GM's CEO Steps Down Amidst IPO Talk

Aug. 12, 2010— -- The announcement that General Motors Co. CEO Ed Whitacre is stepping aside, coupled with rumblings of a possible public offering of the auto giant's shares, seem to signal the turning of a page for a company that is one year removed from bankruptcy emergence and which is 61 percent owned by the U.S. Treasury.

But is now really the right time for a GM IPO? That's what auto analysts and some critics are wondering.

"It's earlier than what would be ideal relative to where GM stands with their turnaround, but there are broader political considerations playing into the timing," said Craig Fitzgerald, an automotive analyst at Plante & Moran in Southfield, Mich.

It's probably not unrealistic to think that President Obama is trying to relieve GM of its status as a ward of the federal government -- which could be seen as a major victory for the administration -- just ahead of the midterm elections, Fitzgerald added.

"I think it's highly likely that the timing of the IPO talk is politically motivated," said Dan Ikenson, a researcher with the libertarian think tank Cato Institute in Washington, D.C., and himself a vociferous critic of the auto industry bailout.

If GM does file for an IPO, some analysts have said that they expect the company could seek to raise as much as $20 billion, which could make it the largest offering ever, surpassing VISA's $18 billion offering in 2008.

But the prospect of the IPO not raising anywhere near the amount of cash to make taxpayers whole is a real one and as such could backfire on the Democrats, said Cato's Ikenson.

"A lackluster offering would generate a lot of bad press before the election," he said. "With economic growth and auto sales prospects apparently in doubt and the $41,000 Chevy Volt about to be unveiled when gas prices are relatively low, investors may not be ready to own GM stock. Look, I'm all for getting the government out of the car business as quickly as possible. But successfully reprivatizing GM should not be taken as a sign that the $50 billion intervention, akin to a theft, was successful."

GM reported $865 million in profit during the first quarter and exceeded that in the second quarter, reporting Thursday it notched $1.3 billion in net income on $33.2 billion in revenue. GM has paid back $8 billion in TARP loans since being bailed out, and in a historic milestone is soon set to unveil its long-awaited battery powered car, the Volt.

At least one analyst said he thinks GM has turned a corner, and could enjoy a smoother ride ahead.

"As far as new offerings, better automobiles, they've hit the mark," said Ron Harbour, an analyst with Oliver Wyman in Detroit. "The Volt may not sell 100,000 in the first year but I applaud GM for taking a big risk on a new technology. This is something that could very well pay huge dividends down the line."

The Volt is not commercially relevant to the near-term success of the company, argued Plante & Moran's Fitzgerald.

As far as the timing, Fitzgerald said that it's the bank underwriters' role to tell GM whether now is the right time to come to market, and whether there is sufficient demand for the shares.

"If they tell GM the time is now, then GM will go for the offering," he said. "If the judgment is now is not the time we can't sell this, then GM will back off."

As far as Whitacre stepping down as CEO, the 68-year-old will be replaced by a GM board member, Daniel Akerson, 61, and the head of global buyouts for private equity firm The Carlyle Group. Akerson will be GM's fourth CEO in the past year-and-a-half.