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

Bertel Schmitt
by Bertel Schmitt

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.

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  • Polar Bear 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:

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    • Pch101 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.

  • Mike Kelley 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:

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    • Bd2 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.

  • SCE to AUX 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.

    • Highdesertcat 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.

  • Blowfish 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!