Subsequent offerings of the government's holdings may be profitable depending on how investors trade the newly listed stock, the sources said.
But the question of whether taxpayers are ultimately made whole on GM's $50 billion bailout could be left open for years, the people said.
It could take more than three years for the Treasury to sell down its remaining stake in GM after the IPO, one person said. That would push a final accounting into the next presidential term.
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, but it could also help allay investor concern in the face of the slow recovery of the U.S. economy and flat auto sales.
Preparations for GM's IP0 remain confidential. Both GM and the U.S. Treasury have declined to comment, citing restrictions by U.S. securities regulators.
The Obama administration has pledged to exit its investment in GM as quickly as possible while holding out the prospect that taxpayers could ultimately be paid back in full.
Treasury spokesman Mark Paustenbach declined to comment. GM spokesman Tom Wilkinson also declined to comment.
GM plans to begin a roadshow for its IPO immediately after the November 2 U.S. midterm congressional elections, paving the way for a stock debut on November 18, sources have said.
GM in August filed paperwork for an IPO that could potentially be worth as much as $20 billion, making it one of the biggest IPOs of all time.
The U.S. Securities and Exchange Commission is now reviewing the automaker's S-1 filing.
Analysts and potential investors have projected a market value for GM of between $50 billion to around $90 billion, based on projections for the automaker's cash flow, comparisons with rival Ford Motor Co and trading in bonds in the old GM which are convertible into shares in the new company.
A market value at the high end of that range would be above the roughly $70 billion in market capitalization that GM needs to achieve for the U.S. government to break even on its $43 billion remaining investment in the automaker.
But IPOs typically price at a discount of 10 percent to 15 percent to theoretical fair value to reward investors for taking a risk on a new issue and pave the way for future stock floats. In tough market conditions, that discount can be even larger.
"You have to sell people on the notion that there is an upside to what they are buying," one of the sources said.
Another of the sources said the discount could be as much as 20 percent on the GM IPO compared with the U.S. Treasury's break-even point.
Preparations for the GM stock offering remain in the early stages. A number of the sources cautioned that the size and value of the deal and the size of the stake to be sold by the U.S. government have not been determined and will not be set for weeks.
GOVERNMENT STAKE IN 'GOVERNMENT MOTORS'
The U.S. government pumped $49.5 billion worth of taxpayer money into the automaker and took nearly 61 percent of its common stock.
GM has paid back $6.7 billion in debt to the Treasury and returned another $700 million in interest and dividends. The U.S. government also holds $2.1 billion in perpetual preferred shares in the automaker.
That leaves the government with a roughly $40 billion investment in the GM common stock that will debut in an IPO along with a new class of preferred shares that will convert into common shares under a mandatory provision.
In the days leading up to GM's August S-1 filing, Republican Senator Charles Grassley asked a special Treasury Department watchdog for an analysis of the GM IPO and how much money would be returned to taxpayers.
In its pitch to potential investors, GM will tout its global reach, recent gains in quality and pricing in its home market, and its sharply lower cost of operations after its 2009 bankruptcy, sources have said.
GM's $1.3 billion second-quarter profit was its biggest since 2004, when industry-wide U.S. sales were near 17 million vehicles compared with the 11.5 million sales rate of August.
But GM will have to address investor concern that growth in industry car sales in the U.S. in the second half of 2010 and into 2011 will likely be slower than analysts had expected just a few months ago.
At the same time, GM will have to confront a pension shortfall that remains a liability from its pre-bankruptcy operations.
GM eliminated about $40 billion in unsecured debt and other obligations in bankruptcy, but the automaker still needs to address a pension shortfall estimated at about $26 billion.
A successful IPO would be a political victory for the Obama administration and would help GM distance itself from critics who dubbed it "Government Motors" after its bailout.
