GM IPO is Equivalent to a Government Bake Sale

You may have experienced, as a child, when your school or Boy Scout troop wanted to raise money, it held a “Bake Sale.”  A “Bake Sale” basically meant that your Mom baked a cake or cup cakes, donated them to the bake sale, and then bought them back.  The school or troop received the proceeds on the sale and your family ended up with a tasty desert that Mom made, but had to pay for twice.

The taxpayers face this very situation with the announcement of a GM IPO – except, perhaps, for the tasty part.  In addition to paying twice for GM as a taxpayer, if you choose to buy shares in the newly revamped company, you will have two guests at the table, the government and the unions, who have a voracious appetite ( for power and money), and may well consume your entire “Bake Sale” stock purchase.

It was reported, this week, that the General Motor’s pending IPO will not raise enough to pay the government back for the bailout money received.  Taxpayer break-even is approximately $70 billion.  GM has had two profitable quarters in a row, but investors are concerned about future growth in automobile sales as the economy continues to wane.  There are also questions about GM’s true financial strength, product lineup – the government, for example, is pushing environmentally friendly, but very expensive, products such as the Chevy Volt, and the strength and vision of the GM executive team.  At the same time, GM faces a substantial Union pension shortfall that remains a liability from its pre-bankruptcy operations.  It the government is able to sell off its stake in GM, it could take years.  That is, if the company is not driven back into bankruptcy.

Maybe this is one “Bake Sale” to pass up.