the most out of Treasury’s investment, but with the possibility of a European-led “double-dip” economic downturn looming, an offering in the next 12 months could find itself flying into the teeth of a jittery market. Helping the case for a rapid GM IPO will be the $10b+ DOE ATVM loans which will be hitting GM’s books within the next several months, as well as the launch of key new products this year, like the Cruze and the Volt.

Perhaps the most important questions surrounding the GM IPO have to do with the structure of the public offering. Will Treasury put all of its 61 percent stake of GM up for sale all at once? And if so, what happens to the UAW’s VEBA fund, which owns another 17.5 percent stake in GM? With nearly 80 percent of GM’s equity held by a cash-strapped union benefit fund and a Treasury department with political motivations for getting out fast, there’s going to be a lot of GM equity for the market to absorb. And, larger economic worries aside, the automotive sector has been a volatile place to park money over the last year.

The challenges are clear. What’s less clear is what the VEBA fund and Treasury are hoping to get out of a GM IPO, and what kind of impact an IPO might have on GM’s performance. IPOs are mysterious, often-irrational events. Here’s hoping this one breaks out big and allows GM to break free of government ownership. Languishing amidst “Government Motors” criticism and cleverly-spun “Payback” ads clearly isn’t doing The General or its taxpayer investors any favors. For better or for worse, it’s time to put this chapter behind us.

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Treasury: GM “Payback” Claims Not Misleading Wed, 28 Apr 2010 20:53:26 +0000

In response to Senator Chuck Grassley’s concern that GM’s claim to have paid back taxpayer loans was misleading, the US Treasury is now saying that it has no problem with The General’s statements. According to the Freep, a Treasury letter to Grassley explains that:

GM’s decision to pay off the loan signaled the automaker did not face “extraordinary expenses,” and that Treasury approved the loan payoff.

“The fact that GM made the determination and repaid the remaining $4.7 billion to the U.S. government now is good news for the company, our investment and the American people,” said Herbert Allison, assistant Treasury secretary for financial stability.

Strictly speaking, GM’s claim to have paid back all US Government loans is correct. The only issue is that GM’s ad touting the payback makes no reference to the fact that it still owes the Treasury upwards of $40b. If that misleads folks, well, apparently the Treasury Department isn’t going to do anything about it.

And why would they? The better GM does, the better it looks like Treasury has managed the bailout, and GM’s success is undoubtedly tied to its ability to convince Americans that it doesn’t owe them anything, even if it does. The problem for both GM and the White House is that even former GM “ambassadors” are lining up to knock this misleading softball out of the park… and fan the flames of anti-GM sentiment in the process. All of which just increases the likelihood that taxpayers won’t ever be paid back in full.

Wouldn’t it be easier if some high-profile administration official simply acknowledged that GM has along ways to go? Or what about if GM didn’t try to score PR brownie points off this money-shuffle in the first place? At this point the auto bailout can’t be un-done, but it can still be made even more pointless by whipping up opposition with these Treasury-backed half-truths. After all, if you owe someone money but can’t pay them back, the least you could do is be honest about it.

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Quote Of The Day: Mission Accomplished Edition Wed, 21 Apr 2010 17:22:06 +0000

Taxpayers, your partial refund is in. Now quick, make with the pension bailout and EV subsidies. Oh, and be sure to pick up a new Chevy, Cadillac, Buick or GMC as a “thank you” present for this act of patriotic largess.

In a speech at GM’s Fairfax, KS plant [via Automotive News [sub]], Big Ed claimed that:

Our ability to pay back these loans less than a year after emerging from bankruptcy is a sign that our plan for building a new GM is working

And yet The General didn’t wait until its Q1 financials were ready to make the announcement. Having already bragged that Q1 2010 results would represent a “milestone,” wouldn’t it have been better if he could have waved an operating profit or EBITDA concoction, anything other than losses around as proof of his claimed success?

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Quote Of The Day: Government Motors By The Numbers Edition Wed, 07 Apr 2010 16:16:55 +0000

My first day back at the helm of TTAC has been accompanied by an embarrassment of riches, in the form of both a GAO report on GM and Chrysler’s pension obligations, and the release of GM’s first post-bankruptcy, GAAP-approved financial results. We will continue to mine these documents for the most revealing quotes and statistics, but for now let’s take a moment to consider the political tensions caused by the auto industry bailout. TTAC has long held that political conflicts over the government’s stewardship of GM and Chrysler is a pressing concern, nearly on par with the financial ramifications of the auto bailout, and today’s GAO report confirms our concerns. As the following quote reveals, Treasury is under constant pressure to accommodate political concerns over the management of its stakes in GM and Chrysler, and has received no fewer than 300 official letters from congressional representatives, eager to subordinate the long-term health of the bailed-out automakers to their local concerns.

Recognizing the potential for interested parties to perceive conflicts, Treasury has taken several other steps to mitigate its risk. First, to guide its oversight of the investments going forward and limit its involvement in the day-to-day operations of the companies, Treasury developed four core principles: (1) acting as a reluctant shareholder, for example, by not owning equity stakes in companies any longer than necessary; (2) not interfering in the day-to-day management decisions; (3) ensuring a strong board of directors; and (4) exercising limited voting rights. According to Treasury officials, use of these core principles defines the operating boundaries of the federal role within its ownership context by limiting the reach and ability of the government to exert its powerful influence on the business and operational matters of these companies. Officials noted that the core principle of not interfering in day-to-day decisions has been particularly helpful in dealing with political pressures related to business operations. For example, officials said that Treasury’s auto team received about 300 congressional letters in 2009 regarding day-to-day management issues involving GM and Chrysler. Several of these letters asked about company decisions and strategies, or called on Treasury to exert influence on the companies’ business decisions. Some letters lobbied either in favor of or against a certain practice or activity. Other letters have been passed along on behalf of  a particular constituent concern. Treasury officials said that, because of their core principle, most of the time they can simply reply to such letters by reiterating their policy of not getting involved with the companies’ business decisions, and as a result, they have been able to avoid having to respond to these pressures.

What appears to be missing from the last sentence of this quote is the phrase “thus far.” With GM and Chrysler’s profitability, worker benefits, and the health of America’s pension guarantee system hanging in the balance, Treasury can likely expect such political pressure to increase. Though measures are in place through which the Treasury claims to have been able to rebuff such political advances, as these two firms move closer to an IPO, there are too many competing interests to balance to ensure an apolitical outcome. I joked once, in a long-ago podcast, that America’s investment in and partial ownership of GM and Chrysler might make sense if our government were in fact a totalitarian regime, as it would be able to have a clearly defined goal for its intervention. But because of our democratic system, representatives can and should seek to interfere in government policies on behalf of their constituents, creating intense pressure on any attempt to neutrally manage such a massive investment, especially one that can have the power of life and death over local economies. We’ve already seen examples of interference take place, and political exigencies may well have played a role in a number of GM and Chrysler’s business decisions. Until such time as the Treasury divests its stakes in these two automakers, it (and the automakers themselves) will continue to face political consequences for nearly every decision they make going forward.

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Bailout Watch 571: How GM Won’t Pay Off Its Government Debt (But Will Try To Make You Think It Did) Mon, 16 Nov 2009 16:06:58 +0000 (

According to GM’s 3rd Quarter financial results announcement:

GM plans to repay the United States, Canadian and Ontario government loans in quarterly installments from escrowed funds, beginning next month with an initial $1.2 billion payment to be made in December ($1.0 billion to the UST and $192 million to the EDC), followed by quarterly payments. Any escrowed funds available as of June 30, 2010 would be used to repay the UST and EDC loans unless the escrowed funds were extended one year by the UST. Any balance of funds would be released to GM after the repayment of the UST and EDC loans.

Though this sounds like positive news, don’t let it fool you. GM’s financials only acknowledge $6.7b in government debt, a sum that barely scratches the surface of the taxpayer “investment” in The General (let’s use $52b as a baseline). The escrow fund in question contains $13.6b of the final $30b GM was given as it exited bankruptcy. Having burned through nearly half of that princely sum, GM now plans on using at least part of the rest to pay off the “outstanding $6.7b.” The escrow account expires in June 2010, at which point whatever is left unpaid of the $6.7b will be returned to the government, and GM will keep the rest. GM will then declare victory and pretend like it has squared up with the tax paying public, when in fact the public will have merely paid itself back a paltry fraction of what GM actually owes. This “repayment” will then be dutifully reported without question by the mainstream media, and the stain of bailout will be symbolically lifted. Except, of course, it won’t. GM and the government are playing a classic shell game, taking advantage of the public’s inability to keep the billions straight. Shameful.

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