Look for GM to suck up more bailout heroin
GM stock offering wrapped up in politics
Consider:
In his first visit to Detroit since his administration pushed GM through bankruptcy and infused it with taxpayer dollars, President Barack Obama a couple of weeks ago touts GM's revival as a job well done -- even as poll numbers for him and his party continue to sink.
Less than three weeks later, GM files for its long-awaited IPO and experts duly report that the Securities and Exchange Commission typically takes 30 to 60 days to green-light an IPO which, natch, would reach deep into October. As in, a bare few weeks before the mid-term elections.
Second, no matter how desperately management might want it and political calculations might demand it, the mounting evidence -- a slowing economy, slumping consumer confidence, jittery stock markets, just two profitable quarters, management turmoil and even a warning from the president's former auto czar, Steven Rattner -- suggest this fall might be precisely the wrong time to begin to unwind a massive government stake in GM.
Thursday, the Dow Jones Industrial Average tanked 144 points to 10,271 after first-time jobless claims jumped higher than expected, manufacturing showed signs of slowing and the Conference Board's index of leading indicators pointed to slower growth for the balance of the year. IPOs in the auto space -- Tesla Motors, for one -- are trading closer to their offering prices than their 52-week highs.
Auto sales keep tracking in the mid-11 million-unit range, suggesting the kind of anemic consumer demand that spooks investors. Dealers report slowing showroom traffic despite some positive signs from big-box retailers. Home sales are weak, housing starts are slow, property values are slipping again and talk of a double-dip recession continues, unfortunately.
But GM's IPO, essentially approved or not by the Treasury Department, is moving ahead anyway. Trouble is, the less enthusiastic would-be investors are about GM and the less willing they are to buy shares, the less the feds can legitimately crow about paying back the taxpayers' billions if they make less money on the deal.
Third, offering large chunks of a controlling stake in the nation's (still) largest automaker may be politically attractive for Team Obama and management battling the "Government Motors" stigma. But what if a not insignificant number of those shares fall into the hands of foreign investors acting for governments seeking the credibility (and technology) that could come with a sizable share of a restructured and recapitalized GM?
Russian investors fronting for the Kremlin last year worked with a Canadian partner to make an unsuccessful bid for GM's Opel unit, based in Germany. Chinese players, backed by the government, have the capital, the acumen, the economic heft and a proven ambition (see the new owners of Volvo Cars).
That the Russians pushed by Prime Minister Vladimir Putin threatened to take a massive stake of GM a few years back, only to be brushed by a presidential fastball from the Bush White House (according to a source with direct knowledge of the events), tells you what's possible and why the Obama administration might want to make sure it doesn't happen.
Meaning mid-term electioneering and the polling fortunes of the Obama White House are the tip of the very large political iceberg shaping the future of a new GM -- the Detroit automaker so easily dissed but so coveted (under the right conditions) by some of the world's most powerful players.
In short, selling shares in GM to investors in the United States and Canada, as this week's S-1 registration statement says, is more than a potentially whopping market event. It's also more than whether GM's winnowed product portfolio and global business plan are credible and realistic, or whether the revived company can hit aggressive sales and profit targets, or whether "Detroit is back."
GM is in the unenviable position of being a geo-political football, as much a delicious potential target for acquisitive foreign players as it is a pawn for national politicians -- the president, Democrats and Republicans -- seeking vindication and some kind of tactical electoral advantage.
Inevitable costs of politicians coming to the rescue of business leaders? Of course. Which doesn't mean the Obama administration -- or any other one, for that matter, irrespective of party -- didn't make the only basic choice it could when it agreed to fund the bailouts of GM and Chrysler Group LLC under strict restructuring requirements.
They've succeeded, so far. But taking the next big steps will have political repercussions, no matter how strenuously both sides deny it. That says everything you need to know.