The Revitalization of GM

Today, GM began to trade as a publicly-held company on the New York Stock Exchange.  This is a big deal for a number of reasons.  First, it means that taxpayers are being (partially) repaid for the auto bailout.  Prior to GM’s initial public offering (IPO), $9.5 billion of the GM bailout funds were repaid, according The Wall Street Journal.  This stock offering raises an additional $20 billion, much of which goes to the U.S. Treasury to pay back the bailout.  That means that, at best, GM has repaid around $30 billion of the $49.5 billion bailout.

Secondly, GM going public again means that the auto bailout, no matter who distasteful you may find it, was a success (somewhat).  GM, which prior to bankruptcy and bailout was an uncompetitive company with a butt load of debt, labor costs, and inefficiencies, has emerged as a competitive player in the global marketplace.  The goal of the bailout, as I see it, was to take a company that was shedding jobs, prevent it from going under, and transform it into a job creator.  GM is doing just that by hiring workers for new manufacturing plants and adding more shifts at existing plants.

GM is now in the position to recapture the top spot in global automotive sales.  Toyota is in the lead right now, but down the road I think GM can reclaim the top.  The important thing right now is that GM continues to turn a profit, which I expect them to do.  Labor costs are down, thanks to a new two-tiered wage system agreed upon by the UAW.  Old workers typically make $28 an hour, and with the new deal, new hires will make just $14, competitive with what foreign companies pay workers in their U.S.-based plants.

Extra and unnecessary brands were ended or sold, debt was destroyed, and GM is now moving forward.  As of 3:47 PM eastern, shares of GM are trading slightly above what they sold for in the IPO.  That’s a good sign.

GM’s upcoming models are also good signs for the future of GM.  The recently released Chevy Cruze and Buick Regal, for instance, have gotten great reviews.  The Chevy Volt was chosen as Motor Trend‘s Car of the Year.

GM has done the unthinkable by turning around in a year and a half.  GM will prove itself a strong player in the global automotive industry, something it could not have done without the auto bailout and expedited bankruptcy.

Yes, the bailout worked.  Having said that, GM could have just gone right into bankruptcy without getting all the taxpayer dollars.  If that had happened, GM would not be as strong as it is now, but its image would not be so tarnished (“Government Motors”), and the company would probably have been better off long-term without the U.S. Treasury owning 60% of it (now down to about 33% after the IPO).


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