By on October 4, 2010

When GM was taken over by the US and Canadian governments, a lot of money was pumped into GM in order to make it a viable entity. After all, GM didn’t go into bankruptcy because it was a well run company with a tight balance sheet, excellent management and brand, spanking new factories. The more money that got pumped into GM, the more pressure is put on the IPO to generate enough money for this endeavor to break even. And according to the press, it doesn’t look like it’s going to hit its mark.

The Financial Times reports that targets of which the IPO is hoping to hit are getting lower and lower. Because of shaky markets and the lack of confidence in GM managing to extricate itself from the US and Canadian governments, the expected size of the float has gone down from $12b (the figure which GM first stated in its prospectus) to $8b. As the FT reports, “according to those close to the deal, the initial public offering will value it close to $60bn, short of the $70bn that some analysts estimate as the figure GM must fetch overall for the US and Canadian taxpayers in order to break even.” The report also mentions that plans to sell the stock to overseas investors have been cut back because of fears that the first IPO will be disappointing.

In short, this GM IPO has “flop” written all over it. The US government may regret alienating Chinese investors as it seems they were only people with any interest in buying GM stock.

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52 Comments on “GM’s IPO DOA?...”


  • avatar

    there is no logical reason to float the IPO at this time, the market is soft and GM still has problems. unless of course you’re the banksters receiving the issue. don’t be fooled, this is not by accident.

    • 0 avatar
      Contrarian

      The November election was the initial reason, however I believe that it’s become apparent that the early IPO as a PR stunt will flop badly. The right thing to do is postpone it until OPel is hopefully sorted out. But we may get politics trumping an IPO success. As usual in DC.

    • 0 avatar
      OldandSlow

      Well put.  Wall Street makes money whenever paper ownership changes hands from one party to the next.

    • 0 avatar
      psarhjinian

      No offense, but that’s not how it works. Opinions do differ. But in my opinion, the Obama administration trampled black-letter corporate law and bankruptcy law into the dirt in doing what it did with GM and Chrysler.

      How?  Exactly how did they do that?  Chrysler and GM went to Congress for a loan and, by golly, negotiated with the executive branch, they got one.  At that point, the government became a creditor and shareholder.  When the government further bought them and then sold them, they also followed the law.

      My gripe starts with George Bush. Congress decides not to bail out the carmakers. No problem. Bush (or Cheney) decides to bail them out anyway. What to use for money? Don’t worry. Just use funds Congress allocated to something else — the Troubled Asset Relief Program. Apparently, the President can treat money for one program as a slush fund for any purpose he decides fit.

      And if that was illegal, someone could have gone to the court and ensured it didn’t happen.  But no one did because it wasn’t against the law.  There’s a lot of laws that I don’t like, but my not liking them doesn’t make them illegal.

      Next, Obama decides he has the authority to decide what is best for the carmaking industry. Did Congress give him that power? Not that I know of.

      At that point, GM was a ward of the state under, as stated, a law that Congress passed.  If Congress likes, it can pass another law to prevent the executive from doing that sort of thing.  Personally, I think that might not be such a bad idea, but again, it’s not illegal.

      But next thing you know, Steve Rattner fires Rick Wagoner, the duly appointed head of a private corporation. No matter that by law only the board of directors of a corporation can fire its chief executive officer.  What Obama wants to do, he can. As long as it’s for the good of the country.

      Again, the government was a shareholder, if not the shareholder, at that point.  Shareholders can tell the directors to do whatever they want them to do because that’s what a director’s job, ostensibly**, is.  If the shareholders tell the board to sh*tcan president or CEO, then the board can damn well do it.

      If Chrysler and GM didn’t want the government meddling in their affairs, they ought not have gone cap-in-hand to the government in the first place, they really shouldn’t have tried to get a no-strings-attached loan when their past performance absolutely stunk, and they (and their shareholders) really, really shouldn’t have let the government take a controlling stake.  But they did, and as such we really ought to remember that these paragons of capitalism were the ones who started this process.

      The rest of us have to live with Sarbanes Oxley and all the rest of it. People go to jail for corporate shenanigans like this.

      Sarbanes-Oxley doesn’t apply here: SOX has everything to do with publicly-held companies, their auditors, and what they can/can’t do/say/report.  GM is a privately-held company of the US Government, which doesn’t fall under SOX.  They do fall under other laws, which they obeyed.  If they didn’t, don’t you think some enterprising soul—and there are many would would stand to may real political hay on a successful prosecution for, say, fraud—would have attempted criminal charges under those laws?  That they didn’t should tell you that nothing illegal happened here.

      Look, it’s ok to not like what happened—you’re entitled to think it’s ideologically unpalatable or strategically unsound—without trying to justify it as illegal, too.

      ** GM’s pre-bailout Board of Directors certainly didn’t help the shareholders much.  Shouldn’t that be illegal?

    • 0 avatar
      Daanii2

      Interesting points. Let me just make a few comments, shown by the ++s.

      No offense, but that’s not how it works. Opinions do differ. But in my opinion, the Obama administration trampled black-letter corporate law and bankruptcy law into the dirt in doing what it did with GM and Chrysler.
      How?  Exactly how did they do that?  Chrysler and GM went to Congress for a loan and, by golly, negotiated with the executive branch, they got one.  At that point, the government became a creditor and shareholder.++  When the government further bought them and then sold them, they also followed the law.
       
      ++ At this point, the government was not a shareholder. That’s important. Up to and through the entire bankruptcy process, and continuing through today, the government never has been a GM shareholder. (The “new” GM which the government owns a controlling interest in is, under corporate law, a completely different company.)
       
      My gripe starts with George Bush. Congress decides not to bail out the carmakers. No problem. Bush (or Cheney) decides to bail them out anyway. What to use for money? Don’t worry. Just use funds Congress allocated to something else — the Troubled Asset Relief Program. Apparently, the President can treat money for one program as a slush fund for any purpose he decides fit.
      And if that was illegal, someone could have gone to the court and ensured it didn’t happen.  But no one did because it wasn’t against the law.++  There’s a lot of laws that I don’t like, but my not liking them doesn’t make them illegal.

      ++ I agree that no one went to court and stopped the President from using funds for one program for a completely different purpose. How does that fact make it lawful?

      Next, Obama decides he has the authority to decide what is best for the carmaking industry. Did Congress give him that power? Not that I know of.
      At that point, GM was a ward of the state under, as stated, a law that Congress passed.++  If Congress likes, it can pass another law to prevent the executive from doing that sort of thing.  Personally, I think that might not be such a bad idea, but again, it’s not illegal.

      ++ How was GM a “ward of the state”? The government had loaned GM money. It did not own any stock, let alone a controlling interest. A loan did not make GM a ward of the state. And what law of Congress are you talking about? The Troubled Asset Relief Program was supposed to give the Treasury a $700 million fund to buy toxic assets from financial institutions. It gave the President no authority over the carmaking industry.

      But next thing you know, Steve Rattner fires Rick Wagoner, the duly appointed head of a private corporation. No matter that by law only the board of directors of a corporation can fire its chief executive officer.  What Obama wants to do, he can. As long as it’s for the good of the country.
      Again, the government was a shareholder, if not the shareholder, at that point.++  Shareholders can tell the directors to do whatever they want them to do because that’s what a director’s job, ostensibly**, is.  If the shareholders tell the board to sh*tcan president or CEO, then the board can damn well do it.
      If Chrysler and GM didn’t want the government meddling in their affairs, they ought not have gone cap-in-hand to the government in the first place, they really shouldn’t have tried to get a no-strings-attached loan when their past performance absolutely stunk, and they (and their shareholders) really, really shouldn’t have let the government take a controlling stake.  But they did, and as such we really ought to remember that these paragons of capitalism were the ones who started this process.

      ++ Wrong. At that point, the federal government did not own a single share of GM. Let alone a controlling stake. Black-letter corporate law says that only shareholders have the right to elect directors, and only directors have the right to select officers. Obama (through his appointee Rattner) flouted that law.
       
       
      The rest of us have to live with Sarbanes Oxley and all the rest of it. People go to jail for corporate shenanigans like this.
      Sarbanes-Oxley doesn’t apply here: SOX has everything to do with publicly-held companies, their auditors, and what they can/can’t do/say/report.  GM is a privately-held company of the US Government, which doesn’t fall under SOX.++  They do fall under other laws, which they obeyed.  If they didn’t, don’t you think some enterprising soul—and there are many would would stand to may real political hay on a successful prosecution for, say, fraud—would have attempted criminal charges under those laws?  That they didn’t should tell you that nothing illegal happened here.++
      Look, it’s ok to not like what happened—you’re entitled to think it’s ideologically unpalatable or strategically unsound—without trying to justify it as illegal, too.

      ++ When the government fired Wagoner and put GM into bankruptcy, it was a public company, owned by its shareholders and run by its officers under the supervision of a board of directors. Those officers and directors have, under Sarbanes Oxley and other laws, very strict duties to the company’s shareholders. Yet the federal government ran rampant over those very same shareholders. That’s what I have a problem with.

      ++ Again, that no one brought criminal charges does not mean that the law was not broken.
       
      ** GM’s pre-bailout Board of Directors certainly didn’t help the shareholders much.  Shouldn’t that be illegal?++
       
      ++ Incompetence is not illegal. Nor, in my opinion, should it be.

    • 0 avatar
      Steven02

      Daani2,
      When the gov’t loaned GM money, they had secured debt and was the largest secured debt holder of GM at the time.  Was it stock no, but they literally had liens on something.  Kind of like how a bank owns a mortgage.
       
      The gov’t requesting the CEO be fired… I am ok with it.  The gov’t said if they wanted a bankruptcy deal, that they wanted a new CEO.  GM could have walked away from it, but they didn’t.  It was GM’s option to fire Wagoner.  I believe Wagoner stepped down.  But, he wasn’t fired by the gov’t.  The gov’t just wouldn’t do the deal with him in place.

    • 0 avatar
      Daanii2

      The gov’t requesting the CEO be fired… I am ok with it.  The gov’t said if they wanted a bankruptcy deal, that they wanted a new CEO.  GM could have walked away from it, but they didn’t.  It was GM’s option to fire Wagoner.  I believe Wagoner stepped down.  But, he wasn’t fired by the gov’t.  The gov’t just wouldn’t do the deal with him in place.

      Yes, you could say he stepped down. But that’s just semantics. Steve Rattner himself has said that he fired Rick Wagoner. Over the violent objection of the GM board. Here is what Rattner says:

      “When I spoke with the GM board by conference call that Friday night, the reaction was violent, including veiled suggestions of mass resignations. The directors felt that one of their most important responsibilities — hiring and firing of the CEO — had been usurped by the government without any warning or consultation.”

      And indeed the government had, with no authority, just done exactly that.

      Clearly people here do not share my outrage at this. But I am still aghast at what Barack Obama did with GM and Chrysler. Without any authority under the constitution or a law passed by Congress, Obama nationalized a company owned by its shareholders without their consent or any compensation to them. Is there any precedent for that? I can think of none. Not in the United States, at least.

      Sure, that’s what people like Hugo Chavez do. And banana republic dictators. But not the president of the United States. We don’t do that. Right?

    • 0 avatar
      OldandSlow

      When Chavez nationalizes a private firm, it is for keeps with no option for return to private management and ownership.
       
      While the market timing is not a good one for an IPO – someone either at GM or the US Treasury is pushing the buttons to move the ball forward on GM to return to private ownership.  In this case, Wall Street stands make out well at the expense of tax payers.

    • 0 avatar
      charly

      You call it semantic but it isn’t. The purse strings holder can not fire the CEO, but it standard operating procedure that the board will follow the wishes of the money provider if their backs are against the wall. And claiming that GM back was against the wall is an understatement.
       
      ps. If you think that banks don’t fire CEO in firms they lend money to than you’re not living in the real world

  • avatar
    Daanii2

    GM IPO DOA? NFW
     
    Of course GM will go ahead with its initial public offering. And people will buy its shares.

    In GM’s bankruptcy, the rules were bent and broken because the government can do that and get away with it. Here too, the government will make sure that GM’s shares are bought. One way or another.

    • 0 avatar
      PeriSoft

      Yes, it would have been far better to let GM die, taking out the supply chain, Ford, Chrysler, and the US manufacturing operations of a bunch of foreign makes with it. Sure, it would have issued a death blow to the US economy at a time when we weren’t sure we were even going to avoid a great-depression-plus level economic disaster. Sure, it would likely have destroyed confidence in the markets and created a psychological vicious cycle that would have been next to impossible to correct.
       
      But at least we could all rest secure in the knowledge that we stuck to our irrational laissez-faire guns, and chose to ruin our own and our childrens’ futures rather than let the filthy, disgusting government get involved. Blech.

    • 0 avatar
      psarhjinian

      In GM’s bankruptcy, the rules were bent and broken

      No, they weren’t.  I know it’s fun to say this, but they weren’t.  The government didn’t subvert the process, they just greased it by providing funding.  That’s not “bending the rules”.   They also “gave the company to the UAW” because it was really obvious that no one else was going to take it**, and if it went down without some guarantees it would have taken out the entire sector.

      When Toyota goes on-record as saying the government bailing out GM was necessary for it’s (Toyota’s, not GM’s) health due to supplier fall-out and consumer confidence issues, then I think we can safely say that this wasn’t some union/Democrat devil’s pact and was, perhaps, the wise thing to do.

      ** Except in a C7 “pick over the bones of the corpse” kind of way

    • 0 avatar
      geeber

      Toyota supporting the GM bailout probably had more to do with politics than an actual need to protect the supply chain. Does anybody really believe that Toyota (and Honda, for that matter) had not already developed contigency plans in case of a GM bankruptcy?

      Not all company leaders are as clueless as the GM management team.

      If GM had been allowed to face a “regular” bankruptcy, the “Buy American” crowd would have blamed Toyota, even though GM and the UAW have had well over 20 years to adjust their practices and compete with the transplants.

      Given that GM partisans and the UAW already blame Toyota for everything short of erectile dysfunction and Justin Beiber’s career, if GM had gone through the regular bankruptcy process, they would have gone ballistic. Under that scenario, I can see domestic partisans doing serious damage to Toyota dealerships and vehicles, not just picketing the local Toyota store.

      Toyota certainly wasn’t going to come out against the bailout, and any silence would have been interpreted as showing a malicious intent in certain quarters.

      Toyota wanted to avoid that scenario, and it could afford to take that stance…let’s face it, Toyota’s money wasn’t on the line here.

      And let’s not kid ourselves – the Obama Administration did pick winners and losers. The UAW came out MUCH better with this proceeding than it would have with a regular bankruptcy. It made no meaningful sacrifices (unless one considers getting rid of the Jobs Bank, and paying new workers a lower starting wage, to be real sacrifices – as if a bankrupt company is going to be hiring lots of new workers).

      To say that what happened played out like a normal bankruptcy is simply not true. Let’s not replace one misconception with another.

      And, yes, no one was lining up to take a company where the UAW contract remains in effect. We saw that with the Indianapolis plant closing, where a prospective buyer preferred to walk away rather than deal with the current UAW contract. That doesn’t mean no one wanted GM. It means that no one wanted GM along with all of the stuff they were forced to take along with it. The Indianapolis plant was sufficiently attractive to garner interest from a serious buyer, so it’s as though GM was in the position of Studebaker in 1963, where the facilities were hopelessly outdated.

    • 0 avatar
      psarhjinian

      Toyota supporting the GM bailout probably had more to do with politics than an actual need to protect the supply chain. Does anybody really believe that Toyota (and Honda, for that matter) had not already developed contigency plans in case of a GM bankruptcy? Not all company leaders are as clueless as the GM management team.
       
      Yes, but more like likely no.  It’s one thing to have contingency plans, it’s another to set up and execute a whole new supply chain for a whole continent’s output without a significant and extended disruption. We’d be talking months of Camrys, Corollas, Accords and Civics not being sold while new suppliers tool up.  Toyota and Honda might have a big cash pile, but a quarter or two of nothing leaves a big dent in the balance sheet, and it’s not like Toyota wasn’t already raking it in while GM was an operating company.
       
      The PR win from not putting the boot in was a side-benefit, not the main goal.
       
      And let’s not kid ourselves – the Obama Administration did pick winners and losers. The UAW came out MUCH better with this proceeding than it would have with a regular bankruptcy.
       
      At the time we had no idea that was the case.
       
      The UAW got a big fat helping of zero: equity in GM, which was worth nothing to anyone except them, with no guarantee that GM would succeed.  The government didn’t so much “pick winners and losers” as much as acted as a bank, albeit one with different tolerances for risk.  That that equity is now worth anything wasn’t something we could predict.
       
      Hell, if the IPO fails horribly it’s still possible that equity holders will lose, if that makes people feel better.

    • 0 avatar
      geeber

      The UAW avoided major wage and benefit reductions, and that has been apparent from day one.

      Focusing on the equity stake is misguided; in a real bankruptcy proceeding, the UAW would have made some very painful concessions that would have been immediately apparent.

      It’s not just me or Rush Limbaugh saying this. When Micheline Maynard (she was pretty easy on the UAW in her book) says that the UAW made out much better under this scheme than it would have under a regular bankruptcy proceeding in that right-wing rag, The New York Times, and the head of the UAW agrees with her, I’d say it’s a safe position to take.

    • 0 avatar
      Daanii2

      “In GM’s bankruptcy, the rules were bent and broken”

      “No, they weren’t.  I know it’s fun to say this, but they weren’t.  The government didn’t subvert the process, they just greased it by providing funding.”  
       
      The bankruptcy rules for chapter 11 reorganizations are pretty clear. The bankrupt company is reorganized under the protection of the bankruptcy court to benefit the secured creditors, in the order of their seniority.

      The rules don’t allow one creditor to set up a new company, transfer all the “good” assets from the bankrupt company to the new company, and leave only the “bad” assets in the bankrupt company that then gets “reorganized.” That would be a preferential transfer.  It’s not allowed.
       
      That the federal government was able to subvert the bankruptcy process and get away with it comes from the wide discretion given to bankruptcy judges. Here, as in so many other areas over the past two years, we have seen that when the government gets involved in legal or business matters, the winners are those with political power rather than those who would have won under the normal rules.

      That’s not the rule of law. That’s banana republic government.

    • 0 avatar
      cardeveloper

      psarhjinian,
      Of course Bankruptcy rules were rewritten.  there’s a lot of senior note holders that should have received something, instead of nothing, that’s the way bankruptcy works.  Contracts are torn up and rewritten, including union contracts, that’s the way bankruptcy works.  Company viability is reviewed and determined, that’s the way bankruptcy works.  Chrysler is not viable, their union contract should have been torn up, and the senior note holders should have received the proceeds from the Ch 7 sale.  Instead, the company was turned over to a foreign entity that has put ZERO capital up for receiving ownership.  This is not following bankruptcy law.  GM to a lesser degree, but they maybe viable, we just don’t know, because once again, bankruptcy laws were not followed.

    • 0 avatar
      psarhjinian

      Of course Bankruptcy rules were rewritten.  there’s a lot of senior note holders that should have received something, instead of nothing, that’s the way bankruptcy works

      They did receive something.  Under a “real” bankruptcy they would have received much less.  Bonds are not secured: you’re not entitled to their face value, or any value, for that matter.

      Had GM gone into a C11 or C7 without the government’s help, those bondholders would have been well back of the line in GM’s creditors, and they would have been lucky to get pennies, if that.  The government’s intervention ensured that they got something, and a good deal more of “something” than they would have gotten.

      But the bondholders got greedy and tried to play hardball, and their “poor little me, done wrong by the big bad UAW/Democrats” resonated so very well with the Republican party’s less astute wing that it’s become a kind of gospel.  It was originally a strategy to get the government to cave and cough up for their bonds at par, but the government didn’t cave. Never mind that, had GM equity been such great shakes, the bondholders would have insisted upon equity.  They damn well didn’t do that because they knew GM was worth nothing and the UAW was the only entity about to stick it’s neck out for a share of that nothing.

      Next I assume that those same folk who’ve said the bondholders were screwed as they were entitled to the face value of their bonds will now step up and say that stockholders were as well?  Should we be socializing the losses of everyone who plays the market and loses?

      As for the government “giving them away for free”; I don’t know about you, but I don’t think there were that many buyers lined up for two functionally-broken manufacturer of goods with healthy competition and negative cash in the middle of the worst recession in a half-century. A “real” bankruptcy would have been a rummage sale that would have dragged on for months, and those poor little bondholders might have gotten a penny or two for their troubles.

      There’s some wisdom to the “would it have been better, in the long-term to let them die” (and by long term, I mean in the 10/20/50-year sense), but this bondholder/bankruptcy nonsense started as a PR gambit by greedy investors and it’s only continuing because it meshes so well with a certain group’s message. It wasn’t true then, it’s not true now and it can’t die soon enough.

    • 0 avatar
      MikeAR

      Rules were bent and broken: the UAW still has contracts with GM. Under bankruptcy law all labor contracts are invalid, all pension obligations are wiped out and secured bondholders are near the front of the line among creditors. So tell me again how rules weren’t broken.

      Also how did he UAW stick its neck out? They were given equity with the expectation that everything would be government guarenteed. What a deal all return and no risk. After all they own the governemnt for now.

    • 0 avatar
      Telegraph Road

      The UAW came out MUCH better with this proceeding than it would have with a regular bankruptcy.

      And the entire industrial Midwest and the nation itself did MUCH better under this proceeding than with a typical BK.

      Does anybody really believe that Toyota (and Honda, for that matter) had not already developed contigency plans in case of a GM bankruptcy?

      Dearborn, too, had contingency plans.  But nobody wanted to have to execute them.

    • 0 avatar
      Daanii2

      [I deleted this comment — I got carried away into a bit of nastiness.]

    • 0 avatar
      Telegraph Road

      How do you know? I’ve always found that those who benefit personally from a proceeding like this are least likely to judge its merits fairly.
      See Mark Zandi’s “How the Great Recession was Brought to an End” on Economy.com.  And BTW Zandi did not personally benefit from the GM and Chrysler rescues, except by being part of this nation.

    • 0 avatar
      Telegraph Road

      [I deleted this comment — I got carried away into a bit of nastiness.]

      Dude–no offense taken.  It’s nice to have some spirited and intelligent debate here. :)

    • 0 avatar

      I agree with @geeber.
       
      A very simple litmus test: Will my pre-bailout bonds be converted into stock in the new GM after the IPO? Yes or No?
       
      Under Normal bankruptcy, they would.
       
      I’m not holding my breath on a Yes.

    • 0 avatar
      cardeveloper

      psarhjinian,
       
      Senior Bonds are at the absolute front of the money chain.  They are the people that keep a corporation working leading up to and through bankruptcy.  Rewriting those rules, means it will be substantially more difficult for other corporations to fund operations through bankruptcy.
       
      This literally screwing the senior bond holders, normal bond holders, and even the stock holders and just handing the corporation over to a foreign entity is just plain crazy.
       
      We’re beginning to see the impact of the great business manager in the white house.

    • 0 avatar
      charly

      It is not normal that debt is traded in into equity with a C11. It sometimes happens but it is not the rule.
      equity only gets money if all the debt is paid off. That was highly unlikely with GM.
       

    • 0 avatar
      psarhjinian

      Senior Bonds are at the absolute front of the money chain.

      No, they’re not.  Absolute top of the chain is anyone to whom the company has offered collateral as security.  Bonds don’t necessarily fit that category, and very often they do not.  Chrysler, IIRC, had a small amount of secured bonds; GM did not.

      I’m not saying the UAW didn’t do well: they did, but it wasn’t exactly like the company was stolen: again, bondholders actually made out better than the would have had this been a “normal” bankruptcy.  You cannot have it both ways: the bondholders and the UAW did better than “normal” because the process was “subverted”; the government did not “steal” from the bondholders because there was nothing to give them.  GM had no cash.  Chrysler had no cash.  Both companies had a pile of actual, secured creditors and obligations well in front of the bondholders.  The bondholders, under a normal bankruptcy, would have got nothing.

      What the government did amounted to floating the company through the process by the completely legit method of buying it which they’re actually allowed to do.  Were it not a recession, a private company could have done the same thing and I’m sure that, in better times, that would have happened.  That the government did this, especially in the US, is irregular and ideologically unpalatable and possibly strategically unwise, but it’s not illegal.  It’s certainly not illegal to give the poor, downtrodden bondholders cash that they otherwise wouldn’t have gotten.

      I understand that people don’t like this, but it’s not illegal, and can we please, for the love of God, stop with the bondholder nonsense.

    • 0 avatar
      Daanii2

      Psarhjinian,
       
      No offense, but that’s not how it worked. Opinions do differ. But in my opinion, the Obama administration trampled black-letter corporate law and bankruptcy law into the dirt in doing what it did with GM and Chrysler.
       
      My gripe starts with George Bush. Congress decides not to bail out the carmakers. No problem. Bush (or Cheney) decides to bail them out anyway. What to use for money? Don’t worry. Just use funds Congress allocated to something else — the Troubled Asset Relief Program. Apparently, the President can treat money for one program as a slush fund for any purpose he decides fit.
       
      Next, Obama decides he has the authority to decide what is best for the carmaking industry. Did Congress give him that power? Not that I know of. But next thing you know, Steve Rattner fires Rick Wagoner, the duly appointed head of a private corporation. No matter that by law only the board of directors of a corporation can fire its chief executive officer.  What Obama wants to do, he can. As long as it’s for the good of the country.
       
      Then the bankruptcy process. Which we have debated here enough already.
       
      The rest of us have to live with Sarbanes Oxley and all the rest of it. People go to jail for corporate shenanigans like this.
       
      Not the government, though. I guess the law does not apply to them.
       
       

    • 0 avatar
      Steven02

      First, contracts aren’t always torn up in bankruptcy.  It is the option to do so, but it isn’t a requirement.  Not tearing up contracts can make the bankruptcy go faster.
       
      Second, GM didn’t have a lot of secured debt.  The biggest owner of secured debt at the time was the US gov’t through the bailout loans.  I think other secured debt was around 6B.  Most of the debt GM had, including those bond holders you keep hearing about was unsecured debt meaning that they could get ZERO from the bankruptcy.  They are not senior debt holders.  They are people trying to make a buck by saying they are getting screwed.  30 cents on the dollar of face value that was actually worthless isn’t bad.  Laws were not broken here.  What was different is that the gov’t bid on this to be the debtor in possession.  There were NO other bids.

    • 0 avatar
      Daanii2

      Laws were not broken here.

      That’s where I disagree. This kind of thing happens all the time. A company gets in financial trouble. A new investor comes in to recapitalize the company. The new investor proposes an investment under terms that screw the existing shareholders and creditors. Management, eager for the fresh funding and with nothing to lose, is fine with that. Lawyers are hired. The battle begins.

      Over the years, corporate law and bankruptcy law have evolved to fairly handle this type of situation. Those laws were, I believe, not followed here. I think they should have been. Otherwise, who will guard the guardians?

    • 0 avatar
      geeber

      Telegraph Road: And the entire industrial Midwest and the nation itself did MUCH better under this proceeding than with a typical BK.

      Not necessarily over the long haul. What GM, Chrysler and the UAW most desperately need is culture change, and the bailout only told them that, if they keep doing the same stupid things that benefit individual members while harming the competitive position of the companies, Uncle Sugar will bail them out with taxpayer dollars.

      I’m not seeing much evidence of any lessons learned, beyond some lip service by GM management.

      Telegraph Road: Dearborn, too, had contingency plans.  But nobody wanted to have to execute them.

      That doesn’t mean the sky would have fallen if GM and Chrysler had declared bankruptcy.

    • 0 avatar
      geeber

      psarhjinian: But the bondholders got greedy and tried to play hardball, and their “poor little me, done wrong by the big bad UAW/Democrats” resonated so very well with the Republican party’s less astute wing that it’s become a kind of gospel. 

      Except that, when the government went to the UAW to make some serious concessions (with Delphi employees) the UAW played hardball and…the government quickly caved.

      So the perception that the government played hardball with some parties, and caved easily with others, is based on reality, not a Republican fantasy.

      psarhjinian: They damn well didn’t do that because they knew GM was worth nothing and the UAW was the only entity about to stick it’s neck out for a share of that nothing.

      The UAW made no real concessions regarding wages and benefits, which would have happened under a regular bankruptcy. And, as we’ve seen with the Indianapolis plant, there were buyers for GM’s assets, but not with the UAW contracts attached to them. So GM’s assets weren’t worthless…they just weren’t worth much with the associated baggage.

  • avatar
    jpcavanaugh

    I think that up to now, GM has been operating as much on positive buzz as on actual results.  Part of that buzz has been the expectation of a GM IPO.  It is another way of saying “We’re back, everyone, so take us seriously again!” 

    Well, we are getting to the place where results are counting more than just buzz.  New GM is lagging the industry in sales growth, has a revolving door in the CEO’s suite, has moved some people around in other jobs and has become smaller.  True, it has a lot less debt.  But really, I am just not seeing the magic.  I am not seeing game changing new product, or substantial growth in most segments.  I am not getting the feeling that the company has really changed all that much operationally.  So, it would not surprise me that the projected result of an IPO would be lagging even if the economy were not still in the crapper.  With the bad economy, it is time to hold off on this idea and just run the company.

  • avatar
    jimboy

    I’m not convinced that the suits at GM are getting it yet, and it appears I am not alone in that assessment. There seems to be a lot of the same old, same old going on there, just the faces have changed. (Men in gray suits sitting around the boardroom cackling that they shed a ton of debt and whupped the UAW, when in reality they let the government do their dirty work). I don’t believe that they have been scared enough yet. Someone needs to kick some SERIOUS A** at the board and upper management levels in that company. BTW, in contrast, Chrysler DOES seem to have gotten the message, obviously, their near death experience has taught them a few lessons.

  • avatar
    Zackman

    I suppose the government could cave in and let the Chinese buy GM, thus becoming “CM”, or “China Motors”. They do prefer Buicks, ya know!

    Chrysler is already there, being owned by Fiat. Might as well complete the picture. BTW, do Chrysler engines and transmissions still fail? Haven’t heard any news on this for a long time, or do I even care?

    As for PeriSoft’s comment, I’ve heard both sides of this argument before, and am still not sure what would have happened. Glad of it (I think). Maybe the inevitable has just been delayed by a few years?

  • avatar
    bomberpete

    While we disagree on many things, it seems like all posting think a GM IPO at this time is a bad idea.
     
    I know it’s more complicated than this, but my theory is that the push for an IPO is happening EXACTLY because the top GM suits are scared. What’s more, they don’t have the patience, creativity or retained talent to sustain an operational recovery, or endure grilling by the government, banks, creditors, tax payers and turned-off buyers.
    That’s why they want to prove themselves RIGHT NOW.  Remember how Red Ink Rick used to say “the good times are just around the corner?” It’s the same thing.
     
    An IPO represents the same kind of Hail Mary pass that all those botched product introductions were – the kind of lucky stroke that would erase the last 200 bad calls.  It’s also the definition of insanity.
    .
     
     
     

  • avatar
    bomberpete

    @Contrarian: Thanks for pointing out Opel. What makes the lads in RenCen think they can chest-thump and break out the Moet while GM Europe remains a mess?
     
    OldandSlow says it best. The big boys — like Akerson’s Carlyle Group — make money no matter what.  For the rest of us, it’s as much a sucker bet as The Blackstone Group or Oneros — http://money.howstuffworks.com/10-biggest-ipo-flops10.htm
     

  • avatar
    Da Coyote

    Sorry, Perisoft – GM is the Yugo of the US.  No quality, no integrity, and assenine unions totally dedicated to self destruction.
    May the flies of a thousand Obamas come to rest on GM’s grave.
    (However, please save Corvette.  At least they had some real engineers working for them.)

    • 0 avatar
      OldandSlow

      Come on – today’s GM vehicles aren’t any where near that bad.
       
      The problem at GM is that it has been many years since they’ve had a product intro that was a game changer in its segment. – I’m referring to the me too syndrome versus being a segment leader.
       
      Build quality is more than a labor problem. It was management who decided the durability, fit and finish of the individual parts that labor puts on the vehicles. For example: someone would have to be hard pressed for scapegoat to blame labor for the Dexcool debacle.

  • avatar
    gslippy

    I still don’t think a GM IPO going to happen for a long time.  GM risks much by throwing themselves upon the merciless investors, rather than stay in momma’s warm blanket.
     
    Besides Opel, etc., GM is about to face serious challenges from Ford’s new F-series, not to mention the rising Hyundai/Kia star.

  • avatar

    When 54 percent of American car buyers say they’re “less likely” to buy a GM car because of the bailout, the last thing to company needs is an IPO where the taxpayer gets shafted.

    • 0 avatar
      OldandSlow

      Whether you were for or against the TARP bailout – Robert Farago’s comment should be a preeminent concern for GM and its future viability.

    • 0 avatar
      bomberpete

      Nice to see you checking in on this, RF. I agree that bailout resentment is a problem, but that will go away if the money does get paid back.
       
      What won’t go away is 2nd-tier mainstream cars that end up with Avis and an arrogant, pumped-up management that thinks it’s doing great. But let’s face it, they really don’t care.
       
      The more I think about this, the more I’m bothered by the timing of Whitacre’s resignation and the ascension of Carlyle Group’s main bitch Akerson to CEO.
       
      I’m no conspiracy theorist — I even believe Lee Harvey Oswald was the only shooter — but these activities are way too convenient for a November IPO.  I can’t shake the feeling that Ed Whitacre is an honest man who’s pragmatic enough to walk away from a car wreck before it happens.
       
       
       

  • avatar
    NulloModo

    The government was pushing hard for the IPO, but now it’s looking like the whole TARP program may actually turn the taxpayers a profit, so there might not be as big of a rush as originally thought.

    • 0 avatar
      John Horner

      Shhh, don’t tell anyone TARP is working out better than expected to date. Some people might take it the wrong way.

    • 0 avatar

      Yeah… like government spin ahead of a major election, perhaps?

    • 0 avatar
      gslippy

      You’ve gotta be kidding.  If taxing and spending was the way to prosperity, we’d have achieved it long ago.  This is like saying raising the minimum wage raises the standard of living; all it really does is increase unemployment and inflation.

    • 0 avatar
      geeber

      If TARP turns a profit for taxpayers, I would imagine that this is because of the much-reviled banks and financial institutions that received money, not GM and Chrysler.

      And please note that GM and Chrysler didn’t just receive TARP money. The Bush Administration initially gave TARP money to GM and Chrysler, but it is my understanding that the second phase of the bailout, which was structured by the Obama Administration, did not use TARP funds.

    • 0 avatar
      charly

      gslippy, the US seems prospers.
       

  • avatar
    George B

    I predict that the GM IPO doesn’t happen until some time before the 2012 election cycle.  If GM had even a small amount of publicly traded stock, their accounting practices would need to improve considerably.

  • avatar
    Rday

    The GM and Chrysler bankruptcies were simply payoffs to the UAW for supporting the democrats. In a real bankruptcy everything including wages would have been renegotiated to reflect what the real market for labor would have been. And the UAW had a sweetheart deal that basically gave them what they had before. The bankruptcy was a total sham and didn’t address the labor costs that are still bedeviling GM. But when politics overrides business law and good common sense, what else would you expect from our ‘wonderful government’. And people still wonder why we are broke as a nation and the economy is a total mess. Look no further than the GM/Chrysler bankruptcies if you want to see our corrupted government at work.

  • avatar

    Cammy, I think your post misses the point. The IPO price doesn’t actually matter much. The US (et al) is only selling a fraction of its shares, and will sell the remainder in chunks over the next few years. It’s the AVERAGE per-share selling price, when all is said and done, that is what matters.
    It’s a priority for GM to get the government out of the majority-ownership position for a lot of (mostly internal) reasons that I would have thought TTAC would have caught on to by now. That’s what the timing of the IPO is really about, I suspect.

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