GM Stock Offering -- No Longer a Big Deal. Now a Compact

Does the government really believe the market value of a Large Cap stock is as easy to manipulate as the shares of a Micro-Cap issue in the hands of a Pump-and-Dump brokerage? Or has it dawned on the Obama team that GM is miles away from producing the metrics that are needed to push the stock to the $134-per-share breakeven price the government is sweating for?

U.S. Is Said to Rein in G.M. Stock Offering

By NICK BUNKLEY and MICHAEL J. de la MERCED

September 23, 2010

DETROIT — The initial public stock offering by General Motors will be smaller than previously suggested, and the federal government will most likely sell a relatively small portion of its 61 percent stake in the company, according to people with knowledge of the preparations.

To fetch the highest possible price for the government, G.M. is planning an overall offering of stock valued at $8 billion to $10 billion, which is lower than previous internal targets, according to the people, who spoke on the condition of anonymity because of restrictions on public comments before an offering.

Earlier, there were suggestions the stock offering could rival the largest in United States history, when the credit card giant Visa raised more than $19 billion in 2008. G.M. and its bankers had been pushing for the largest possible offering because that would mean higher fees for the bankers and a larger pool of investors for G.M.

But the Treasury Department has made it clear to G.M. and its underwriters that the government is more interested in setting the highest price possible for the stock rather than maximizing the size of the offering. While both G.M. and the Treasury still hope to reduce the government’s stake in the company to less than 50 percent and rid the company of its Government Motors nickname, that goal may not be met, one of the people said.

The market for initial public offerings has been weak this year, causing concern by Treasury officials that the G.M. stock sale would struggle if it were too large.

Auto analysts are increasingly projecting that G.M. shares could be priced high enough for the government eventually to get back most or all of its remaining $43 billion investment in the automaker. But everyone agrees that will take years.

The offering, which is expected as early as November, will set a benchmark for the stock’s value.

In order to recover all of the government’s investment, the Treasury would have to sell its 304 million shares at an average price of $133.78 a share, before any splits, according to Neil M. Barofsky, the special inspector general for the Troubled Assets Relief Program of the Treasury.

Mr. Barofsky cited that figure in a letter last month to Senator Charles E. Grassley, Republican of Iowa, who asked Mr. Barofsky to audit the stock sale.

In the letter, Mr. Barofsky pledged to review G.M.’s stock offering after its approval by federal regulators to ensure that it produced “the highest return for the American taxpayers.”

The price cited by Mr. Barofsky might not be unrealistic, said David Whiston, an automotive equity analyst with Morningstar in Chicago. Mr. Whiston said on Thursday that a G.M. share could be worth $134, though he believed it would sell for less than that.

He said that G.M., after last year’s government-sponsored bankruptcy, had made changes that would help it thrive as demand for new vehicles recovers from today’s levels, which most industry experts consider to be unsustainably low.

“It really is a new G.M.,” Mr. Whiston said. “The cynics of this deal, I don’t think they really understand the billions of cost savings that G.M. has made.”

G.M.’s stock peaked in April 2000 at $94.63 a share.

Although President Obama has said he wants the government to divest as quickly as practical, the Treasury is expected to sell off its interest over at least two to three years. That would allow it to take advantage of increases in the value of its shares, assuming G.M. operates profitably.

“If G.M. continues to improve and the industry continues to improve, they have a shot at getting it all back,” said Michael Ward, an analyst with Soleil Securities.

There is considerable interest about the G.M. offering among potential investors, and the sale is likely to do well, Mr. Ward told members of the Society of Automotive Analysts on Thursday in Southfield, Mich.

“Wall Street is going to be in love with General Motors,” he said.

The size and the price of the stock offering have not yet been decided, the people with knowledge of the preparations said. But the Treasury intends to reserve a large portion of the stock for retail investors.

As part of that push, G.M. intends to split the stock so that it is priced about $20 to $25 a share, these people said.

The Treasury has also declined to set specific limits on where the stock will be sold and to whom. In a statement last week, the Treasury said it expected the bulk of the stock to be sold in North America.

The government would not expressly restrict sales to foreign buyers, these people said, but they added that acquisitions by foreign investors would be limited.

In a related matter, G.M. filed an amended version of the registration paperwork for its offering with the Securities and Exchange Commission on Thursday, but it did not reveal details.

The filing included a letter to the Treasury in which company executives committed to using “commercially reasonable best efforts” to manufacture at least 1.6 million vehicles in the United States this year and an increased number in each of the next four years.

The figures are 90 percent of what G.M. had previously agreed to produce under its loan agreements with the Treasury.

The letter also says that AmeriCredit, a subprime financing company that G.M. is buying, plans to sell its private plane in accordance with restrictions placed on companies that received aid from the Treasury’s bailout program.

Geithner Drops an O-bomb

Tim Geithner shared his plan for rescuing the banking system. However, the plan he described was not a plan. Maybe it was an outline, and maybe it contained a few worthwhile ideas, but it was not a plan.

He's Obama's man at the Treasury. He's a big force in the new O-conomy. When he carries out Obama's wishes, he drops O-bombs on the O-conomy. This first one may be devastating.

Obama repeatedly hammered the concept of giving federal Stimulus money to "shovel-ready" projects. Obama told reporters Monday night that Geithner would deliver a plan that was ready to operate -- a "shovel-ready" plan, if Obama were to speak in consistent terms.

Instead, Geithner showed his timidity and his inability to tackle the chief issue forming the core of the banking recovery -- valuing the bad assets.

Geithner was petrified at the thought of the government "overpaying" for assets. He said it would take more time to develop a pricing model. After further comments, it was obvious he had no idea how to build his pricing model. He said he wanted input from everyone. Not good.

Obama has repeatedly insisted that acting now and acting fast is the only way to save the economy from catastrophe. But Geithner has shown that the people in the administration who must devise the plans are not capable, and perhaps not willing -- and rightly so -- to spit out a plan in the first weeks after the new administration has taken charge of the government.

It appears Obama is yelling most loudly at Geithner. But not directly. Obama is appearing in cities that have had more than their fair share of financial problems in the last couple of years. He's exhorting everyone to act fast to save our collective neck.

But Geithner offered some vague talk about a government/private partnership to acquire bad assets. After some reflection, it seems this plan is nothing more than a plan of creeping nationalization of the banks.

Meanwhile, the Stimulus Bill was passed. That seems to mean we have committed ourselves to spending $790 billion on a hodge-podge of projects and some tax cuts. The list of projects seem to include funding for every pet project of every politician. But it adds up to a vast expansion of government control over many industries.

Then there is Obama's messianic character. He has begun speaking as though he is delivering sermons from the mountaintop. We are in trouble.

Road Hogs

The Three Families of Detroit continue to threaten the US with economic catastrophe unless Taxpayers cough up at least $34 Billion NOW. And maybe more next year. Do they believe they are making an offer Taxpayers cannot refuse? If so, they had better adjust their thinking. Do they believe that America will collapse without them? If they do, then threatening the country with economic collapse if $34 billion is not forthcoming sounds worse than criminal extortion to me. It sounds like treason.

Why do the Auto Companies believe they deserve special consideration? Are the Big Three unaware of corporate history in this country? The answer must be Yes. It seems Chrysler CEO Nardelli has forgotten that it took over American Motors a couple of decades ago because the company was in collapse. What did Chrysler get? Jeep. Probably Chrysler's best line. Where did all the Ramblers go? Into the corporate history books. To business school case studies. Gone, and mostly forgotten.

The list of failed US car companies is long. But this time it's different. The heads of Detroit's Three Families refuse to do what managements are hired to do -- run profitable operations. Instead, they now want to acquire money from an alternative source -- the government. More accurately, the Taxpayers. What does this show? It shows that the auto companies have become the biggest rent-seekers in history. They refuse to be capitalists when it counts. They want to be socialists. Actually, it's worse. They're looking like communists.

According to the current plan, the government will acquire ownership of the means of production. Obama has said he wants to appoint a Car Czar. Central Planning, here we come!! Do we need a bureaucracy to tell us the number of cars to be built during the next 5-year plan?

Let's try this: Let's end the eternal struggle between Labor and Capital. If the Auto Companies want money, let the Taxpayers buy GM at its current market price of less than $3 billion and GIVE the stock to the UAW. Let the United Auto Workers own GM and let them take full charge of the company and make it work. I'll bet they'll find a way before Christmas.

The Auto Industry seems to have missed the business news during the last few decades. Probably because the main venue for getting that news is disappearing.

The Newspaper Industry is vanishing. Print media jobs have been disappearing for years. Now the Print Media itself is disappearing. Some newspapers are shutting down. Others are cutting back, becoming weeklies instead of dailies.That's just a gambit to slow the the pace of decline.

Is anyone crying over the loss of the Newspaper Industry? How about the Shoe Industry? We once made most of our own shoes here in America. Today we import 99%. Textiles. Similar story. Check your shirt collar. The label probably reads Made in Pakistan. By the way, has the loss of shoe manufacturing led to barefootedness among Americans? Or do we have so many shoe choices at so many price points that it's tough to decide which shoes to buy? How about shoe repair shops? They're everywhere.

So too are automotive repair shops. Transmission shops, Muffler Shops, Brake Shops, Oil Change facilities. Is there any part of a car that is left unserviced? No. Do people buy cars that lack comprehensive warranties? Yes. Millions of them every year. Used cars. They're cheaper than new cars, and the lack of warranty coverage is a big reason.

By the way, what's included in a warranty? Of course, the obvious. But GM loses about $1,500 per car. As we all know, warranties are a big source of profits. When a product is well built, the warranty is often a losing proposition for the buyer. Of course, if you have one of the few defective cars, then the warranty is a blessing. But given the higher quality of Detroit's vehicles, how much of the warranty price is actually absorbed by repair work?

The answer? Not much. The warranty is an overpriced insurance policy that is wildly profitable. But Detroit's labor & benefit costs are so high that even with a huge boost from warranty revenue, the companies cannot earn a profit.

Walmart is selling big flat-panel TVs. Why go to Walmart when you can get a better price on the same TV at Best Buy? Here it is: The Warranty. Walmart sells TVs for a little more than Best Buy. But it beats BB by a mile on the price of the warranty. Thus, the total price at Walmart is better than the total at Best Buy.

Maybe Walmart should get into the car dealership business. And maybe Toyota and Honda should teach Detroit how to make cars AND profits in the US.

The Road to Perdition

Lawmakers skeptical as automakers again seek aid
Thursday December 4, 2008 -- Associated Press

Automakers plead with Congress for expanded $34B rescue package, but hear fresh skepticism

WASHINGTON (AP) -- Humbled U.S. automakers pleaded with Congress Thursday for an expanded $34 billion rescue package, but heard fresh skepticism in a bumpy encore appearance. "We made mistakes, which we're learning from," General Motors chief executive Rick Wagoner told the Senate Banking Committee.

Rick Wagoner says GM is learning from its mistakes. But the pace at which GM is learning is so slow it's time to put GM in Special Ed. When he speaks of learning, Rick Wagoner wants us to believe that he's referring to GM's operational mistakes and how Labor and Management fell into a mutually destructive relationship that has brought the company to the edge of collapse. But it's a lot more likely he's subtly referring to the company's approach to extracting money from taxpayers. He's now angry with himself for flying into D.C. on a company jet a couple of weeks ago, burning thousands of gallons of fuel hopping 500 miles from Detroit to D.C. to tell lawmakers the company hopes to build electric cars using no gas at all -- someday. And, as for profits, well, who knows? Someday, yeah, maybe the company will earn a buck. But it's way too soon to estimate when that will happen.

Meanwhile, Management may have lost touch with a lot of car buyers. But Labor has lost touch with reality. Ron Gettelfinger shows us how.

United Auto Worker union President Ron Gettelfinger warned bluntly that in the absence of action by Congress: "I believe we could lose General Motors by the end of this month." He said the situation was dire and that time was of the essence.

He speaks of GM as though it's a patient who is the victim of some disease curable only by actions taken by everyone except the patient. He speaks as though the cure is in the hands of taxpayers, including people who do not own cars or drive, and that those who possess the cure should, out of some moral sense, give freely to the ailing patient.

It has not occurred to Ron and the United Auto Workers that they are GM. That, individually and collectively, they are healthy. It is Ron and the union workers who possess the cure. They are the cure. They can administer it to themselves. They know what it is, but they do not want to admit they know. The truth is simple and painful. But if they admit they know, then they are also admitting they have ripped off car buyers for years, for decades.

How suicidal is their impulse? Will they stick to their delusional expectation of high wages and deluxe benefits long enough to see it all collapse? Or will Ron and the UAW membership awaken from their dream in time to save the industry and themselves from their own folly?

Several lawmakers in both parties, including Christopher Dodd of CT, have pressed the automakers in recent days to consider a so-called "pre-packaged" bankruptcy in which they would negotiate with creditors in advance and downsize, then file for Chapter 11 protection in hopes of emerging quickly as stronger companies. The Big Three have publicly shunned the notion, but executives have indicated in recent days that it might ultimately be necessary.

Gettelfinger told the committee, "We are prepared to do our part." But he also said workers for the auto companies shouldn't have to make disproportionate sacrifices.

Gettelfinger seems to have lost his mind. Is there any sense to his notion that the employees who are the essence of the auto industry are the people who should feel no pain? Of course they should sacrifice. And they should sacrifice disproportionately. It's their futures at stake. Not the future of the nation. Do they care about their futures? Or not? The only proof of caring they can offer is cutting their pay and benefits to the bone. If they are willing to cut enough, the Detroit car companies will survive. If not, the companies and the employees will pass through a chaotic period that will lead to a far more troubled downsizing. At this point, the outlook for Detroit is grim.

Detroit Mafia -- Driving the Getaway Car

Give us the money -- Or Else!! The Big Three Detroit Families have learned something mobsters have known for a long time. Threats work.

For the last few months, Detroit car executives have demanded money from taxpayers. Lots of it. But Americans have been reluctant to hand over the billions the leaders of the Three Families have sought. Even though the offers they have made have been refused, so far, the lack of cooperation has not discouraged the heads of the Three Detroit Families. Today, a leader from one of three realized it was time to deliver a big threat that might get action, finally. The Offer They Can't Refuse.

The executive from the Chysler family threatened to take down the whole US economy if the taxpayers refuse to cough up the money within weeks. Smash it, burn it down, wreck the joint. Or. All it will take to save the nation, he suggests, is $20 or $30 or $40 or $50 Billion. Or more, if those initial sums fail to restore the health of the Three Detroit Families. He was backed by an executive from the GM Family.

Chrysler exec: Failure could spark Depression

Chrysler exec warns of depression as auto officials intensify fierce lobbying push

WASHINGTON (AP) -- A top executive of Chrysler LLC cautioned Wednesday that a carmaker collapse could send the economy spiraling into a depression, as the United Auto Workers union braced for contract concessions.

Jim Press, Chrysler's vice chairman, said the U.S. automakers were "down to months left," as industry officials ratcheted up a fierce lobbying push to persuade Congress to approve as much as $34 billion in emergency aid.

"We're on the brink with the U.S. auto manufacturing industry," Press told The Associated Press in an interview. "If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it's a huge blow. It could trigger a depression."

Fritz Henderson, president and chief operating officer of General Motors Corp., took to the TV airwaves to stress that bankruptcy isn't a viable option on the eve of a new set of congressional hearings on the auto bailout. At the same time, UAW leaders were immersed in intense discussions on possible givebacks for the companies at an emergency meeting in Detroit.

Under consideration were the possibility of scrapping a much-maligned jobs bank in which laid-off workers keep receiving most of their pay and postponing the automakers' payments into a multibillion-dollar union-administered health care fund.

In blueprints delivered to Capitol Hill on Tuesday, GM and Chrysler said they needed an immediate infusion of government cash to last until New Year's, and both said they could drag the entire industry down if they fail. Ford is requesting a $9 billion "standby line of credit" that it says it doesn't expect to use unless one of the other Big Three goes belly up.

But Chrysler said it needed $7 billion by year's end just to keep running. And GM asked for an immediate $4 billion as the first installment of a $12 billion loan, plus a $6 billion line of credit it might need if economic conditions worsen. The two painted the direst portraits to date -- including the prospects of shuttered factories and massive job losses -- of what could happen if Congress doesn't quickly step in.

All three plans envision the government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover.