General Motors goes public today
DETROIT -- The last time General Motors threw a big party was two years ago, for its 100th birthday. Two months later, its CEO was before Congress, begging for bailout money. Now GM is getting ready for another celebration -- this time for its future.
GM will be reborn as a public company today with a stock offering, ending the government's role as majority shareholder and closing a remarkable chapter in American corporate history.
The U.S. government should make about $13.6 billion when GM shares start trading on the New York Stock Exchange. The federal Treasury is unloading more than 400 million shares of GM, reducing its stake in the company from 61 percent to about 33 percent.
The IPO could wind up as the largest in history. GM set a price of $33 per common share on Wednesday, a day after it raised the number of shares it will offer to satisfy investor demand. When the U.S. government and other owners sell their shares, they'll raise $18.2 billion. GM will raise another $5 billion by selling 100 million preferred shares at $50 each.
Together, the sale of common and preferred stock will bring the deal's value to a record $23.2 billion.
In September 2008, to mark the beginning of its second century, the automaker celebrated in the grand three-story atrium on the ground floor of its Detroit headquarters. GM had seen a lot of changes in its 100 years, said then-CEO Rick Wagoner.
"In fact, it's changed a lot in the last 100 hours," he said, referring to the banking crisis, which was just starting to unfold. Two months later, Wagoner found himself in front of members of Congress, begging for money to keep GM alive. Four months after that, he was ousted by President Barack Obama.
By June 2009, GM had filed for bankruptcy. It emerged relieved of most of its debt but mostly owned by the government and saddled with a damaging nickname: "Government Motors." The value of its old stock was wiped out, along with $27 billion in bond value.
Now GM will become a publicly traded company again and revive the stock symbol "GM." Dan Akerson, GM's fourth CEO in two years, will ring the opening bell today on the New York Stock Exchange, to celebrate the company's rebirth.
"This is an extraordinarily important moment in the life of GM, along with emerging from bankruptcy," said Steve Rattner, who headed Obama's auto task force for several months. "It's not the end of the story of government involvement in GM, but it is a critically important step forward."
Most of the new stock will go to institutional investors, not to everyday investors, following a Wall Street system that rewards investment banks' big customers. GM will set aside 5 percent of its new stock for employees, retirees and car dealers to buy at the offering price. The deadline to sign up was Oct. 22, but the company has not revealed how many people took the offer.
Senior Obama administration officials said Wednesday that the Treasury Department sought to strike a balance between getting a return for taxpayers and exiting government ownership as soon as practical.
The government has agreed that it will not sell shares outside the IPO for six months after the sale. The officials, who spoke on condition of anonymity, said they would assess their options for selling the government's stake further.
In the stock offering, the government stands to make $13.6 billion if it sells 412 million shares, as planned, for $33 apiece. It will still have about 500 million shares, a one-third stake. It would have to sell those shares over the next two to three years at about $53 a share for taxpayers to come out even.
The total bailout was $50 billion. GM has already paid or agreed to pay back $9.5 billion. That comes from cash and payments related to preferred stock held by the government.
The GM debut comes at a time when auto stocks are performing well generally. The stock of GM's crosstown rival, Ford, has risen steadily this year, from about $10 in January to about $16.50 as the GM IPO approached. The stock traded for a dollar in November 2008, and Ford never even took bailout money.
As for GM, whether bankruptcy actually fixed the company remains an open question. Before the crisis, it was saddled with debt and had a labor contract that called for paying workers even if they weren't working. Massive pension and health care costs kept GM's fixed costs high, and contracts with dealers meant it would be expensive to shut underperforming brands. Combined, those problems put the automaker in a topsy-turvy world where it made more sense to run plants at full pace, even if no one was buying cars.
Bankruptcy fixed much of that. The company closed 14 of its 47 plants, shuttered or sold off its Hummer, Saturn, Saab and Pontiac brands, and slashed its debt from about $46 billion to about $8 billion. Union retiree health care costs are now the United Auto Workers' responsibility, and the controversial jobs program that paid idled workers almost a full salary has been eliminated.
GM employs 209,000 people in the United States today, down from 324,000 in 2004. But it's making money. Before bankruptcy, GM lost about $4,000 per car. Now it makes about $2,000 each. GM says it is poised to earn about $19 billion a year when the car market rebounds.
GM is a strong player in China, where the auto market is growing exponentially. And customers in the U.S., potentially the most profitable car market in the world, are starting to take notice of GM's cars and trucks again. The upcoming Chevy Volt, an advanced electric-gas car, could help GM convince people it doesn't just make gas guzzlers.
And it's a winner with critics: GM won the Motors Trend Car of the Year award Tuesday for the Volt.
Still, questions remain. With this stock offering, GM doesn't rid itself of government intervention. The government remains a big shareholder. And three board members, plus the CEO and Chairman Ed Whitacre, were all hand-picked by the government.
Financial problems that plagued the automaker for the past decade still don't seem under control: Despite hiring Chris Liddell, a new CFO from Microsoft known for fixing problems, GM says it's still not sure all the financial problems were fixed.
And leadership questions remain. Akerson has been on the job less than three months, and he has no experience running a major manufacturing company. He's from the world of finance and telephones. He was chairman and CEO of Nextel until 2001, and then began working with The Carlyle Group in 2003. The Carlyle Group is known for its private equity expertise, and Akerson was in its powerful buyouts group.
Tom Krisher in Detroit contributed to this report.