Government Motors On

by Bertel Schmitt

March 21st, 2012 4:28 PM

After GM’s IPO, stockholders looked with great anxiety at the 32 percent the U.S. government still holds in General Motors. Allegedly, the U.S. government wanted to shed that share as quickly as possible, and someone dumping the stock does not make for rising stock prices. Now, GM is sending out smoke signals that a sale is far from imminent. GM’s chief spokesman Selim Bingol wrote in a blog that “the day will eventually come when the Treasury sells its GM stake. When is anybody’s guess (we have no say in the matter).”

In a perverse way, the GM stock had tanked before the U.S. government could dump it. The low stock price holds the government hostage. “At current stock prices,” writes the Detroit News, “the Treasury would incur a loss of nearly $16 billion on its bailout of GM.”

The stock currently is 24 percent below its $33 IPO price. Says the DetN:

“Given that a sale before the November presidential election would highlight the cost of the government’s rescue of GM, officials say it is unlikely the government will sell any shares before then.”

#Bailout #BertelSchmitt #GM #Government

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9 of 94 comments

Doctor olds on Mar 22, 2012

If GM Stock was sold at yesterday's closing price of $25.29, a loss of $13.85B would be realized, roughly $45 per American, and double that amount per taxpayer. Since the top 10% pay 70% of taxes, the average cost for 90% of Americans is a one time, whopping, $15 hit in the worst case, a bit less than $30 per taxpayer. There are plenty of issues to criticize in the cronyism excercised by the Auto Task Force in the structure of the deal, but the cost is quite trivial. It is not clear why folks don't understand that GM is performing very well, with operating profit over $9B last year despite Opel losses. They have well over $30B in cash generated by the business, more than enough for fixing Opel and product development. Government has not spent a dime beyond the amount used to capitalize the new business, and there is no reason to expect that to change.

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- Jkross22 on Mar 22, 2012
  
  If someone paid off my mortgage, my wife's student loans, my credit card bills and my car loan and my investment line of credit for my small business, I'd be sitting pretty, too. Claiming GM's profit as evidence of sloughing off of GM's old ways is quite a stretch. I've yet to see the evidence that GM has been rehabilitated. Ask those bondholders how they feel about GM's profits while they got shafted just a short time ago. I'm sure they would be sympathetic to your perspective.
  
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Geekcarlover on Mar 22, 2012

Maybe I've misread this, and a few other articles about it, but the problem with the GM stock price seems to be a warped circular logic. The price is low because private investors won't buy because they fear the government will dump it's shares and crash the price. Government won't sell because the price is too low because private investors won't buy. Someone has got to take a hit, and I doubt any investment firm is going to go bankrupt "for the good of GM."

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- Hildy Johnson on Mar 22, 2012
  
  Or, the government could declare that it will sell no more than a moderate number of shares per year. It really makes little difference to them whether they sell of the shares within 1 year or 15 years.
  
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- Brad2971 on Mar 22, 2012
  
  @Hildy Johnson A variation of this is going on at the Federal Reserve vis-a-vis their AIG holdings. The Fed, early in 2011, tried to sell large amounts of subprime and other CDOs (Collateralized Debt Obligations-backed by subprime mortgages) on the open market. That open CDO market tanked to near early 2009 levels in the face of such an attempt. The Federal Reserve then parceled out the sale in tinier pieces. The CDO market is up by double-digits since last years' lows.
  
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- Pch101 on Mar 22, 2012
  
  "The price is low because private investors won’t buy because they fear the government will dump it’s shares and crash the price." The price of GM stock isn't particularly "low." It's just below the price that the Treasury effectively paid for it. That's another way of saying that Treasury paid too much for it. In order to make the bankruptcy work, the government had to convert some of its debt into equity. But given that there was a limited amount of equity to take, it could only take so much of it, which left the government in the role of needing to overpay if the bankruptcy was going to succeed. Over the long run, stock prices are a function of expected future earnings. For GM's stock price to go up in a sustainable fashion, the company has to make more money. The main problem for the short run value of the shares is that the car market is highly cyclical. Investors find it hard to get excited about auto stocks when the economic data is mixed. The US needs to return to a boom cycle, plus GM is going to do a good job of making money on car sales, before the stock is going to have any hope of doubling in value. It could take years for Treasury to hit breakeven.
  
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- Obruni on Mar 22, 2012
  
  @Pch101 it would have been better for the Gov't if its shares were in a seperate class, such as preferred. GM could then buyback the preferred stock over time, and private investors would not have to fear dilution as much.
  
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Mike Kelley on Mar 23, 2012

The media are crowing about GM's present "success" as proof of Obama's competence at picking winners. Give me a break. GM's viability will only be proven if it can handle the next major downturn in car sales. Worrying about a few billion bucks seems sort of silly these days, since our government is now spending about $1.3 trillion more than it takes in every year. Here is a good article and video about the hole we are digging: http://www.zerohedge.com/news/simple-problems-too-much-us-debt

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Carbiz on Mar 23, 2012

While the armchair critics are arguing ideology, Korea Inc is plotting how to take away Japan Inc's pie that they already took away from YOU. Just as you Americans are being punished for your stupidity and selfishness (or do you think the few trillion that Asian banks and citizens own of you is not going to cost you at some point?), the Japanese consumer are going to take it up the a$$ for all their suffering over the years: Toyota is thanking them for their sacrifice by moving their jobs to Thailand and Vietnam. Frankly, as my city is being bought up and paved over by Asian 'investors,' I'd rather pay double for an item built by a North American company and made here. DOUBLE. Because, in the long run, we're all going to pay anyway.

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