General Motors raised more than $20 billion in an initial public offering (IPO) this week, selling millions of shares owned by the federal goverment, and reducing the government’s ownership of GM from 61 percent to 33 percent.
GM stock is worth money partly because its government ownership stake allows it to claim up to $45 billion in tax savings that it would otherwise have had to forfeit as a result of its bankruptcy. GM is also receiving lots of taxpayer subsidies for its Chevy Volt, despite recent revelations that it lied about that car, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.
GM still owes taxpayers at least $29.4 billion, and its finance arm owes taxpayers an additional $14.6 billion. In a sense, taxpayers lost money on the sale. (They got at least $9 billion less for the stock that was sold in last week’s IPO than they originally paid for that stock).
Slate’s Mickey Kaus, who reluctantly supported the auto bailouts, thinks that people who bought GM stock were “suckers,” since GM faces hidden perils, still has too much red tape and inefficiency, lacks “effective internal controls,” and is the beneficiary of accounting gimmicks and unrealistic assumptions about its future market share.
John Berlau, who studies financial markets, earlier had a much more grim assessment of the GM bailout and its IPO.
The Wall Street Journal quoted many financial analysts warning against buying GM shares.
GM’s finances are artificially puffed up by the fact that it is concealing rising union pension obligations, which rose by $6 billion since the end of 2009.
Earlier, GM lied about whether it had paid back taxpayers for its bailout, which resulted in GM getting $50 billion in taxpayer money, and its finance arm GMAC getting another $17 billion. (GM also received billions indirectly from taxpayers, through programs like the incredibly wasteful Cash for Clunkers, which cost used-car and car-parts dealers billions.)
The Obama administration used the bailouts to keep the United Auto Workers’ massive compensation (worth up to $70 an hour), pension benefits, and rigid union work rules largely intact, while giving the UAW a big chunk of General Motors‘ stock, even though the UAW helped bankrupt the company. The auto bailouts were so wasteful and so biased in favor of the UAW that they disturbed even the liberal Washington Post editorial board.
GM also faces increased regulatory burdens, such as CAFE rules ratcheted up in the name of global warming (the initial tightening of those rules will wipe out at least 50,000 jobs in the auto industry), that will make it hard for it to expand its anemic 19 percent market share. Other EPA global warming rules are expected to wipe out at least 800,000 American jobs and impose heavy costs on suppliers of materials used in manufacturing automobiles. The EPA’s proposed ozone rules would wipe out 7.3 million jobs, according to one study.