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With big GM stock offering, vindication for the government bailout?

GM stock is trading again, after automaker's emergence from bankruptcy and a partial government takeover. But the debate goes on over the wisdom of the US bailout.

By Staff writer / November 19, 2010

‘We’re back’: General Motors CEO Daniel Akerson sat in a 2011 Chevrolet Camaro outside the New York Stock Exchange Nov. 18, the day GM stock began trading.

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Ypsilanti, Mich.

General Motors has come roaring back, right?

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Wall Street certainly thinks so. Investors snapped up GM stock on Nov. 18, the day the automaker resumed trading shares on the New York Stock Exchange after a 17-month hiatus and a near-death experience. That initial sale raised $20.1 billion for GM, most of which will go toward repaying $49.5 billion in bailout money owed to the US government.

But before anyone flings confetti or dances a jig over GM’s turnaround and the apparent success of the government bailout, talk to Don Skidmore.

A benefits representative for the United Auto Workers (UAW) here in Ypsilanti, Mich., Mr. Skidmore is dubious that GM is actually worth $33 a share, the opening price on the day of the firm’s initial public offering (IPO).

“A lot of [auto-worker] retirees come in and say, ‘Should they buy?’ and I tell them the same thing: Hold on,” he says. “I don’t think it’s a $33 [a share] company. It’s happening too quickly. I think it’ll dive down. We all think it’s going to be $10 [a share] in three months.”

Indeed, workers gathered recently at the UAW Local 849 hall in this manufacturing hub outside Detroit are wary of buying GM shares for themselves, saying the firm’s postbankruptcy restructuring cost them their previous stock benefits and burned away a majority of their 401(k) retirement nest eggs.

The contrasting views on Wall Street and in Ypsilanti about GM’s robustness are only part of the debate swirling around America’s No. 1 automaker. Opinions differ, too, on whether government intervention to save GM was the right thing to do.

Some argue it’s hard to rail against the bailout, given where GM stood in 2008 and where it is now. It lost $30.8 billion that year. Now, GM is predicting its first profitable year since 2004. It earned $2 billion in the third quarter, topping Ford’s $1.7 billion.

GM credits cost-cutting measures such as reducing the number of US dealerships from 6,246 in 2008 to 3,605 in 2010, streamlining from 71 manufacturing plants in 2008 to 54 by 2010, and retiring failing nameplates (Hummer, Saab, and Pontiac). The hourly workforce also fell 34 percent, from 61,000 in 2008 to 40,000.

“The IPO says [GM is] a company with a future [profit] stream worth investing in. That is absolutely remarkable and a dramatic change to where they were. They were flat out of cash,” says Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Mich., and a believer in the GM bailout and government-guided bankruptcy. “Paint me a better outcome if not assisted through this bankruptcy,” he says.

Though bailing out a private firm at taxpayer expense enraged some Americans, there was, of course, a precedent for it. Back in 1979, the US government guaranteed $1.5 billion in loans to an ailing Chrysler. Four years later Chrysler turned a profit, and it paid back the loans seven years early.

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