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Turns Out Despite Its IPO, GM Is Still "Government Motors"

The registration statement for the General Motors IPO confirms that the offering now on the table is very much Phase One, and Phase One only, of taking GM public and getting the government out of the boardroom. The document contained few surprises, given the amount of information about the GM IPO that leaked out ahead of time.

However, I was guessing the other day that maybe the IPO would help Democrats peel the "Government Motors" label off of GM. That could help the Obama Administration politically by allowing it to deny that the government aspires to meddle with running industries. Turns out, that label still fits pretty well, even though the U.S. government share of GM will shrink to less than 50 percent.

Even after the proposed sale of shares, the Treasury Department will still own just over 40 percent of GM, which is more than enough to constitute a controlling share. Just for starters, the government would continue to have the biggest vote for the election of directors.

GM says in its prospectus that in fact Treasury has not sought to control or run GM operations since GM came out of bankruptcy in July 2009. But the potential is still there, and prior to that point, the government was hardly shy about throwing its weight around -- for instance, by forcing then-CEO Rick Wagoner to walk the plank. That was less than two years ago, although it seems longer.

And even if the government refrains from tinkering with day-to-day operations, GM is still subject to a lot of restrictions that in normal times would make the top executives at any publicly traded company howl, like executive compensation restrictions, and agreements to try to sustain GM production within the United States.

GM notes dryly in its offering that the interests of the U.S. Treasury, "may differ from those of our other stockholders. In particular, the UST may have a greater interest in promoting U.S. economic growth and jobs than our other stockholders." My translation: As an owner, the U.S. government could force GM to retain expensive, unionized jobs in the United States instead of outsourcing them to countries where labor is cheaper.

GM lists the areas where even after the IPO, Treasury could still exert a decisive influence:

  • "The selection, tenure and compensation of our management;
  • "Our business strategy and product offerings;
  • "Our relationship with our employees, unions and other constituencies;
  • "Our financing activities, including the issuance of debt and equity securities."
In other words, there's not much of any importance the government couldn't control if it chose. That means GM is going to have to wear its unwanted "Government Motors" label for a while yet. The strategy seems to be to wait for GM share prices to rise. Then government can make a graceful exit. That's defined as a profitable, or at least a not-too-unprofitable, exit.


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