The Wall Street Journal is reporting today that General Motors in on track to sell about $18 billion in shares in what will likely become the world’s second largest initial public offering (IPO). So why are some investors interested in GM now when nobody would touch the company two years ago? Has GM been nursed back to health?
Arguments to the contrary notwithstanding, accounts of a GM turnaround are premature at best and vastly overstated at worst. But the company is probably a safe bet, at least for a while. Let me explain.
I have argued from the beginning that Obama’s massive infusion of government funds into GM was a guarantee that the company will be “profitable.” The ownership position gives the federal government an incentive to make sure this happens, at least as long as Obama is around. A loss for GM is a political loss for the Democrats. It’s no surprise that the massive taxpayer support, cash for clunkers, and the public flogging of Toyota have all benefitted the company as well. Whether it’s R&D incentives for “green cars” or healthcare legislation that relieves the company of obligations to its workers and/or retirees, the Democrats will continue to funnel taxpayer funds to GM, directly or indirectly. Smart investors know this.
Investors in the GM IPO include giant pension funds, hedge funds, and GM factory workers and retirees. But SIAC, a state owned enterprise and partner of GM in China, also invested, acquiring $500 million in stock or about 1% of the company. SIAC made its intentions known before the IPO. Concerns about Chinese ownership of GM aside, the SIAC investment raised investor confidence because the purchase gives the Chinese government skin the game as well. A GM failure would result in heavy losses for the US and Chinese governments, the UAW, and large pension funds. The combined political pull here is almost too great to imagine.
In Business School we teach that GM’s long term success should depend on its ability to produce quality vehicles that consumers see as good values, but this is not really the case anymore. Sure, building a decent car is important, but GM’s success is much more political. I don’t know where the stock price will go, but I do know that Washington will do its best to support the company. For this reason, it might not be the worst stock you can buy.
I wondered why anyone with any intelligence at all would buy stock in GM. It makes sense now.
I disagree. You may not like it, but the government saved GM. It would be no more without the bailout, it now it’s getting paid back. Imagine what the economy would look like now if Obama hadn’t stepped in.
Any company could be saved by an infusion of taxpayer cash and a re-write of bankruptcy laws. The President should have as much concern for all the small businesses he is crushing with regulation, the PPACA and upcoming Obama tax increase (formerly known as the expring Bush tax cuts).
Hey SBayer! You idiot! You and I are still on the hook for $10 BILLION we will never see! This bailout was simply a payback to union hacks that support Obama (which I am sure you support!). Not to mention that there is NO CONSTITUTIONAL authority for doing it in the first place. But why bother with that old antiquated document, right???
If a company cannot make it on its own, they should be allowed to go bankrupt and liquidate!! Get over it, that is the way it is and how capitalism works. GM is now and forever will be Government Motors. I will NEVER buy a GM or Chrysler EVER!
Hey NSC, I think it’s rather comical that you call another persons’ opinion “idiotic” while at the same time demonstrating an even more idiotic line of rhetoric. The most obvious untrue statement is that the bailout “was simply a payback to union hacks”. Ghee, let’s just forget for a moment that there are hundreds of U.S. suppliers (companies small and large) that provide hundreds of thousands of jobs supporting GM. I think its clear that the Government, not just Obama, bailed out GM in an effort to help a much greater cause than GM. It makes me laugh to read blanket statements from people who honestly believe Obama did all of this alone. You are right…there is no Constitutional Authority for a President to take over a company. Please show me the document(s) where Obama did this act all by himself. I did not vote for Obama and am a Republican; and, I believe any President in Office at that time would have taken the same actions COLLECTIVELY WITH THE GOVERNMENTS SUPPORT to attempt to stop the bleeding of our Economy.
JFG: I love the world “COLLECTIVELY” that you used. As in Collectivisim. A true Marxist, Socialist concept. Yes, all of those GREAt, benevolent, COLLECTIVE ideas we have had in the last 100 years are exactly why the Feds have TRILLIONS in unfundated mandates and debt that are spiraling us into bankruptcy hell–all for feel good intentions. Typical leftists that say “judge us on our intentions, not the results.” If we had been able to keep to true, limited authority of the Consttution, we would never have these problems in the first place! Democrat or Republican, if they support these bailouts and expansion of government, THEY need to be opposed. But at least you feel better knowing your Big Brother gov’t is lookin out for ya!