This week I am attending the New York International Auto Show and already there is plenty of news. The Wall Street Journal is today reporting that the government will “sell a significant share of its remaining stake in General Motors Co. this summer despite the disappointing performance of the auto maker’s stock.”
GM’s share price yesterday dipped below $30. It was already under its IPO price was $33. For taxpayers to break even, shares would have to rise to $53, now increasingly unlikely. In fact, the stock is probably headed down. The Treasury understands this and wants to get out before the situation becomes even worse. The sales would probably take place sooner if not for the fact that the shares are locked up until May 22.
Taxpayers will lose big time. This should be the end of the auto bailout “success” stories. President Obama was wrong when he said taxpayers will recover all of our money.
At the time of the IPO, we called it a “pump and dump” scheme. It looks like we were right. The UAW wanted to sell shares. Hedge funds and institutional investors, which had access to shares (unlike retail investors), wanted to flip them for a quick profit. The administration wanted to claim before the election that the government was getting out of GM. The offering was hyped to the benefit of politicians, union bosses, and fee-hungry bankers.
Success has many fathers. Failure is an orphan. Even former car-czar Steven Rattner is now rationalizing GM’s decline by citing fuel prices, the company’s reliance on incentives, and its weak product lineup. Of course, the real problem is the attempt to repeal the laws of the marketplace. GM was headed for bankruptcy for a reason. It could not compete. Pumping in billions of taxpayer money can keep it afloat for a while, but ultimately the folly of government-run car companies will be realized.