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.