Treasury Won't Sell GM Stock, Hopes For Pick-Up

by Bertel Schmitt

September 22nd, 2012 7:52 AM

Throwing investment advice of eminent experts such as the LA Times editorial board and former GM CEO Ed Whitacre in the wind, the Treasury will not sell its holdings in GM as recommended, but hold on to the stock. Why? For the same reasons that prompt smaller scale investors to hold on: The Treasury “expects the stock to rise in the future due to a roll-out of several new vehicles,” people familiar with Treasury’s thinking told Reuters. The chorus that urged the Treasury to unload GM at a $16 billion loss begun a week ago and grew louder by the day. According to a Wall Street Journal report, GM execs want higher salaries and their corporate jets back, which won’t happen as long as Uncle Sam is breathing down their necks.

Says Reuters:

“One major factor analysts cite that could boost GM shares early next year is the planned rollout of highly profitable large trucks. “

The new trucks generate a profit of $12,000 to $14,000 per vehicle according to analysts. While the Volt won’t save the planet just yet, gas-gobbling BOF Silverados might save the Treasury from a major loss.

#BertelSchmitt #GM #Shares #Treasury

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11 of 26 comments

Polar Bear on Sep 22, 2012

Number crunching suggests New GM is still not a healthy business. GM's Altman Z score, a formula for bankrupcy risk based on GM finances, was 0.66 after the second quarter of 2012. A healthy score would be over 3, Anything under 1.8 is fishy. If it falls to 0, head for the life boats. Source: http://seekingalpha.com/article/838871-is-general-motors-headed-back-to-bankruptcy

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- Doctor olds on Sep 22, 2012
  
  @Polar Bear- GM's current Altman Z score ratio is 1.62, Toyota's is 0.97. Do you think they are on the verge of failure? Ford's score is 1.90. GM is actually very strong. http://www.advfn.com/p.php?pid=financials&btn=s_ok&mode=&symbol=NYSE%3ATM
  
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- Pch101 on Sep 22, 2012
  
  Altman Z is not going to be particularly useful for evaluating automotive companies, because it relies heavily on ratios that make comparisons to total assets. Auto companies carry considerable plant and equipment on their balance sheets, which will lower the Z score. That, and Seeking Alpha is generally pretty lousy. You'll find all sorts of alarmist and conspiracy twaddle there. It's usually worth ignoring. GM has its issues, but I'd be focusing on its income statement performance. The balance sheet starts falling part when the money stops coming in the door, and avoiding that state of affairs will require that cars are sold at a profit. At this juncture, GM is producing an operating profit on cars, which is something that couldn't be said in FY 2007.
  
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Mike Kelley on Sep 22, 2012

If GM was an "investment" for taxpayers, it was only by Obama's standards. We are stuck with a $24 dog that must go up to somewhere around $53 just to break even. GM's market share is continuing it's long downward spiral, and the outfit has pension obligations of over $100 billion: http://www.businessweek.com/news/2012-06-01/gm-chief-hopes-to-return-to-investment-grade-within-year

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- Highdesertcat on Sep 22, 2012
  
  To be fair we have to acknowledge that Bush funded GM and Chrysler for roughly 90 days, until March 31, 2009. After talking to my Congressman back in 2008 when this happened, I believed Bush did that to give Obama some time and leeway to make a sound decision regarding the financial mess. Roughly half of the taxpayers disagreed with Bush's decision about bailouts and hand outs for failed enterprises (regardless if they were financial or automotive entities). What Obama did was to take it to the extreme by nationalizing GM and Chrysler and basically making the UAW federal employees by guaranteeing their wages, pensions and benefits. Obama did not hesitate about dumping Chrysler's carcass on anyone that would have it, although it cost the US taxpayers a hefty $1.3 billion -- which was much more than all of Chrysler was worth, dead or alive. By then it was already dead, and worth..... nothing. But now that Chrysler has morphed into Fiatsler, is foreign owned and doing respectably well, dumping Chrysler has turned out to be the right decision for everyone but the US taxpayers who lost and lost BIG. GM is still that albatross hanging around the taxpayers' neck. GM's problems overseas are sucking up whatever profits GM makes, and the worst is yet to come for Opel, Vauxhall, and the French Connection. In essence it really is up to Americans whether they embrace or reject GM by either buying their products, or......... not. I won't be buying a new truck until 2014/2015 and I'll check out GM's offerings then to give them a fair shot at my wallet. But unless GM's trucks will clearly be better than what I drive now, I see buying a future orphan only as a possibility, not a probability.
  
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- 28-Cars-Later on Sep 23, 2012
  
  @highdesertcat The taxpayers were certainly screwed out of $1.3 billion, but in hindsight, was the money well spent? Chrysler is still alive, still producing somewhat innovative products, most of the factories are still open, some of the dealerships are still open (so in theory those jobs were also saved), and dot gov is collecting their taxes from new profits and wages of Chrysler employees. Considering how our gov't wastes massive amounts of money with little to show for it... *cough cough* Stimulus... I'd say this didn't work out as poorly as it could have as in a liquidation. GM is quite another story... personally I think GM should break up into two companies (or one larger company and one smaller semi-autonomous company). Current GM would keep Powertrain (and whatever other similar divisios are left) the Chevrolet/GMC brands and bring back Pontiac as a RWD only near luxury brand... and Cadillac/Buick go off as a much smaller shop. Heck there may even be tax advantages or exemptions for the Cadillac/Buick company... build the Cadillacs in Australia as crazy V8s or V16s and just pay the CAFE fine?
  
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- Highdesertcat on Sep 23, 2012
  
  @highdesertcat We'll never know how it would have worked out in Liquidation for Chrysler. I would have preferred Liquidation because it would have meant a cleaner cut at less cost to the American taxpayers. The more prudent route would have been to let failed companies fail without a bailout to anyone, anywhere, at any time. Something new and better would have risen from the ashes, as it always does, at far fewer expense to the taxpayers. But all that is in the past, and Chrysler is doing better now as a subdivision of Fiat than it did as a subdivision of Daimler. OTOH, Daimler was instrumental in developing the Chrysler/Dodge/RAM/Jeep models five years ago that are so successful today, and I do not believe that Fiat will be able to improve on that because if Fiat could have done something to improve its own vehicles, it would have done so years ago. To me this acquisition is clearly to the benefit of Fiat, an automaker renown for crap cars that's been teetering on the edge of bankruptcy for decades, and Chrysler, an automaker that died and was resuscitated with taxpayer-funded life-support, that would have ruined Daimler, yet benefits from all the money and development Daimler poured into it. In the end Chrysler will probably do alright under Fiat's direction. There's money to be made here and Daimler still owns a small percentage of Chrysler, so Daimler, too, will share in the profits. But GM? Even the most foolhardy GM fans cannot ignore that there are a lot of things wrong with the current GM that would have been resolved through Liquidation. Don't misunderstand, GM stock did very well for me until the day I divested from the US auto industry. I reaped all the benefits and dividends of an artificially inflated stock price and none of the losses. Had I been foolhardy and held on to my stock, I could easily have lost just as much. But based on what has transpired since I sold off in 2007/2008, I don't get the same warm fuzzies about GM now as I did then. Things won't turn around for GM until ALL Americans choose to buy a GM product and increase GM's market share. I just don't see that happening. GM's products didn't measure up to the competition in the past, and still don't measure up today. It is an unlikely scenario to envision that GM's products will suddenly become class-leaders in the future.
  
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- Bd2 on Sep 24, 2012
  
  If GM stock is a "dog", then what is Ford stock trading at $10? Shares of domestic automakers have taken a hit by investors due to the shaky world economy, but in time that will pass. It would be absolutely stupid to sell GM now, as GM will not only be rolling out its new lineup of highly profitable trucks, but a fuller lineup for Cadillac with the 3G CTS and Omega flagship to join the ATS and XTS. The vast majority of VW's profit comes from Audi - so with a competitive lineup for once with Cadillac, GM should continue to fatten its profit margins (this is where GM is better situated than Ford, including in China). If GM is able to cut their losses in Europe, shares of GM should continue to rise over the next few years (GM shares are UP nearly $6 since its low in July). GM execs want the govt. to sell just so they can increase their compensation packages and perks.
  
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SCE to AUX on Sep 23, 2012

Are we to believe that somehow the new trucks are substantially more profitable than the old ones, and will magically drive the stock price skyward? Nonsense - the old trucks are profitable, too, and the stock price won't bump just because of some new vehicles.

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- Highdesertcat on Sep 23, 2012
  
  That's what GM is hoping. The old GM trucks are exactly that -- old GM trucks! The GM trucks cannot hold a candle to Ford trucks or Ford engines, and the GM truck engines certainly cannot come anywhere close to the Tundra 5.7 or Titan 5.6 lightweight, state-of-the-art 32-valve DOHC V8s. But with some improvements like disc brakes instead of drums on the rear wheels, light-weight, potent modern, all-aluminum V6 and V8 engines, maybe an Allison in every GM truck, GM could easily bring their trucks into the 21st century, like Ford and RAM who are already there.
  
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Blowfish on Sep 23, 2012

the more drawned out conflict middle kingdom & nippon has the better off it'll be for gm, reason as toyonda-issan are not going to have their cars flying off the shelf. perhaps some folks with deep pockets will be able to buy some nice new auto plants during the fire sale. stock price and sales may not have a direct proportion ratio though sometimes, worse could even be mutually exclusive too. it could take a while before gm to go up to $53. with govt mulla in gm, those gm execs aren't going to have a free hand in writing numbers on a signed blank paycheque!

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