The GM Stock Offering: Why We Can't All Be Winners

I have a big problem with the whole General Motors Corporation (NYSE/GM) government-assisted bankruptcy and yesterday's new public offering.

GM originally listed on the NYSE back in 1916. Through its roughly 100-year history, the storied automaker had its ups and downs like every other business. But the buffoon management of the early 2000s ruined the company. Unlike Ford, which prepared for and weathered the downturn in the economy, GM lost over $80.0 billion between 2006 and 2008.

When GM came calling on Washington, the same administration that let Lehman Brothers fail (and that witnessed the credit market freeze after the Lehman failure) was concerned that GM was "too big to fail."

I liked GM's argument at the time: if GM failed, not only would over 200,000 jobs be lost right at GM, but other car-makers like Ford would go under, because GM would put the same part suppliers that feed both GM and Ford out of business. Ford even wanted the government to bail out GM!

So, the government invested about $50.0 billion in GM. When the company went public (again) yesterday, GM sold $20.0 billion of stock in the second largest IPO in American history. The offering valued GM at just under eight times 2010's earnings.

The U.S. Treasury got back about $14.0 billion of its money. But if my calculations are right, unless GM stock goes up 75% to 80%, the government will lose money on its investment in GM.

So, what's my beef with how the GM bailout was handled?

It's quite simple. I don't see where in the U.S. Constitution it states that the government can use public money to bail out private companies. GM was mismanaged. And, ultimately, the government bailed out GM because of poor decisions made by bad company management.

How many hard-working companies in America go out of business daily, not because of bad management, but simply because they do not have the cash flow to sustain their business...to pay their bills while they wait for their customers to pay them? Sure, they might have 200,000 employees. However, small businesses in America, those with less than 50 employees, account for over two-thirds of all jobs.

Collectively, thousands of small businesses in this country went bankrupt during the Great Recession, causing hundreds of thousands of job losses, and the government did absolutely nothing to help them. Nothing. I guess we can't all be winners like GM.


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