GM IPO a fast start, but paying back bailout cash will be a marathon

General Motors and the Obama administration had good reason to cheer Thursday: The initial public offering that day raised more than $20 billion, recouping a significant chunk of the $49 billion that the Bush and Obama administrations spent to save the automaker.

GM shares finished up a further $0.07 Friday.

President Obama said the IPO helped GM take “another big step towards becoming a success story.”

GM North America President Mark Reuss was more measured, telling Reuters that the company has “to celebrate on the run.… It’s a big day to become a public company again, but we have got to just hit the ball out of the park here every day on product.”

Analysts agree that GM has put itself in a good position to do that. It has:

• Made dramatic cuts in labor.
• Cut manufacturing and dealership costs.
• Committed to expand in foreign markets including China and Brazil.
• Focused on vehicles that the market wants, such as Chevrolet's Cruze, Volt, Malibu, and Equinox.

The company predicts that it will have its first profitable year since 2004 and is in a good position to maintain its lead as the nation’s top automaker despite advances from Ford, its primary competitor.

'A marathon without end'

But the test of whether GM can continue its early success will come in years ahead, says auto industry analyst Paul Eisenstein, echoing GM North America President Reuss's words.

“This IPO is only the first step,” says Mr. Eisenstein, editor of TheDetroitBureau.com, a media site that tracks the automotive industry. “The big question is can they maintain the momentum they’ve had, because if they don’t, they’re going to be in trouble. This is not about hitting a goal post and scoring, it’s about beginning a process that is a constant marathon. It’s a marathon without end.”

It could take several years for the federal government to completely divest itself of GM stock, analysts say.

Early on, however, the IPO is already having an effect in the industry. The IPO will help Chrysler, which is planning its own IPO in 2011, learn more about the market, said Sergio Marchionne, CEO of Fiat, which owns 20 percent of Chrysler.

“It will give us the logistics of what this market is looking for, as far as pricing expectations,” Mr. Marchionne told Reuters.

This week’s IPO “will be a shot in the arm, not only for GM but the whole domestic industry,” says Gerald Meyers, a professor at the University of Michigan Ross School of Business in Ann Arbor. It will give buyers the sense that US automakers are once again building cars that consumers want, he adds.

“It will psychologically give [consumers] the commission to buy a domestic car again,” he says.

Troubled times for unions

One of the government’s main reasons for intervening was to save more than 1.3 million jobs in the automotive industry and supply chain. But for members of the United Auto Workers (UAW), those jobs now have lower wages and reduced healthcare and retirement benefits.

With Ford turning a profit in 2009 and GM on target to do the same this year, union leaders will be faced with having to stand up to automakers demanding more concessions in an attempt to further improve their balance sheets. At the same time, they will be putting out fires within their own organization.

“Next summer could be the most difficult in UAW history. Ironically, it may not be contentious between union and management, it could be between UAW leaders and the rank and file,” says Mr. Eisenstein.

The challenge, says Eisenstein, “will be explaining to members why, after a successful IPO, they can’t expect to get back all their concessions.”

UAW President Bob King already announced that the union would not be giving any more concessions to all three automakers during next year’s contract talks, which are expected to take place in September.

“When the industry comes back, just like we're sharing in the downside we're going to share in the upside,” Mr. King told Reuters. “That's a key foundation of what we're doing in 2011.”