GM Stock Price Soars on IPO Frenzy

My how quickly public perceptions change. General Motors, the ailing symbol of demonstrably bad senior management and worse union labor practices, is now the darling of Wall Street as it returns to public trading today in New York and Toronto under the ticker symbol “GM.”

From cash burning loser to stock market winner with a lot of help from Uncle Sam using your taxpayer money!

With the successful launch of its public offering, raising more than $23 billion from an initial $33 per share price – and instantly moving to $35 after the New York opening – GM has made history as the largest, most successful U.S. IPO of 2010.

U.S. taxpayers are now minority stockholders of GM, down from 61% to roughly 33% of the shares of the Detroit based automaker if all options are exercised.

It is a comeback of stunning proportions that proves, arguably – against the hostile and negative rhetoric of Republicans – the wisdom of U.S. government intervention to stop the loss of an estimated 2 million jobs throughout the auto industry.

The pending economic disaster that would have hurt the entire auto industry , of course, came  after the reckless practices of an unregulated Wall Street destroyed the global economy – with both Republicans and Democrats bought off  to look the other way with inconceivable amounts of  campaign contributions. (U.S. Taxpayers Get $13.5 Billion from GM IPO. Still Own 33%)

GM’s biggest problem then was what to do with the cash generated, and avoiding the wrath of regulators who thought it too big since GM controlled more than half of the market, according to Joe Phillippi of the AutoTrends consultancy and a long time financial analyst.

The U.S. Department of the Treasury sold 358,546,795 shares of its General Motors (GM) common stock, as part of GM’s initial public offering. The underwriters in the offering have a 30-day option to purchase up to 53,782,019 additional shares of common stock from Treasury on the same terms and conditions to cover over-allotments, if any.

If the underwriters’ over-allotment option is exercised in full, the aggregate gross proceeds to Treasury from the offering are expected to be approximately $13.6 billion, before any fees associated with the offering are deducted.

After this offering, Treasury’s ownership of GM’s outstanding shares of common stock will decline by nearly half – from 60.8 % to 36.9% or 33.3 % if the underwriters exercise their over-allotment option in full.

“GM’s initial public offering is an important step in the turnaround of the company and for our work to recover taxpayer dollars and exit this investment as soon as practicable,” said Treasury Secretary Tim Geithner.  “It is now widely recognized that the taxpayers’ investment not only helped save jobs during the worst economic crisis in a generation, but also gave the auto industry a solid foundation on which to build.”

Treasury’s remaining investment in GM will consist of 553,847,273 shares of common stock or 500,065,254 shares if the underwriters exercise their over-allotment option in full.

Now the Real  Work Remains

GM has yet to prove that it can increase its market share in the U.S., and is severely challenged in Europe with its loss-making Opel subsidiary. China – the world’s largest auto market by far – is now GM’s largest and most successful area of operations, but that is only because of joint ventures that the Chinese government requires as a part of its industrial policy to create local jobs and keep profits in China.

GM is prevented from paying dividends to its new shareholders, until the U.S. government is paid back – a development that could be a long way from happening in a still stalled economy. So, thus far, the only firms that have made money on a restructured GM are some of the very same  Wall Street firms that caused the ongoing financial crisis to begin with, companies the government also bailed out – and this money was made by selling GM stock. Small investors should remember “Buyer Beware.”