White House White Board: The Rebirth of The American Auto Industry

Posted by AzBlueMeanie:

Austan Goolsbee, Chairman of the Council of Economic Advisers, discusses the President’s tough decisions on the American auto industry in light of the General Motors IPO.

The New York Times reports that "American taxpayers’ ownership of General Motors was halved on Wednesday, and billions of dollars in bailout money was returned to the federal government, as a result of the nation’s largest initial stock offering ever." G.M.'s Stock Offering Recovers Billions for Taxpayers:

The offering, which raised $23.1 billion, is bigger and more ambitious than had once seemed possible. But the recently bankrupt automaker will have to build on its revival for the government to recoup its entire $50 billion investment and validate the Obama administration’s decision to keep G.M. from collapsing.

The new shares start trading on Thursday at $33 each. To break even, the Treasury Department will need to sell its remaining 500 million shares at an average price of $53 each in the months and years to come.

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Still, now that General Motors has shown that it can be profitable, a complete exit by the government could happen even within the next two years. With the offering, G.M. is shedding its ties to the government faster than expected, cutting the Treasury Department’s ownership stake to 26 percent, from nearly 61 percent.

The offering, President Obama said on Wednesday, continues “our disciplined commitment to exit this investment while protecting the American taxpayer.”

The administration had argued that saving G.M. was not just about one company, but about an entire web of businesses connected to its fortunes. On Wednesday, the nonprofit Center for Automotive Research released a study saying that government aid to G.M. and Chrysler saved more than 1.1 million jobs in 2009 and 314,000 jobs this year — the highest figure yet reported.

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Investor demand during the company’s two-week global roadshow to promote the offering had proved so strong that administration officials and another major stakeholder, the United Automobile Workers union, elected to sell significantly more shares than planned. G.M. has raised $18.1 billion from selling common shares and $5 billion from preferred shares.

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There are reasons for both company and government officials to be confident. G.M., freed from much of its debt and overhead costs, became profitable this year and has earned $4.2 billion through the first three quarters. And although it jettisoned four of its eight brands in bankruptcy, the company managed to stabilize its United States market share at 19 percent and continue to invest in new vehicles.

Both Motor Trend and Automobile Magazine just named GM's plug-in electric hybrid vehicle the Chevy Volt their 2011 Car of The Year.