Ralph Nader seeks suspension of GM stock offering

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Ralph Nader seeks suspension of GM stock offering

Ralph Nader seeks suspension of GM stock offering
Associated Press
November 12, 2010

Ralph Nader and consumer groups want the Obama administration to suspend General Motors' initial public stock offering, saying taxpayers could lose billions of dollars in the deal.

Nader said in a letter Thursday that delaying the stock offering would allow the government to recoup more of its $50 billion investment and cautioned that the government would have less influence over the auto giant by reducing its ownership stake. He estimated taxpayers could lose nearly $5 billion by conducting the IPO this year.

The Obama administration has said it wants to sell off its ownership of GM as quickly as possible while protecting taxpayers and recouping as much of the $50 billion in federal aid as it can. Treasury officials have said they are not involved in GM's daily business decisions.

The Treasury Department and GM both declined comment on Nader's letter. But there have been no indications that the IPO will be delayed. GM executives are conducting a global "road show," discussing the company's prospects to institutional investors to drum up interest in the sale.

The letter was signed by Nader, the former presidential candidate and longtime auto industry critic, and leaders of consumer watchdogs Public Citizen and the Center for Auto Safety.

http://www.nola.com/business/index.ssf/2010/11/ralph_nader_seeks_suspension_o.html

TEXT OF THE LETTER

November 11, 2010
President Barack Obama
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500

Dear President Obama,

The U.S. government bailout of, and acquisition of a majority share in, General Motors was an
exceptional action, taken in response to exceptional circumstances. The U.S. stake in GM
obviously poses novel managerial challenges to the government. The appropriate response to
those challenges, however, is not to run from the responsibility through passive ownership and
premature sale at a loss to taxpayers.

We write as GM prepares to undertake an Initial Public Offering (IPO) of stock that will reduce
the government stake in the company to 43 percent. We urge that the government as primary
owner arrange for the suspension of the IPO and then begin exercising the responsibilities
attendant to ownership. We would like to highlight some of the numerous reasons for, and
applications of, these recommendations.

1. Ensuring the best return to taxpayers

The government obviously has a serious fiduciary duty to taxpayers to obtain the best possible
return on our investment in GM. This should not be the government's only consideration in
managing its GM stake, but it should be a priority.

News reports indicate the planned IPO will cause taxpayers to realize a $4.9 billion loss.1
Certainly no one can predict the future of GM or the markets with any certainty, but many
analysts have offered the view that GM's financial prospects are very positive. Simply
recognizing how severely the Great Recession has crimped auto sales in the United States gives
credence to this view; annual sales remain down by more than 25 percent from a few years ago.

Many analysts believe that the IPO is being driven by a government desire to exit from GM
ownership as soon as possible, even at the expense of better recoupment of the taxpayer
investment.

Investor prudence thus counsels for maintaining the government's current share, and delaying a
sell off so that the government can capture likely improved returns in the future.

2. Protecting jobs and investment in the United States

We believe the government emergency investment in GM was necessary and proper, though we
were and remain critical that the government imposed conditions on its investment to lower GM
costs but not to advance broader public interest objectives.
1 Soyoung Kim and Clare Baldwin, GM $13 billion IPO to cut Treasury stake to 43 percent," Reuters,
November 3, 2010, available at: <http://www.reuters.com/article/idUSTRE69U0X820101103>.

The primary rationale of investing in GM had to be to preserve jobs and prop an economy in a
severe downward spiral. As we pointed out at the time of the government investment, it was
incumbent on the government to ensure that GM maintained production in the United States.

There may be a rationale for GM to produce overseas for overseas markets, but it should not be
opening new facilities abroad to ship back to the United States; and choices about facilities
closings should favor keeping U.S. plants open, especially for vehicles produced for the U.S.
market. There is a broader concern: the U.S. government has an interest in ensuring the locus of
GM's research and product development remains in the United States.

As majority shareholder in GM, the United States has the ability to direct or influence the
company's investment decisions. As the U.S. reduces its share, so its capacity to influence such
decisions diminishes. Had the government invested in GM for pecuniary reasons, the legitimacy
of affecting such decisions would be lessened. But the government did not invest in GM for
pecuniary reasons. It invested precisely to preserve U.S. jobs and manufacturing capacity. It is
now incumbent on the government to manage its investment to advance these objectives.

Underscoring the importance of suspending the IPO to ensure protection of the U.S. national
interests in GM are reports that various foreign auto manufacturers -- including China's SAIC --
and sovereign wealth funds are considering purchasing large blocs of shares in GM.2

3. Addressing climate change, safety and environmental challenges

Looming over all the other great challenges facing the country and the world is the threat of
catastrophic climate change. Addressing climate change is going to require massive, across-theboard
changes in the way we generate, distribute and consume energy. No area will be more
important than transportation.

Your administration has taken some positive steps in increasing vehicle fuel economy standards,
but we need even more to achieve transformational change.

Holding a majority stake in one of the world's largest auto makers, even if due to an historic
anomaly, positions the U.S. government to directly advance the transformational changes we
need. In addition to prodding the auto makers to do better through always-contentious and
often-undermined regulatory processes, the government can and should direct GM to increase
dramatically its investments in electric cars and other transformational technologies, and to make
sure safety is not compromised with such new technologies.

The ability to direct such investments will decline as the U.S. share in GM declines.
Such direction makes even more sense given the second gift from TARP to GM in the bailout --
a provision allowing GM to keep a $45 billion tax loss carry forward that normally is erased in
restructuring. GM can avoid that amount in future tax liability on its profits.

4. Preserving our democracy from influence from unaccountable corporate entities

2 "China’s Saic Considering Stake in GM," Marketwatch, September 21, 2010, available at:
<http://www.marketwatch.com/story/chinas-saic-considering-buying-into-gms-ipo-2010-09-21>; "For GM
IPO, the Government's a Back-seat Driver," Reuters, November 1, 2010, available at:
<http://www.reuters.com/article/idCNN2912851820101101>.

Whether by government directive or some very modest sense of propriety, GM suspended its
lobbying and campaign contributions while undergoing the government rescue.
But now, outrageously, with the government still a majority shareholder, the company has
resumed lobbying. To peruse GM's lobby disclosure forms is to see a corporate entity working
to shape policy on a broad range of issues, including: auto and truck safety, Wall Street reform,
taxes, appropriations, climate change, fuel efficiency, trade (including trade agreements with
Korea, Peru and Colombia, and negotiations at the World Trade Organization), and currency
valuation.

Why in the world is a majority government-owned -- that is, publicly owned -- entity permitted
to lobby the U.S. Congress and executive agencies, often against your own administration's
legislative and policy positions, such as the Motor Vehicle Safety Act of 2010 legislation to
correct statutory deficiencies resulting in the Toyota debacle, presently pending in the House and
Senate? With the ballot boxes barely counted, the Alliance of Automobile Manufacturers (of
which GM is a prominent member) is already reneging on fuel economy rules it agreed to with
your administration less than two years ago.

The government as majority shareholder should not permit this to occur; and it should not
permit its shareholding stake to be reduced in such a way that GM gains greater latitude to affect
policymaking.

As the government was preparing its rescue of GM, we highlighted each of the concerns
mentioned here, and urged that they be addressed as part of the rescue process. Those
recommendations were, unfortunately, ignored. But it is not too late for the government to
exercise its control of GM responsibly, and to advance vital public interest objectives. We urge
you to act to suspend the IPO.

Sincerely,
Ralph Nader

Joan Claybrook, President Emeritus
Public Citizen

Clarence Ditlow, Executive Director
Center for Auto Safety

Robert Weissman, President
Public Citizen

http://www.citizen.org/documents/GM-IPO-11112010.pdf