General Motors returned to Wall Street in grand style yesterday with the largest IPO in US history, raising $23 billion to start paying back its $50 billion government loan.
Almost half of the US Treasury’s share holding went up for sale at $33 a share for preferential buyers ($35 for others), but still leaves the government some way short of recouping its total investment.
A share price in the mid-$40 range would be required to recover the bailout figure completely, meaning that the government’s remaining shares would have to sell at over $50 per share to make up the difference. If they were to sell at the same price as yesterday, there would be a shortfall in the region of $10 billion.
Nevertheless, this is not necessarily bad news for President Obama, as the cost of not bailing out GM in the first place would likely have been considerably more. A study released Wednesday 17 November by the Center for Automotive Research in Ann Arbor, Michigan, reported that spending on social services and missing tax revenue would have amounted to $28.6 billion if the government had not acted as it did.
The President himself was in buoyant mood. "General Motors' initial public offering marks a major milestone in the turnaround of not just an iconic company, but the entire American auto industry," he said in a statement. "Through the IPO, the government will cut its stake in GM by nearly half, continuing our disciplined commitment to exit this investment while protecting the American taxpayer.
"Supporting the American auto industry required tough decisions and shared sacrifices, but it helped save jobs, rescue an industry at the heart of America's manufacturing sector and make it more competitive for the future," Obama added.
“There is a lot of optimism and confidence in GM these days,” said GM Chief Executive Officer Dan Akerson yesterday on a conference call. “There is something else too. We know how we arrived here. We know what went wrong, and I believe we’ve learned a lot from that.”
GM has made $4.77 billion profit in the first three quarters of this year, and will need to continue that improvement. Even so, the timing of the next round of share sales will be crucial. Akerson said that the federal government, in large measure, will determine when more stock would be offered. "They own the shares. They're the shareholder. They'll let us know when the conditions are right," he said.
