Final Inspection

Obama Factor the Wild Card in GM’s IPO

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A year ago, we saw what having the U.S. President behind you can do for a bankruptcy filing.

Now we’re about to discover what it means to have Barack Obama backing your IPO.

Last summer, Obama’s political muscle helped engineer a largely pre-packaged bankruptcy that saw General Motors’ Chapter 11 reorganization sail through the courts in 39 days.

Many inside and outside the company feared a more knock-down/drag-out legal proceeding taking years, not weeks, similar to automotive supplier Delphi’s recent slog through bankruptcy court. Some thought GM might not make it out alive.

But little more than 12 months later, the auto maker not only has put its bankruptcy well behind, it is racking up reasonably healthy profits, in spite of a still-anemic U.S. new-car market.

So, will the Obama administration have a similarly positive effect on the success of GM’s IPO?

It’s clear by the stock offer’s timing – with at least a firm launch date expected, not coincidentally, just ahead of midterm elections in November – the President already is influencing what happens when, even though GM continues to insist the decision to go public rests solely with its board.

Now it will be important to Obama to get the results he needs.

Coming strong out of the gate with an oversubscribed offering fetching an astronomical share price and adding up to the single-biggest IPO in U.S. history would give Washington something to crow about.

Obama needs over-the-top proof GM now is on solid ground if he is going to declare his rescue mission a complete success and tilt the Nov. 2 elections in the Democrats’ favor.

So what might he do? I put that question to Gerald Meyers, an industry veteran and one-time American Motors CEO, now professor of management and organizations at the University of Michigan’s Ross School of Business.

“There will be definite pressure,” says Meyers. “And it will be coming from all areas of the administration. I’m afraid.

“This is nothing but a political act. The timing is totally political. That’s the thing you worry about when government takes a piece of the commercial action. It is subject to political wind. And this one certainly is.”

Wall Street, fingered as the triggerman for 2008’s worldwide economic collapse, has been in the doghouse with the current administration from day one, so pushing the GM stock on investors could help it regain favor with the White House.

“I expect the banks to get full blown behind it,” Meyers says, if for nothing other than financial gain. But he warns there may be some Republican arm-twisting in the opposite direction, as well.

“It’s too bad, but that’s the way it is. Republicans are determined to kill anything the Democrats want.”

Some analysts, including Meyers, think GM’s IPO timing is way off. The stock market remains in the doldrums, while the auto maker’s post-bankruptcy track record is too short and continues to be dogged by too many unresolved issues and management changes, detractors say.

But Obama may be the big trump card everyone is overlooking. If GM’s IPO turns out to be successful beyond all belief, give a big chunk of the credit to the guy in the Oval Office.

As Meyers says, he’ll take it anyway.

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WardsAuto editors share insights and observations on the global auto industry.

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Dave Zoia

As Editorial Director, I oversee much of what goes into WardsAuto.com, enjoying a ringside seat that lets me observe up close just about every facet of the industry worldwide. I have covered the...

James M. Amend

James Amend is an associate editor at WardsAuto.com, covering day-to-day business and product news at General Motors. He also leads coverage of regulatory and environmental issues, as well as the...
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