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Here it comes: According to several reports in recent weeks, General Motors is expected to file registration papers for its upcoming IPO very soon -- any day now.
While Tesla Motors' (Nasdaq: TSLA ) recent IPO drew a lot of attention, that was small potatoes in comparison to what's coming. GM's initial public offering is expected to be one of the biggest in history, possibly the biggest. And as we all know, it comes with one heck of a wrinkle: The U.S. government owns 60.8% of GM, acquired as a condition of the company's $50 billion bailout in 2009.
Paying back The Man
Of course, GM has already famously "paid back" some $6.7 billion of its government loan. Officially, there's no remaining balance -- the rest of the loan was covered by the GM stock held by the government -- but the public won't be likely to consider themselves truly paid back until that entire balance has been returned to the U.S. Treasury. Meanwhile, the "Government Motors" stigma will continue.
Given continuing uncertainties in the stock market, the economy, and GM's businesses, one might wonder whether GM would be better off waiting a while longer before re-entering public life. But all indications are that GM's management is extremely eager to be done with U.S. government ownership, and determined to go forward with the IPO as soon as possible.
Why? And will this end up costing them (and us) in the long run?
What's the rush, guys?
What GM is actually expected to offer is a portion of the U.S. government's stake; as much as a third of its 500 million shares, according to some reports. The offering itself, which is being underwritten by JPMorgan Chase (NYSE: JPM ) and Morgan Stanley (NYSE: MS ) -- for a fraction of their typical fees, presumably as a public service of sorts -- is said to be likely to take place this fall, before the midterm elections in early November.
But why? Why not wait a year or two, to give the economy more time to recover and GM more time to refresh its product line? Isn't it in GM's best interest to make sure the government gets the highest possible price for its shares?
GM CEO Ed Whitacre and CFO Chris Liddell might have come to the company from outside the auto industry, but they're no dummies. While I think the desire to transcend the "Government Motors" stigma is part of the calculation, I think there's something bigger going on: a reluctance (maybe even an inability) to make big, daring investments while the government is looking over management's shoulder.
Going from good enough to great
Make no mistake: The ability to make big, daring investments is critical. Restoring GM's long-lost luster -- really restoring it -- is going to require some big-time investments in products, platforms, and technologies that might not pay off for years.
Consider: A recent Car and Driver report suggested that Whitacre himself was pushing for a "flagship" for Cadillac -- a big, brash, powerful, and expensive sedan that would be competitive with the top-line offerings from Mercedes-Benz and BMW and re-establish Cadillac as, well, Cadillac. Developing such a car will cost big bucks, and there's serious risk involved: What if it flops?
Whitacre apparently thinks that Cadillac (and GM) needs such a car, that it would be the kind of dare that GM should be taking, and I think he's right. But that's exactly the kind of vehicle -- expensive, financially risky, and not likely to be particularly green -- that's hard to justify when you feel like the money you'd be spending belongs to the American taxpayers. Sure enough, a follow-up report from the GM Inside News blog suggested that GM's management would wait until after the IPO before giving formal approval to the mega-Cadillac's development program.
While this Cadillac would be a niche product, GM is almost certainly holding off from approving other ambitious investments, the kinds of programs it needs to go from making "good enough" cars to best-in-the-world products. Meanwhile, Ford (NYSE: F ) and Toyota (NYSE: TM ) can throw significant weight behind these kinds of programs right now.
In that sense, GM's best chance of paying us back might involve going public as soon as possible. Once the government has sold enough shares to lose its majority-shareholder status, GM's management team will be able to swing for the fences. If they're as on-the-ball as they seem to be, all of GM's shareholders could be very well rewarded in coming years.
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