WASHINGTON (Reuters) - General Motors Co’s swift journey from dying company to blockbuster IPO is a remarkable story by any measure.
Yet President Barack Obama and his Democrats have received little political credit for it, even though White House “car czars” engineered the transformation as they shepherded the automaker through a government-sponsored bankruptcy.
Instead, American voters demonstrated again this month that they loathe bailouts, much to the detriment of Democrats.
A desire to limit further political damage well ahead of the 2012 presidential election could influence the Obama administration’s exit strategies for remaining taxpayer investments in GM, Chrysler Holdings, American International Group and smaller banks.
“They saved the company, they saved an industry, but it doesn’t seem to have any political traction,” said Julian Zelizer, a historian and public policy expert at Princeton University.
“As long as high unemployment continues, people are just suspicious of any claims of success,” he added. “That’s not what most Americans see on the ground.”
Obama trumpeted GM’s journey as a “success story” and said taxpayers were on track to recover more from the automaker than the $30 billion his administration spent on the restructuring. That does not count the nearly $20 billion spent during the Bush administration in 2008 to bail out GM.
GM shares rose in their debut to close at $34.19 from their $33 IPO price. Still, they would need to reach about $49 for the government to declare a profit on the bailout. For more, see:
Officials will have to balance a desire to show a profit for taxpayers against the desire to trumpet a full exit.
White House spokesman Robert Gibbs said the administration was hopeful the government could be fully out of its GM investment by mid- to late 2012.
“It was the right thing to do and I think that it’s had a tremendous impact on our economy,” he said. “We’ve seen jobs that haven’t been lost as a result of it.”
But voters showed indifference in Indiana, a state that where tens of thousands of jobs were saved by the bailouts of GM and Chrysler. In mid-term elections, Indiana voters handed Republicans a U.S. Senate seat and two House of Representatives seats previously occupied by Democrats.
Obama and Vice President Joe Biden next week are slated to visit Kokomo, a city that had 5,000 GM and Chrysler jobs saved.
“If you go outside New York and Washington, D.C., it’s hard to find people who believe that the bailouts were a success. There’s a huge disconnect,” said Alex Conant, a Republican political strategist in Washington.
“The administration can argue that this didn’t cost taxpayers as much as originally feared, but they’re missing the point that people feel the government should not be bailing out private companies.”
The GM IPO also has not changed the Treasury Department’s estimate that the ultimate cost of the $700 billion bailout fund will be only about $30 billion, a figure that has marched steadily downward over time.
Analysts believe the Treasury is likely to employ a tactic it has used over the past year to sell down its stake in Citigroup Inc through regular share sales in the market under a trading plan designed not to tank the share price.
Reaching the Treasury’s GM break-even target could prove difficult, as a steady stream of GM shares sold in the market could sap momentum from the company’s recovery. Citi shares, for example, have been mired around the $4 range for the better part of a year.
As it gauges how best to sell GM shares, the Treasury also is expected to begin selling off its 92.5 percent stake in bailed-out insurance giant AIG next year.
It also may begin preparations for a Chrysler IPO, though the government’s stake in the Fiat-linked automaker is a much more manageable 10 percent.
An Obama re-election bid in 2012 is not likely to be helped if the Treasury is still selling off shares in bailed-out companies — even at a profit — as the election approaches, Princeton’s Zelizer said.
“The best bet is for him to finish this up, get out as quickly as possible and hopefully the economy is stable and starts to grow,” he added.
Reporting by David Lawder; Editing by Dan Grebler