Is GM IPO Being Rushed for Political Purposes?

Whitacre/GM photoThe unexpected departure of General Motors CEO Ed Whitacre (right) last week was reportedly due to tensions over the timing of a public offering, which the Obama administration wants to take place before the November Congressional elections so that it can declare some kind of “success” for the still-unpopular auto bailout.

A premature IPO must be a really bad idea if it’s too much for Whitacre, who has not exactly demonstrated principled leadership. There’s the problem of taking the GM job in the first place. What kind of capitalist would be a party, or more precisely an accessory after the fact, to the violation of private property rights represented by the crushing of GM bondholders? While CEO, Whitacre did not disappoint his masters in the White House, even appearing in a TV commercial in April in which he falsely claimed that GM had paid back the US government in full and five years ahead of time.

In actuality, GM paid back about $7 billion out of the $52 billion it owed with TARP funds. It was akin to putting a mortgage payment on your credit card, and then claiming your paid off your whole mortgage. Whitacre’s TV performance had the look and feel of political ad, with the same fidelity to the truth.  It was a good warm up for what can be expected in the fall campaign when the auto bailout “success” is ballyhooed.

Now the Wall Street Journal tells us in a headline today that the new CEO Daniel Akerson is “Brash, Blunt, Demanding.” (Whitacre will stay on as Chairman.) These things may be true of Akerson’s personality but they are irrelevant to the management of GM because it is no longer a private company, but an appendage of the state. GM nearly went out of business because of the twin yokes of a unionized workforce and government regulation. Obama’s fake, political “bankruptcy” did not free the company from these burdens, but made them worse and institutionalized them. Akerson may be able to yell at his secretary, but he is not going to take on the United Auto Workers, nor is he going to tell the truth about how bad Obama’s fuel efficiency standards are for the auto industry and consumers.

I doubt also that Akerson will withdraw GM from something called the United States Climate Action Partnership (USCAP), which lobbies for “strong national legislation to require significant reductions of greenhouse gas emissions.” Of course, cap and trade is dead for this year, and hopefully forever, because it proved even more unpopular with the American people than Senators of both parties from energy-producing states. This is how it works when government is the dominant force in the economy. Industry cannot act in its own interests, but only in those of the state. Politics replaces the efficiency of the market. Interest group influence replaces the fairness of democracy.

Akerson will not be able to make any major decisions without government approval, and that applies to the timing of the IPO. It could well be that Akerson thinks a pre-election IPO is a good idea. We will never know, but we do know that his major decisions will not be his own.

It will be argued that a successful GM IPO will help get the government out of the company’s business, and it can go back to operating like a “normal” company. Don’t bet on it. What the government has seized once, it can seize again. And the United Auto Workers will remain a major shareholder. As long as Obama is president, the UAW will have veto power over any major initiative, no matter how beneficial it is to other shareholders.

Investors may want to be cautious if a GM offering is rushed to market. After all, the ability of GM to sell cars does enter into the equation at some point. The company is “profitable” now because it is selling big vehicles like pickups, the same vehicles the ideologues in the White House have marked for extinction. They want people buying GM’s Volt, an electric car that is not all that environmentally friendly. (Electricity in this country is produced primarily by burning coal, but ideologues are seldom troubled by reality.)

In a July 29 piece titled “GM’s Electric Lemon,” automotive specialist Edward Niedermeyer wrote in the New York Times:

For starters, G.M.’s vision turned into a car that costs $41,000 before relevant tax breaks …And instead of the sleek coupe of 2007, it looks suspiciously similar to a Toyota Prius. It also requires premium gasoline, seats only four people (the battery runs down the center of the car, preventing a rear bench) and has less head and leg room than the $17,000 Chevrolet Cruze, which is more or less the non-electric version of the Volt.

In short, the Volt appears to be exactly the kind of green-at-all-costs car that some opponents of the bailout feared the government might order G.M. to build. Unfortunately for this theory, G.M. was already committed to the Volt when it entered bankruptcy. And though President Obama’s task force reported in 2009 that the Volt “will likely be too expensive to be commercially successful in the short term,” it didn’t cancel the project.

Niedermeyer pointed out that the Volt is a creation of government, not consumer demand:

Quantifying just how much taxpayer money will have been wasted on the hastily developed Volt is no easy feat. Start with the $50 billion bailout (without which none of this would have been necessary), add $240 million in Energy Department grants doled out to G.M. last summer, $150 million in federal money to the Volt’s Korean battery supplier, up to $1.5 billion in tax breaks for purchasers and other consumer incentives, and some significant portion of the $14 billion loan G.M. got in 2008 for “retooling” its plants, and you’ve got some idea of how much taxpayer cash is built into every Volt.

In the end, making the bailout work — whatever the cost — is the only good reason for buying a Volt. The car is not just an environmental hair shirt (a charge leveled at the Prius early in its existence), it is an act of political self-denial as well.

We’ll see if Akerson can make lemonade out of a lemon just as Obama is trying to make political lemonade out of the auto bailout.


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