As I diaried about yesterday, GM this week announced a $2 billion profit in the 3rd Quarter. This good news comes on the heels of an announcement that GM will tender its initial public offering (IPO) next Thursday with a stock price of $26-$29/share.
The US government will, the same day, sell about a third of its stock. Because the stock price is below the "break-even" point of about $50/share for the US government's position,the Detroit News estimates that the US taxpayers could lose as much as $5.4 billion in the transaction. Reuters estimate is about $4.9 billon
This has Ralph Nader and other consumer activists calling for the US Treasury to exert its ownership influence and force GM to delay the IPO.
In a letter to President Obama (pdf), Ralph Nader is joined by Public Citizen President Robert Weissman, Center for Auto Safety Executive Director Clarence Ditlow and former Public Citizen president Joan Claybrook in calling for a delayed IPO. They have four reasons for this, the first of which is that it is a bad return on investment for the American taxpayers.
News reports indicate the planned IPO will cause taxpayers to realize a $4.9 billion loss. Certainly no one can predict the future of GM or the markets with any certainty, but many analysts have offered the view that GM’s financial prospects are very positive. Simply recognizing how severely the Great Recession has crimped auto sales in the United States gives credence to this view; annual sales remain down by more than 25 percent from a few years ago. Many analysts believe that the IPO is being driven by a government desire to exit from GM ownership as soon as possible, even at the expense of better recoupment of the taxpayer investment. Investor prudence thus counsels for maintaining the government’s current share, and delaying a sell off so that the government can capture likely improved returns in the future.
Nader, et. al. also cite preserving jobs in the USA as a reason for the delayed IPO:
As majority shareholder in GM, the United States has the ability to direct or influence the company's investment decisions. As the U.S. reduces its share, so its capacity to influence such decisions diminishes. Had the government invested in GM for pecuniary reasons, the legitimacy of affecting such decisions would be lessened. But the government did not invest in GM for pecuniary reasons. It invested precisely to preserve U.S. jobs and manufacturing capacity. It is now incumbent on the government to manage its investment to advance these objectives.
A third reason cited in the letter for the delayed IPO is protection of the environment and global climate.
Holding a majority stake in one of the world's largest auto makers, even if due to an historic anomaly, positions the U.S. government to directly advance the transformational changes we need. In addition to prodding the auto makers to do better through always-contentious and often-undermined regulatory processes, the government can and should direct GM to increase dramatically its investments in electric cars and other transformational technologies, and to make sure safety is not compromised with such new technologies.
The ability to direct such investments will decline as the U.S. share in GM declines.
Finally, the letter expresses the group's outrage that GM is, even while being "rescued", lobbying the federal government.
Whether by government directive or some very modest sense of propriety, GM suspended its lobbying and campaign contributions while undergoing the government rescue. But now, outrageously, with the government still a majority shareholder, the company has resumed lobbying…
Why in the world is a majority government-owned -- that is, publicly owned -- entity permitted to lobby the U.S. Congress and executive agencies, often against your own administration's legislative and policy positions, such as the Motor Vehicle Safety Act of 2010 legislation to correct statutory deficiencies resulting in the Toyota debacle, presently pending in the House and Senate? With the ballot boxes barely counted, the Alliance of Automobile Manufacturers (of which GM is a prominent member) is already reneging on fuel economy rules it agreed to with your administration less than two years ago.
I, probably like many of you, am ambivalent about Ralph Nader. The good he has done over his career can arguably be said to be overshadowed by the harm he has done. In this case, I am also somewhat ambivalent. On the topic of taxpayers not getting a return on our investment in GM, I would suggest that the intent was never to make a profit and that the "harm" done by losing some of our investment on this IPO is countered by the benefit of the federal government getting out of the vehicle manufacturing business as quickly as possible. The money we saved by not having to contend with a complete failure of GM more than compensates for this, in my opinion.
The last three points are the ones that disturb me the most. The implication here is not that the US government simply stepped in to prop up GM while it got its act together. Rather, these points promote the idea that the feds should actually be making business decisions for GM because of their unique position as a major shareholder. As much as I appreciate their noble goals in this regard, this is a step too far for me. I do not think our government should be making business decisions unless they relate directly to the ability for taxpayers to recoup as much of their investment as possible. With this letter, Nader and his cadre are suggesting that the US government take heavy-handed steps to change the direction of GM in ways that are unrelated to this. If the Obama administration were to take this path, they would be wide open to the accusations of this "bailout" being "a socialist takeover" rather than a temporary rescue.
There are many things that I admire about Ralph Nader and what he has done to protect consumers over the years. I adore his advocacy for Instant Runoff Voting. But in this case, he is wrong.
I'm just sayin'…