GM's IPO Pricing: Too Low to Repay Taxpayers?

Reuters has been able to get sources working on the GM IPO road show to divulge some details about the plan. The most depressing is that the deal will price well below the level that would get U.S. taxpayers back the money that they put into the No. 1 automaker. And the price may be less than what it may need to be to bring in a large number of new investors.

"A decision to price the initial GM shares below the cost to taxpayers would follow the usual Wall Street practice of giving the first investors in a new stock a discount," Reuters reported. "But it could also help allay investor concern in the face of the slow recovery of the U.S. economy and flat auto sales." The entire amount that the government put into GM is about $50 billion.

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The news service goes on to say that the government could take years to sell its entire stake, which means that the actual amount of the return wouldn't be known anytime soon. This approach would be a good deal different from some of the "investments" made in bank equity and debt as part of the TARP program. Most of those have be recouped as companies like Goldman Sachs (GS) have paid the government back at rates that represented good returns.

Statements, especially those by former GM CEO Ed Whitacre, might have caused taxpayers to believe that the return on their GM investment would be strong and could happen rapidly. If the government is slow to "cash in" and the auto market continues to face headwinds as it did in August, American taxpayers could still be left with a cents-on-the-dollar return for their GM investment.