By on June 8, 2011

Bloomberg reports that a “person familiar with the matter” says the US Treasury won’t sell its remaining stake in GM as long as the automaker trades below its $33/share IPO price. Previously the government’s auto team had said it would not try to “time the market” and our analysis showed that the Treasury was likely to sell sometime late this Summer. But it’s been months since GM spent more than a few days above its IPO price, indicating that Treasury may be waiting considerably longer if the IPO-price floor is set in stone. And with $36.5b in cash equivalents on hand and only $5b in debt, GM’s $45b market cap is hardly encouraging… especially with investors waiting for The General to match Ford’s profitability levels. Heavier discounts mean a lower operating profit for GM in the US market, and the first quarter shows a $1b swing in pricing between the two firms (with Ford improving $700m and GM dropping $300m) according to Bloomberg. Lower finance earnings are also holding The General back relative to Ford. So, what’s GM’s response?

CEO Dan Akerson used a strange inversion of the old “what’s good for General Motors is good for America” formulation to explain his firms struggles to shareholders, telling the Detroit Free Press

More than any other company that I’ve been a part of … we are tied to the economy. I worry about a jobless recovery, because people who have jobs buy cars.

And despite GM’s giant cash pile, or rather, because of it, Akerson seems more worried about the credit market than anything else. The WSJ [sub] reports that much of GM’s cash could go towards building up in-house finance operations, as well as funding pensions, restructuring Opel, dropping $5b on its Korean GM-Daewoo operations,  investing in product and upgrading facilities. And because of his emphasis on the finance side, the Freep reports

GM is still working to restructure, Akerson said. But he worries about GM’s prospects if Congress doesn’t raise the debt ceiling this year, causing the U.S. to default on loans. “I think it would shake the credit markets tremendously,” Akerson said. “I think we shouldn’t underemphasize that and play chicken with our national credit rating, our national honor.”

Akerson isn’t the only CEO to worry about credit markets, but wasn’t one point of the bailout to help make GM less sensitive to credit market shocks? In any case, Akerson’s warning to the feds wasn’t just idle chatter, as even he seems to believe that the government could be forced to either take a loss on its equity stake in the short term or hold on for the long term.

Before the meeting, Akerson told reporters he wasn’t happy with GM’s stock performance, but he felt stockholders should view GM as a longer-term investment. “You invest for the two-, the five-, the 10-year periods,” he said.

Yet the White House isn’t going to want to still own GM equity by the time the 2012 election campaign hits high gear… but then it won’t want to incur larger losses than the $14b-$16n it’s been forecasting. Which leaves the bailout boosters in something of a damned-if-you-do, damned-if-you-don’t position. Which, in turn, puts the pressure back on GM to buy out the government stake on its own terms. And sure enough, a number of reports suggest that GM (or its “executives”) could buy back the government’s stake… but the government doesn’t want it to look like The General is benefitting from from its politically-motivated impatience, and that option seems to be off the table now. Instead, GM could buy up outstanding public shares, artificially inflating the price and allowing the Government to exit with (relatively) minimal losses.  In short, a variation on a pump-and-dump (and, because the money ultimately comes from taxpayers, yet another shell game). The stuff of inspirational campaign fodder it ain’t, but it may just be the only option left on the table.

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54 Comments on “Treasury Won’t Sell GM Until Stock Improves. GM To The Rescue?...”


  • avatar
    wsn

    Any news or action that the government is selling its GM stake will bash the price to below $20.

    The only way for the government to make money is to do some “insider trading”:

    1) Quietly start some put positions.
    2) Sell part of the stake covered by the puts.
    3) Start some call positions.
    4) By now, people realized that the government would buy in options before the next action. So people would buy in to respond to the new call position.
    5) Price is lifted by 4. So dump more stake and the calls.

  • avatar
    Secret Hi5

    “Pump-And-Dump Coming?”

    I don’t like question marks in titles. Either remove the question mark or delete that sentence.
    (Just a humble suggestion, of course.)

  • avatar
    segfault

    “Pump-And-Dump Coming?”

    Let’s begin the “pump” part: GM is the best government-owned car company in North America!

  • avatar
    highdesertcat

    I think that the loss on the auto industry bail outs forecast by Treasury and the Obama administration was way too optimistic. I believe we, the people, will lose a lot more money on these bail outs, to include the sale of currently held GM stock. They can try to pump and dump but I doubt it will work because the true market value of GM stock is a lot less than its current paper price. I used to own GM (and Ford) stock in the past and you have to ride the data (all the data out there) to gain an better perspective of what the stock is really worth, and projected to be worth in one, three and five years. The factors to watch for are many and include unsold vehicle inventory, current average sales transaction price per vehicle class, incentives needed to move the current dealer floorplan, marketshare-trend year-over-year, and, of course numbers of stock trading hands daily. All this data is readily available and paints a pretty good picture of what a company, and its stock, is really worth. The fact that GM failed to out-profit (make a higher profit than) Ford, and the fact that GM has an enormous inventory of unsold 2011 vehicles is a clear warning sign to go slow. I believe Treasury understands this. This is where the Buy American fans should jump in and put their money where their mouth is. They should jump on the chance to buy GM stock at $34, nay $53, per share and invest in America and GM. Yet even the Buy American fans shrink away from this once-in-a-lifetime good deal.

    • 0 avatar
      Tommy Boy

      I’ve read that the tax loss carry-forwards that (contra to usual bankruptcy practice) GM was allowed to keep — $45 billion — translates to about $13 in cash that otherwise would have gone to the IRS (and thus to taxpayers, who now will have to make up the difference). So that “off the books” loss already about doubles to current “official” estimate of taxpayer losses.

      Also, the government granted how many billions of dollars of stock in the new entities to the UAW, which otherwise (I believe) in a normal Chapter 11 would have received nothing (and certainly much less). That is stock that the government could have retained and used to offset the bailout, but didn’t — so there’s an opportunity cost there, and again the taxpayers will incur the “off the books” hit.

      This whole bailout stinks to high heaven.

      • 0 avatar
        aristurtle

        A “normal” Chapter 11 was off the table at the time; there were no willing lenders aside from the government. Certainly the UAW wouldn’t have gotten anything in a Chapter 7, but neither would the “taxpayer”.

      • 0 avatar
        Steven02

        The UAW was owed billions from VEBA. They took part of that in equity. The UAW would have gotten money in Chapter 7 as they were still a creditor.

      • 0 avatar
        MikeAR

        Aristurtle, the whole point is that GM is going to be a money loser no matter what. It’s now just a matter of how much we get stiffed for.

      • 0 avatar
        highdesertcat

        We won’t know until the dust has settled on the shakeout of the US auto industry just how badly the US tax payers had to take it in the shorts. Then again, at the end of the reshuffling of our American automobile manufacturing assets, we may find that the bail outs and hand outs showered on the US auto industry by both Bush and Obama may just be a drop in the bucket when it comes to the total amount of treasure that was squandered in this socialist welfare state that selectively funded some for survival at any cost, and let others die on the vine.

        At this point in just the Obama term in office it is guestimated that we, the people, have borrowed in excess of 3.5 TRILLION dollars to stimulate ourselves to keep our economy going, with nothing to show for it. More than 15 million people are still looking for work or are under-employed, and some have withdrawn themselves from the job market, living on welfare or social security retirement instead.

        If you look at it that way the 200 BILLION dollars we will have “invested” in the US auto industry pales by comparison. The only thing that is still real and what we have to live with, and our children, and our children’s children, is the insurmountable debt and loss of assets we have been bequeathed by Bush and Obama with their ill-advised bail outs. Are we better off as a socialist state? Methinks not.

        Even if the Treasury holds on to GM stock a little bit longer in the hopes of getting to that magical $53 a share, which, short of divine intervention, will never happen, it is an exercise in futility. It won’t happen! In retrospect, we, the people, through our representatives should have let failed companies die and be liquidated. You can’t resurrect the dead.

        By the time the shakeout is done the US auto industry as it once was during its heyday, will be merely a memory. All we have succeeded in doing is to keep the UAW employed at the cost of the US tax payers, and in the end the inevitable will still have happened. It’s a sad, sad testament to capitalism and a sorry standard or example to set for the rest of the world.

        Wouldn’t it be something if GM stock drops even lower in 2012? How much more would we lose if that were to happen?

      • 0 avatar
        Tommy Boy

        >>”A “normal” Chapter 11 was off the table at the time; there were no willing lenders aside from the government.”

        The government could have guaranteed “debtor in possession” financing, in which case lenders would have been lining up to provide “risk free” financing.

        And then allowed a genuine Chapter 11 restructuring, instead of the the politicized one that had the two companies emerge with their pension / legacy costs intact.

        This was a sweetheart bailout of the UAW, plain and simple.

      • 0 avatar
        aristurtle

        @MikeAR: If GM doesn’t fold again under Akerson (yeah, I know, big “if”), then we lost less money by saving them than we would have by letting them fold and selling the parts off to China in a fire sale, which is what a Chapter 7 would have turned into.

        @Tommy: Yeah, you’re right: the US government could have socialized the losses while privatizing the gains by guaranteeing financing (thus assuming all the risk) while letting the investment banks, which had just separately received their own bailout, pick up all profits from the New GM. Sounds awesome, I bet that’s how McCain would have done it. Double-dip bailouts for investment banks while screwing retirees, because that’s what America is all about.

        The bailout, as it happened, was the least bad of a number of terrible alternatives.

      • 0 avatar
        MikeAR

        Aristurtle I think GM won’t go bust until after Akerson is gone. He is talented enough to paper over failure and leave the mess to the next guy who will inherit a ticking timebomb. That being said, is it the place of the government to prop up or subsidize every business? If the answer is yes then literally save every business but if the answer is no then keep out of private business. No matter how small, there is always some pain and disruption when a business fails. The government shouldn’t have to pick up the pieces and make it right for everyone. And if not for one then not for the other. It is a matter of right and wrong to me and under no circumstances was bailing out GM right. Especially when the naked political considerations were added in. Everyone should have the right to fail.

        I don’t like the tax code for corporations and subsidies either. They reward those who are most adept at gaming the system rather than producing goods or services that customers want. Rewarding the UAW was another product of the bailout that should be criticized by everyone who isn’t in the union. It was a pure political payoff that in an honest government and courts would have put people in prison. Like I said earlier, right or wrong, that is the final judge and I can’t see how anyone could say the bailout was a good idea looking at it that way. People, businesses and countries have failed before without bailouts and things have worked out in the long run. People get new jobs, start new businesses despite the short term pain.

      • 0 avatar
        aristurtle

        Mike, China, Germany, and Japan aren’t squeamish about lending some money to their country’s national industrial base during tough times. If our companies are supposed to compete with them properly, why shouldn’t we do the same? If the circumstances with the financial market were normal when GM was having its crisis, there would have been no need for serious involvement. I mean, that’s basically how it was for Ford, right? But because we had two catastrophes overlapping each other, it was an exceptional circumstance. I don’t agree with this idea you’re presenting that everything needs to be done the same way every time, regardless of context.

        And I’m also not sure how you can simultaneously spin this as rewarding the UAW, anyway. You can’t say that “holding GM equity is bad for the Treasury” and at the same time say “holding GM equity is great for the UAW”. That’s self-contradictory, just like Tommy up there saying that the government shouldn’t have taken any stock in GM, but should have taken all the stock that the UAW got.

        Fact is, the UAW holding GM equity is probably a good thing for GM; the UAW will stop shooting itself in the foot if it has a clearer idea that it’s attached to that foot. (And if Bob King pulls his head out of his ass.)

    • 0 avatar
      highdesertcat

      I don’t think that our government holding large positions in GM, or any other for-profit company is a good thing. It is one thing for our government to finance an enterprise for the public good. But it is quite another for our government to bail out a failed for-profit enterprise with tax payer money, and then lose a very large portion of that tax payer money.

      The clear winners here are the UAW who were allowed to continue to live large on the public dime. The more merciful thing for the rest of us would have been for failed companies like GM and Chrysler to die and follow normal bankruptcy proceedings, and then be liquidated. Hey, you make bad business decisions and you go bust. Happens all the time. That’s what bankruptcy courts are for.

      Until the bail outs of GM and Chrysler every other American car company that failed, died and was liquidated. The same applies to too-big-to-fail banks, mortgage holders and investment houses. That problem started way back in 1994 with Bill Clinton and his vision of home-ownership for everyone, and Jim Johnson who then ran Fannie and Freddie. Ah, but that’s another story altogether.

      But the bottom line is that we each can do something about this, and what we believe in. If you believe in bail outs and hand outs and nationalization of failed companies like GM, then you buy their products. If you don’t believe in them but you just have to buy something American to support our country, buy a Ford product, even if it is made in Mexico or Canada. Otherwise, buy any of the excellent foreign brands currently made in America, by Americans, for Americans. That now also includes a foreign-owned company like Chrysler. It’s as simple as that.

  • avatar

    I think I like Akerson the most so far.

    This surprises me.

  • avatar
    Mullholland

    Not much news here. Financial shenanigans have always been Job One at GM. The real news from Action Dan @ GM yesterday was his call for the US to increase the gasoline tax on any future dips in gas prices (hope springs eternal when it comes to dips in gas prices, just listen to Bernake’s recent comments). Is this a brilliant CAFE escape trick or pick-up truck suicide? Either way GM thinks things will be better if the government gets more of your money at the gas pump. Reminds me of the good old days when what was good for GM was good for the USA. Perhaps Dan’s been lurking here at TTAC.

  • avatar
    GS650G

    This is a real corner they find themselves painted into. first they are time limited by politics since there is no way they are going to hold this much of GM for very long. But as a large stockholder selling will hugely impact the price, look for low 20s at best. More to the point what is GM really worth? Doesn’t the market dictate that, not treasury?

    I think markets already determined what GM was worth last time. What has fundamentally changed since teh bailout?
    Market share? Nothing new here.
    Products? Fewer brands is a positive, but the overall mix is not very different. Volts are not saving them, and the complicated mix of offerings is troubling.
    Management? Well rabid Rick, Lutz, and Fritz are long gone but the revolving door of leaders does not inspire confidence. Ford shows stability here and even Chrysler now has car people running the company.
    Expenses? The legacy pension and benefit costs still linger, the UAW is a partner in all this. Now we have issues with parts availability.

    The entire auto business is hurting right now, everyone’s stock is wavering, Ford went below 14 for the first time in months. Car sales are about to hit the skids this summer. Gas prices are affecting everything.

    This is all one big lesson in why socialist government intervention is a bad thing. It doesn’t matter what good might come of it, it’s essentially a mistake.

    • 0 avatar
      musiccitymafia

      “What has fundamentally changed since the bailout?” … nothing except the knowledge that the government has a propensity to bail the company out if and/or when it gets into trouble …

  • avatar
    carguy

    The accusation that government sanctioned “pump and dump” practices are imminent is very strong language to use to describe the governments reluctance to sell stocks that they feel to be undervalued.

    However, I don’t seem to see any factual information in your article that would support such an assertion. It looks a lot like 100% speculation driven by a slightly partisan inspiration.

    • 0 avatar
      MikeAR

      Hypersensitive much?

    • 0 avatar

      I realize I left out an important link to the highly partisan slingers of non-factual information at Bloomberg. Take a look.

      The “pump-and-dump” scenario is not only under discussion, it’s the only one without a serious political or economic downside. As such, I think it’s fair to conclude that it is likely (though not guaranteed) to take place.

      But by all means, write off my analysis as partisan… it’s easier than actually doing the research.

      • 0 avatar
        ClutchCarGo

        It would probably help dispel partisan accusations if you weren’t misusing the term “pump and dump”. Here’s the defitinition from the SEC:

        http://www.sec.gov/answers/pumpdump.htm

        While the scheme you describe (GM buys public shares to raise the market price so the govt can sell at the desired price point) represents a distortion of “pure” market forces, it hardly equates to the fraud behind pump and dump schemes.

      • 0 avatar
        MikeAR

        Pump and dump is pretty much what has happened since the pre-IPO period. Rmember the original IPO was supposed to be at $23-26/share (if I remember right) then it went to $33 a share for no particular reason that I can remember. Maybe the response to the roadshow was so good that the underwriters decided to jack the price up. But whatever happened, it was pumped pre-IPO and now it is being dumped. Unfortunately, the Feds, as usual couldn’t get it right and are left holding the bag.

        By the way, every ibank pumps and dumps. Traders and salesmen are pressured to sell whatever garbage the firm has in inventory. It’s done all the time.

      • 0 avatar
        carguy

        Ed – the Bloomberg article changes little – it is still speculation. I would agree that the government is in a tight spot – it doesn’t want to sell the shares cheaply, it doesn’t want to flood the market with shares and it doesn’t want to hold them for the 2012 elections. However, that is a long way from a government orchestrated pump-and-dump campaign which is the prominent part of your headline.

      • 0 avatar

        OK, so there’s a difference between using misleading information to “pump” a stock price and buying up shares to accomplish same. I get that. Another difference between this and a “pump and dump” per SEC’s definition is that this is two actors working in concert rather than one actor doing both the “pumping” and “dumping.”

        Perhaps instead of questioning my motivations, TTAC’s Best And Brightest might like to help come up with a more accurate description to replace “pump and dump” in the headline.

      • 0 avatar
        doctor olds

        @ClutchCarGo-excellent comment!
        It should also be noted that General Motors is generating plenty of free cash flow and the company is not spending taxpayer money anymore. After 5 profitable quarters in a very depressed U.S. market, GM stock is down 15.5% while Ford is down 14% – auto stocks are down due to high gas prices. GM has special, political pressures.
        Absent a severe double dip recession, GM will continue to generate good profits. Recovery in Europe will propel GM earnings over Ford. GM already makes almost as much in NA alone as Ford does globally. The difference is net overseas loss due to Europe.

  • avatar
    Bridge2farr

    “But by all means, write off my analysis as partisan… it’s easier than actually doing the research.”
    Hypersensitive much?

  • avatar
    bunkie

    Pump-and-dump is a criminal practice, of the sort that attracts the attention of the SEC. Insinuating that the Federal Government is about to engage in a criminal practice puts you in dangerous territory.

    • 0 avatar
      MikeAR

      The SEC doesn’t have time to enforce securities laws anymore, they’re too busy watching porn on their office computers.

      • 0 avatar
        mike978

        way to go with the over-generalizations Mike in Arkansas

      • 0 avatar
        bunkie

        “Perhaps instead of questioning my motivations, TTAC’s Best And Brightest might like to help come up with a more accurate description to replace “pump and dump” in the headline.”

        Strike the whole sentence. The first part of the headline states the case succinctly without resorting to hyperbole. That’s my point. It’s the difference between journalism and pandering to a particular viewpoint.

      • 0 avatar
        MikeAR

        Sorry Mike but it’s true. Google SEC porn.

      • 0 avatar
        mike978

        MikeAR, as you know people in all companies and organisations (public and private) look at porn online. It is human nature and not a specifically SEC or Governmental problem.

      • 0 avatar
        MikeAR

        Mike, what’s your point? Are you so desperate to disprove anything critical of GM that you attack sometthing so trivial as whether or not the SEC is watching porn? Look, I won’t waste my time but do a little research yourself, it’s all over financial news and websites, about how the SEC isn’t doing it’s job. See especially the inherent conflict of interest in the revolving door between the enforcement agencies and the companies they regulate. It’s all there, all you have to do is look for it. It may not fit your narrative but it is there and mostly true.

        Try reading with an open mind some material that doesn’t agree with your point of view. You may learn something and change your mind eventually. I hope so but I doubt it.

  • avatar
    VanillaDude

    We can still see the pig’s snout!
    MORE LIPSTICK!

  • avatar

    bunkie sez:

    “Strike the whole sentence. The first part of the headline states the case succinctly without resorting to hyperbole. That’s my point. It’s the difference between journalism and pandering to a particular viewpoint.”

    I would argue that the first sentence does not encapsulate the full story on its own. We are trying to get at the truth here, not simply accumulate facts. I realize that this sounds like sophistry, but I’m guessing you didn’t come here thinking “I could go to Reuters, or I could go to TTAC.” We do analysis here, and my analysis is that the most likely scenario is one in which GM inflates its stock price so the government can sell at a higher price, thus avoiding some political backlash. The first sentence alone does not explain that.

    The other point I would make is that this is a story with strong political implications, written about on the internet. I submit that this kind of story will always draw at least one accusation of “pandering to a specific (i.e. not my) political perspective.” In short, I’m not convinced by the “remove the second sentence” argument at this point… but give me an alternative turn of phrase that describes this situation and I’ll definitely consider changing the headline.

    • 0 avatar
      bunkie

      I’m curious how you reconcile the necessity to make the political point with your rebuttal to the comment about partisanship?

      That, as I see it is the problem. You want things both ways. You lambaste the Times for using the word “Lemon” in the headline of your op-ed piece (which I saw as a legitimate metaphor given your argument), yet you use a highly-charged term in your own headline. Then, you retreat behind the “come up with something better and I’ll change it” defense. I’m certain that you see it differently, but it undermines your effectiveness. You bring up an important issue, you do a lot of research and then you can’t resist the temptation to pander to a given audience. The net result is less than it could be.

      • 0 avatar

        “I’m curious how you reconcile the necessity to make the political point with your rebuttal to the comment about partisanship?”

        As I wrote in the comment, I’m simply presenting my analysis… and given the subject matter I’m not surprised that folks are putting said analysis into a partisan context. That’s the world we live in, but it doesn’t shed any light on my motivations for writing this piece or giving it the headline it has (i.e. “pandering to a certain perspective”).

        I’m not “trying to have it both ways.” I have admitted that the headline is imperfect, but I’m honestly at a loss as to how else to describe the whole story in such a limited space. Headlines are a constant challenge for me… which I admit might seem a bit ironic given my recent swipe at the Modesto Bee and NYT. In particular I think the NYT comparison is apt… and for the moment (and for lack of a better option) I’ve put “scare quotes” on the term “pump-and-dump” on the headline.
        I’m quite sincere in my solicitation of alternative turns of phrase, though. I’ve explained why I’m not willing to cut the headline to merely the first sentence, but I’m genuinely open to other suggestions. If you’re coming into this with a preconception of my motivations, I can see why you might think I was being disingenuous (“retreating”), but I’m genuinely trying to get at the truth here. Believe me when I say, I would not put the effort and passion that I do into TTAC if it were either an exercise in partisan debate or a bland aggregation of pure fact.

        See, this isn’t “journalism” in the traditional sense that we do here… we engage you, the public, in an ongoing quest for truth. History shows that provocative headlines help make that process happen, but if you have a legitimate critique which I take seriously (and you do), I’d rather try to find common ground than have you dismiss my analysis based on an assumption about my motivations.

      • 0 avatar
        ClutchCarGo

        EN, I think that the problem stems from the implication that some sort of collusion between GM and the govt is at hand here, and your use of the “pump and dump” term adds to the implication that something fraudulent is going to happen. Most of your analysis of the issues and concerns is fact based and well reasoned. You run into trouble when you ascribe dishonorable motives to the parties. Many companies use a cash surplus to buy their own stock in an effort to drive up the price (for good or ill), and many stockholders find themselves torn by conflicting needs when deciding at what price to sell. If your analysis had stopped there it wouldn’t have strayed into the partisan political, but between the hint of mutual back-scratching and the use of the perjorative “pump and dump” term, you’ve left readers to conclude that you think something clearly unethical is likely to take place.

        You could replace ‘”Pump and Dump” Coming?’ with ‘GM to the Rescue?’ to make the ethical issue and motivations more a matter for the reader to decide.

      • 0 avatar

        clutchcargo: Thank you. I’ve spent a few days “on assignment” as they say, and I guess I’m a little rusty… “GM To The Rescue?” does tell the whole story in a more neutral manner.

        I still think the “shell game” angle is important since GM will be buying its own stock with what used to be taxpayer money, but clearly “pump-and-dump” wasn’t an ideal description. And with “GM To The Rescue?” I think you all can draw your own conclusions about the ethics of a bailed-out firm buying its own stock for reasons unrelated to its own well-being but very related to the political fortunes of the administration that did the bailing out. Or not, if that’s your preference.

        Thanks for proving that “Best & Brightest” isn’t a term of flattery…. your engagement and high standards are what make this site what it is.

      • 0 avatar
        MikeAR

        If you, like I do, believe the bailout was an illegitimate act from the beginning then pump and dump is a fairly apt phrase. Besides you guys who seem to be offened by it protest a little too much. Like most phrases, pump and dump has expanded its meaning somewhat and has been used to describe things other than stock scams. You kind of sound like you have guilty consciences because you supported something that isn’t working out nearly as well as you thought.

  • avatar
    Educator(of teachers)Dan

    Sorry guys, “pump and dump” makes me think of the first Austin Powers movie where he picks up his personal affects after being frozen.

  • avatar
    Greg Locock

    In the short term the stock market is a voting machine, in the long term it is a weighing machine.

    If GM uses its cash reserves to buy shares back, there should be no net change in the price of remaining shares, becasue the cash reserves are factored into the share price by sensible people.

    An example – company’s cash reserves $100. Other perceived value $200.

    100 shares issued. Therefore share price is $300/100=$3

    Comapny buys back 30 shares @$3 and destroys them

    cash reserves = $10 other perceived value $200

    therefore new value of shares =210/70= $3

    Anything else is short term foolishness.

    • 0 avatar
      wsn

      Greg, do you serious understand how stocks work?

      OK, say this company is owned by John and has $100 in cash and $200 in other items.

      Next, you said “100 shares issued”. By whom? To whom?

      Say, by John issued 100 shares to himself, so each share is worth $3. Then he sells 30 shares to Mary at $3. Now that after the sale John has $90 in his personal bank account, which has nothing to do with the company.

      Then, if John decides to buy 30 shares at $3 back from Mary, using the company’s cash reserve, there is $210 left in the company. But he still got that $90 from the initial sale. He effectively transferred $90 of his own money from the company to his personal account. Nothing is gained, but nothing is lost either.

      • 0 avatar
        Greg Locock

        Do I seriosuly know how stocks wrk? Possibly not, but I make about $50k per year from them, for about an hour’s work a week. How did you go during the GFC?

        Total shares on issue =100 is perhaps a better phrase than 100 shares issued.

        Try rereading my example, it does make sense. As you say, this sort of messing about is a zero sum game.

  • avatar

    GM is clueless as to what it takes to sell cars, the marketing is horrific. the only chance they have is for economic improvement and for a rising tide to lift all ships. I have a plan that would add 500,000 annual sales, much of it conquest, and using the very same products now in the showrooms. problem is they refuse to try any of it. so after 30 years of attendance, I skipped the annual meeting yesterday and wouldn’t touch the stock. liquidation is on the horizon.

    • 0 avatar
      bomberpete

      Buickman — You’re a one-note Chicken Little. You bring nothing to the discussion. Even if GM fails, the sky won’t fall so go away.

      • 0 avatar

        well pete you are entitled to your opinion, but there are many who would respectfully disagree with such. remember I predicted the sale of GMAC and the bankruptcy well before even the DeathWatch series here. also it was yours truly calling for Wagoner’s resignation back before it became fashionable. having retailed over 25,000 vehicles and leading the USA 6 times in Buick deliveries, I stand on my record as someone with the knowledge and experience to back up my claims.

        have a nice day.

        Buickman
        Founder
        http://www.GeneralWatch.com

  • avatar
    evan

    I was just reading the above comments; I’m glad to see there are a few savvy investors / high finance types that take the time to politely correct and steer a story like this in a useful direction. I think the author shouldn’t be too worried about a mix-up with ‘pump and dump’, etc. as I constantly read much worse in supposedly professional finance publications…

    In my opinion, before and during GM’s bankruptcy it was simply impossible to understand the fundamentals of the company without a team of experts – now, after the dust has settled, it’s still essentially impossible to sort through the haze and figured out just what GM’s position is.

    Take, for example the instance by GM execs in 2009 that roughly 1,100 GM dealerships needed to be closed to provide stronger margins… (Remember that? This was a pivotal issue at the time) Here’s the PR http://archives.media.gm.com/archive/documents/domain_2/docId_54952_pr.html

    GM estimated an annual savings of $1.1 million per closed dealer… for a total of around $2.5 billion. (For perspective that would roughly account for 20% increase in EBITDA – in other words it would be a massive contributor to an increase in share price.)

    Okay, it’s been 2 years since that announcement, how is that plan progressing?

    Well, that’s tricky. You want some brain damage? Just try and dig around and figure out what GM’s position is on this critical topic, and how it is (or isn’t) contributing to the bottom line. Have they modified their numbers or the ‘dealer hit list’? What percent of dealerships have been closed so far under this ‘needed’ reorganization?

    What they want is for you to simply stop asking embarrassing questions or remembering their previous assertions or plans. Any legitimate publicly traded company would follow-up on these ground shaking claims, but not GM.

    My opinion: This company remains a colossal cluster $%#@. Anyone who thinks they have a handle on its finances is kidding themselves.

  • avatar
    Robert.Walter

    Reference is made in the article to GM’s “giant” 36.5G USD cash pile.

    Some of that money can’t be used for anything but keeping the gears of the GM financial machine greased and in motion… from back in the crisis, and adjusted for the smaller size of the company, I would say that the current figure needed in this circulation might be around 20G USD…

    If the foregoing is true, then the 16.5G USD remaining doesn’t seem like a lot… a few rough quarters and that reserve would disappear like a popcorn fart.

    This leads me to wonder if this is the real issue behind the GM CEO’s comments, namely if the liquidity in the capital markets begins to evaporate, he will have trouble to re-finance his revolving debt or add additional debt…

    Hi-Fi is not my area of expertise, so befor the bashing begins, I voluntarily pre-emptively plead to a possible mea culpa… however, to me it seems that all the cash-consuming things on Mr. Atkerson’s to-do list won’t (all) get done because he simply doesn’t have the cash to do them… and given this, if my above statements hold true, a stock buy-back to juice the share-price seems like a terribly risky idea.

    Maybe they will find somebody to take Opel off their hands…

  • avatar
    doctor olds

    GM’s $36.5 Billion in Cash is higher even than last years most profitable automaker, VW, reportedly with only $29B in cash. GM now has miniscule debt and no liquidity issues. If I were a betting man, I’d bet this is an unfounded rumor, with the European Tech center the lead for Epsilon architecture. On the other hand surprising things have been happening and the $Billions lost on Opel are all that keep GM behind Ford in earnings.

    btw-Akerson recently put $1,000,000 into GM stock personally.


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