Bailed-Out GM Wants To Help Bailed-Out Ally With Some Of Its Bail-Out Money. Investors Not Amused
Bailed-out GM might sink $2 to $4 billion into likewise bailed-out Ally Financial to buy some of the lender’s international operations. Ally “ironically wants to use the proceeds to help repay its own federal bailout aid,” says Reuters. That plan does not sit too well with some observers. Says the wire: “Analysts and investors disagree on whether that would be the best use of cash, with some preferring a stock buyback or dividend payment.”
Large banks have paid back the Treasury the bailout funds they received, with GM and Ally the holdouts. GM can always take the position (popular with its apologists) that it does not owe anything to the taxpayers. Treasury took stock instead of an I.O.U. but “critics of GM’s $50 billion federal bailout in 2009 say the Obama administration stuck taxpayers with a bill that will never be paid in full as Treasury’s 27 percent stake in GM remains underwater,” Reuters says.
To get its money back, Treasury would need to sell its remaining 500 million shares of GM for more than $52 each. The stock is at $21. However, if GM would use its $33 billion cash pile (also a favorite talking point amongst the company’s fans) to declare a dividend or to buy back shares, the stock could reverse its downward course. Which would look a little better, especially three months before the elections.
Remember: If you pay U.S. taxes, you are a GM investor, like it or not.
I don't know that it's a really good idea to put TOO MUCH of GM's $33B cash reserve into an investment of any kind (liquid assests, namely cash, are important for somebody who can make or lose a few million or BILLION in a given quarter), paying the Gov'mnt or anybody else, as the article suggests. Maybe put a third of it into their debt? I'm just surprised they aren't willing, as a good faith effort, to put a couple Bil aside toward good old Uncle Sam...antha.
Stock valuations are a function of (a) earnings and (b) the multiple that investors will pay for those earnings. The more that a company earns, the more that one would expect the stock to be worth. The higher the company's growth rate in earnings, the more that investors will be willing to pay to have those earnings. If acquiring Ally or any other business can increase GM's earnings, then that might be a good use of GM's money. What Ally does with the money or the fact that the old GM used to own it is irrelevant to the assessment of GM's stock. As a shareholder, it is in Treasury's best interest that GM make money, for the reasons stated above. If acquiring a part of Ally is good for GM's future earnings, then that's good for Treasury, too. The Reuters article is pretty weak. A one-time dividend payout is not going to double the value of the stock, not by a long shot. I don't know whether buying a piece of Ally would be good for earnings, but I do know that dividend payments in lieu of investment definitely won't.
OARN, the price of GM stock has gone up 10% this week. Why? Surely it's not the Spark . . .
To paraphrase Bill Murray in one of his movies: "It just doesn't matter". GM is very good at making trucks/suvs, Corvettes, and Cadillacs. They are car company that has spent the last 10-20 years forgetting how to make bread and butter sedans. Do I wish GM would succeed? Yes. Will they? Doubtful. Zackman, apologies in advance here.