The government wants to sell off its GM stake, but setting a timeline would be counter-productive, according to Auto Task Force Director Ron Bloom, who foresees a big taxpayer payback.
On balance the federal bailout of the U.S. auto industry has been good not only for carmakers but also the U.S. economy, say several key industry experts.
Rod Lache, top automotive analyst for Deutsche Bank, said that the private sector’s general approval of the GM and Chrysler bailouts has been signaled by the increase in the value of certain auto stocks. The restructuring of the auto industry not only has given General Motors and Chrysler a new lease on life, but also could lead to Ford Motor Co. becoming profitable again by the end of 2009. And its is quite likely that GM will be profitable in 2011, Lache told a crowd of industry leaders at the annual Management Briefing Seminars, in Traverse City, Michigan.
Meanwhile, the head of the Presidential Auto Task Force that bailed out GM and Chrysler reiterated that the federal government will not be involved in the day-to-day operations of either company. The government wasn’t involved in the decision on whether Bob Lutz should stay on at GM as vice chairman, said task force boss Ron Bloom. That, along with other personnel changes that have followed the company’s emergence from bankruptcy, were all left strictly in the hand of GM’s management, said Bloom, a former official with the United Steel Workers and a successful investment banker.
As with any major shareholder, the task force will continue to monitor both Chrysler and GM and conditions in the auto industry. But Bloom, when asked about the government’s continuing role, insisted that the task force will not be involved in day-to-day management, nor will it plot either company’s strategic longer-term moves. “That’s up to General Motors management and board,” he said, as it also will be for Chrysler.
“We do not view using our ownership of General Motors as an instrument of social policy,” Bloom added. “I consider us stewards of the taxpayers’ money,” said Bloom, who conducted an extensive review of the both automaker’s operations before they finally filed for bankruptcy.
While the government owns 60 percent of the new GM, the government’s ultimate goal is too sell that stake off as soon as “practicable.” Asked to define that term, Bloom was intentionally vague. He noted that announcing some kind of timeline would be injurious to any kind of public offering of stock in the new GM.
Nevertheless, a sell-off of the government’s large stake in GM is likely to start as soon as next years if market conditions permit an IPO. “We don’t make markets. Markets make markets,” he said, adding “We don’t believe government ownership is conducive to long-term value creation,” Bloom said.
Ultimately, the timing of the sale is likely to depend on when GM returns to profitability, he said. “We think private capital is skeptical of government investment and the only way to overcome skepticism is with evidence.”
Bloom also vehemently denied that the task force gave any kind of preference to the United Auto Workers, which holds a 17.5% stake in GM, as well as a stake in Chrysler. The negotiations with the union were conducted at “arms length,” said the task force chief, and both active UAW members and retirees wound up making significant concessions to help save both companies. Thousands of workers lost their jobs, he added. The stock given to the Voluntary Employee Beneficiary Associations as part of the deal with the UAW represented the task force’s best estimate of what was required to the get the deal done, Bloom said.
Bloom repeatedly defended the need for direct government intervention to avoid dire consequences that would have followed the collapse of both companies. “Both companies would probably would have gone to Chapter 7 liquidation,” insisted Bloom, which would have had a “horrific” impact on the economy extending far beyond the confines of their plants and office buildings.