By on March 11, 2010

In a conversation with The WSJ [sub]’s Paul Ingrassia, former Car Czar Steve “Chooch” Rattner did some “back-of-the-envelope calculation” to show why he believes the US taxpayers will see their $50b “investment” in GM recouped when The General goes public sometime in the next year.

Here’s how Rattner gets to his latest calculation: Bonds of GM’s bankruptcy estate – known as Motors Liquidation – are currently trading around 30 cents on the dollar, according to Thomson Reuters. Those bondholders were owed $27 billion.

As part of GM’s restructuring, those bondholders were promised a 10% stake in GM when it goes public. In very rough calculations, those bonds are currently valued at about $9 billion (because they currently trade at around 30 cents and were originally worth $27 billion).

Assuming that $9 billion represented 10% of GM if it went public now that would imply GM had a value of around $90 billion. The taxpayer’s stake: 60% of that $90 billion, or $54 billion — Rattner’s magic number.

For an alleged Wall Street hot-shot, Rattner’s calculations leave a lot to be desired. For one thing, they don’t take into account the crucial $17.2b bailout of GMAC, without which neither GM nor Chrysler would have likely survived. And as the WSJ [sub] notes, the GMAC bailout will probably cost taxpayers at least $6.3b. Meanwhile, we still have yet to see GAAP-compliant financial results from GM, a fact that puts Rattner’s speculative calculations into proper context.

Furthermore, using the speculative market for Motors Liquidation bonds as a gauge of GM’s strength is hardly satisfactory. After all, Motors Liquidation stock, which shouldn’t be worth anything, is still valued at nearly 60 cents per share, giving the wind-down remnants of “Old GM” a market cap of about $350m. When it should be worth precisely nothing. This illogical state of affairs speaks to the deeply non-rational influences at play in speculative investment, and casts doubt on Rattner’s “back-of-the-napkin” calculation. Would Rattner conclude that Motors Liquidation is actually worth $350m just because enough investors are making moon-shot penny bets on the remains of Old GM?

Besides, the US Government isn’t the only stakeholder in GM. When GM does hold an IPO, the UAW’s VEBA 17.5 percent stake in the firm will have to be monetized as soon as possible, because the fund is in desperate need of cash, and it will be years before it can cash out its 55 percent Chrysler stake. If the UAW cashes out its GM stake at the same time as Treasury, the IPO size would be considerably larger than it would be otherwise, potentially diluting investor enthusiasm (depending on actual financial results). Presidential Task Force boss Ron Bloom has hinted at this, saying

Private markets would like to see us exit this investment, and I think they will be more comfortable if we’re on a sustained path out the door than if they think we’re going to try to market time it to maximize return.

Even Barrons [via MSN], which hypes GM as the “hot IPO of 2010,” agrees that taxpayers will play second fiddle to, writing

Even if the debt rallies, bondholders will fare the worst, reflecting the restructuring of GM by the Obama administration that favored the union over bondholders despite their similar legal claims. The union is also apt to do better than taxpayers, based on its sweet deal. [emphasis added]

The same Barrons report cites a JP Morgan analyst’s “aggressive” valuation of GM at $63b, with $50b given as a more conservative valuation. Considering GM was functionally worth nothing prior to the bailout, and was revived to the tune of about $50b (not counting GMAC, retooling loans, et. al.) that $50b valuation sounds about right to us.

Meanwhile, Rattner’s motivations for overselling the possibility of taxpayer payback shouldn’t be nearly as hard to calculate.

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23 Comments on “Steve Rattner’s Fuzzy Math: GM Worth $90b, Taxpayers Will Make Money...”


  • avatar

    Their $50m investment? Please correct.

  • avatar
    Steven02

    It will be interesting to see how the IPO goes. Hopefully it is as successful as possible to repay the taxpayer as much as possible as quickly as possible.

  • avatar
    porschespeed

    That MTLQQ is trading at all is a tribute to charlatans and suckers.

    Even *after* GM and the SEC have issued multiple statements that MTLQQ is worthless and will never convert into “new” GM, these people still believe that it will. Or they will somehow get paid.

    Effen hilarious and pathetically sad all at once.

    Is it possible that a GM IPO will happen? Sure. If it happens before the second dip in the ongoing recession, there may be some buyers. $50B valuation? That’s twice what anybody I know has come up with, at their most optimistic calculations.

    BTW- It would all make more sense if it were “Cheech” rather than “Chooch”. Just sayin’

    Taxpayers getting most(any) of our ‘investment’ back? See: Bailout Watch 571.

    I’m sure the dogs on the Street are pumping GM as “the hot IPO”, JPMS and/or GoldmineSachs stand to make a pile, and screw the general public as usual.

    • 0 avatar
      Steven02

      TM market cap is 120.64B
      Honda is 65.91B
      Daimler is 46.66B
      F is 43.48B
      Nissan is 34.05B

      I don’t see how GM’s market cap would be 25B.

    • 0 avatar
      gslippy

      Agreed.

      Just because the taxpayers gave GM $50B doesn’t mean it’s worth that much or more today. This would be akin to giving your teenage son $50 on a Friday night, expecting he can pay it back to you on Monday.

    • 0 avatar
      Lumbergh21

      gslippy,

      That all depends on your son’s past performance and projections for future performance. Has Barrons reviewed his IPO?

    • 0 avatar
      gslippy

      @Lumbergh21:

      Yeah, of course I encourage my own sons to earn their money. My example was hypothetical in the gslippy household. :)

    • 0 avatar
      wsn

      Steven02, I don’t see that either. GM is worth essentially $0 now.

      Unlikely Toyota, Honda, and Ford, GM still can’t survive on its own. Given how GM stock and bond holders were treated before, GM is worth exactly $0 to investors (may worth more to the UAW though).

      If there is an IPO, I would definitely short it after 6 months. Sure win.

  • avatar
    Carlson Fan

    Personally I could care less about whether or not we get the our investment back. Although I’d like to see it just so I don’t have to listen to people bitch about it. The GM bailout was one of the better things our government has spent tax dollars on IMHO. It’s all those “non-value adders” on wall street creating wealth with smoke & mirrors that I’d like to see living in a van or cardboard box, down by the river. Off course I may be biased with 2 GM vehicles in my garage and 2 boats with marinized GM V8’s nestled in them …LOL. But then maybe it’s because I know what a great product they are capable of producing that makes me want them to stick around.

    • 0 avatar
      jkross22

      LOL!! I doubt you feel the same way about your 401k, yet it’s your money being used in both circumstances.

      So, since you’re a customer of GM’s and you like their products, you believe that earns them a bailout.

      Ay caramba! That’s worse logic than the banks ‘we’re too big too fail’ canard.

      In both GM and the banks’ cases, if they were truly too big to fail, then the gov’t had a responsibility to break those businesses apart a la Ma Bell.

    • 0 avatar
      Steven02

      Just for history’s sake, Ma Bell was not broken up because it was deemed to big to fail. It was because of the monopoly practices of Ma Bell.

  • avatar
    ClutchCarGo

    Motors Liquidation with a market cap of about $350m shows that Rattner’s valuation is just as good as anyone else’s random number. Rational markets are a myth; markets are no more rational than the frequently irrational individuals of which they are comprised. General public sentiment at the time of any IPO will be the determining factor.

  • avatar
    micanichi

    Chooch? This person has a position of importance? We are going DOWN.

    • 0 avatar

      Read it and weep (please note: this helps explain why he is no longer in public office). In fact, there’s a brand new story on the fallout from “Chooch.” Apparently Rattner is “in talks” with NY Attorney General Andrew Cuomo to end his corruption investigation. No wonder Bloomberg pulled $5b from Rattner’s fund, Quadrangle.
      The financial acumen displayed in his analysis of the auto bailout, is a delightfully ironic counterpoint to Rattner’s larger story.

  • avatar
    John Horner

    The big news in all of this is the momentum building behind a 2010 GM IPO. One can quibble about how much or how little the US Government is likely to recover thanks to such an IPO, but the fact that we are even arguing that fine point speaks to how quickly things have moved over the past months.

    TTAC, October 12, 2009: “But, like a “real” bankruptcy, the idea of a “real” GM IPO in 2010 lies somewhere between utterly preposterous and infinitely delusional.”

    https://www.thetruthaboutcars.com/gm-backs-off-from-2010-ipo/

    • 0 avatar
      imag

      +1

      I *don’t* own any GM vehicles – and am unlikely to buy any, unless the next ‘vette is really done right – but I support the bailout.

      If GM truly can be changed, “our money” will be more than paid back in the payroll taxes that those jobs generate and the business taxes that result from those employed people buying clothes and food and leisure.

      Let’s not forget that letting GM go would have taken Ford down too.

    • 0 avatar
      gslippy

      One of the main reasons for an IPO would be to fund future expansion of the company at a pace faster than normal earnings.

      If GM continues to lose money even after jettisoning their dogs (which I suspect they will), an IPO will place them at exceptional risk and place them in a very negative public light again. This could pave the way for another bankruptcy. A new GM stock that does the ‘dotcom burst’ would leave GM with a very angry public unwilling to support another bailout.

      This leaves me with doubt that they will attempt an IPO this year if conditions continue as they are now.

      The timing and reception of the Volt may play a very large role in their decision. And upstream from that, the price of fuel will play an extremely large role in the viability of the Volt. $2.50-$3.00 gas isn’t going to help move many Volts. I recall even GM saying that the Volt would make more sense with gas around $5.00.

      So (drum roll the conspiracy theorists) I say that any value from GM’s IPO will be related to the price of gas, which is most quickly affected by politics and wars, e.g. Iran.

      So if there is war with Iran, gas shoots up to $5.00, then the Volt looks sweet (get ready to hear about 230 mpg again), and a GM IPO would be met with great warmth. Without a forcing event like that, I don’t think there is much value in the new GM stock, as Steven02 points out.

  • avatar
    crash sled

    So that clown thinks GM is gonna sell for $90B? He must work on Wall Street.

    Maybe if they threw a bunch more of their garbage overboard to the scrap heap of Motors Liquidation, they’d get 1/2 that. And that’s a big maybe. But forced to buy it all as a collective, no chance it’ll go at that price.

    The trucks, Corvette, and whatever other goodies they have? Yeah, that’d move smartly.

  • avatar
    Carlson Fan

    “In both GM and the banks’ cases, if they were truly too big to fail, then the gov’t had a responsibility to break those businesses apart a la Ma Bell.”

    The bailout wasn’t about saving GM or the banks, it was about saving the US economy. GM would have been better off going into bankruptcy IMHO. They certainly wouldn’t have went away, that’s for sure.

    As far as my 401K, the bailout was nothing more than a very small meaningless drop in the bucket. I’m a little more concerned with what I lost in real estate the last 2-3 years…LOL

    • 0 avatar
      jkross22

      The problem is that those drops in the bucket add up and have been for a while.

      I’m with you on the real estate paper losses, though. Those banks that took all that bailout money are now not lending it out. I get tightening up real estate loan standards. I don’t get requiring 20% down on a house to make a loan. Just anecodotal, but a couple in So. Cal. would need to put down 100k to buy a 3/2 in Van Nuys. That’s nuts, and it’s yet another reason why the real estate market is in the tank.

      Banks overall have been much less than cooperative to make small business loans and to work with the gov’t on restructuring people’s loans.

      Poor investment decisions by banks forced the government to bail banks out and poor lending decisions by banks is slowing down any type of recovery in the housing market.

  • avatar
    bunkie

    Sooner or later the US new vehicle market will pick up, big-time. The fact is that 10MM new vehicles per year is just as unsustainable as 17MM. The result will be a rising tide that will lift GM as well as everyone else. How much remains to be seen, but it *will* happen. At that point the IPO will succeed to some degree.

    It has been duly noted that markets are irrational. I could not agree more. For every bubble and its unjustified enthusiasm, there is the bust and it’s excessive pessism. Smart people make a lot of money off of this irrationality, it’s true. But it is also true that the world is not ending, the spring flowers will appear and GM will sell enough cars to survive assuming that said spring is not too late in coming.

  • avatar
    DetroitsaRiot

    “back of the napkin”, or was it “bar napkin” cause it sounds like someone was inebriated with this kind of math……

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