Monday, September 17, 2012

When Will U.S. Government Sell GM Stock at a ~$15 Billion Loss ... Will It Wait Until After the Election? ... And If So, Why?

The U.S. government still owns billions of dollars worth of GM stock. GM's management wants the government to sell right now, but the government says 'not yet.' I wonder why.

Could it just possibly relate to the fact that the Obama administration, so close to November's presidential election, doesn't want to call taxpayers' attention to the fact that the auto bailout "investment" was a loser of billions of taxpayer dollars, unlike the big bad fat cat bad guy bank bailout, which was in fact a winner?

That's right. The taxpayers made almost $20 billion on the bank bailout and may very well lose close to $20 billion on the GM bailout. I wonder how many of our fellow Americans understand that simple reality.

Or is the government not selling at this time because the bureaucrats are astute investors and merely  waiting for the shares to rally so taxpayers can receive a high price for their GM shares? And if that's the case, what is the right price anyway, and how will We the People, aka owners of the stock, know when that right time and right selling price have arrived?

U.S. Balks at GM Plan is subtitled 'Government Is Reluctant to Sell Auto Stake at a Huge Loss.' It says this about the developing dispute between GM management and its single largest "investor," the U.S. government:

"The Treasury Department is resisting a push by General Motors to sell the government's entire stake in the auto maker—the latest source of tension between two unlikely partners thrust together at the depths of the financial crisis.
U.S. taxpayers kept the nation's largest auto maker by sales afloat with a $50 billion bailout in 2009 and now own 26.5% of the Detroit company.

But GM executives have grown increasingly frustrated with that ownership, and the stigma of being known as "Government Motors.". . .

Earlier this summer, GM floated a plan with Treasury officials to repurchase 200 million of the roughly 500 million shares the U.S. holds in the auto maker, according to people familiar with the discussions. Under the plan, Treasury would sell the remaining shares through a public stock offering.

But Treasury officials aren't interested in GM's offer at the current price and aren't in a rush to offload shares, according to people familiar with the matter. The biggest reason: A sale now would leave the government with a hefty loss on its investment.

At GM's Friday share price of $24.14 (down to $23.75 currently), the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake. While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, people familiar with the government's thinking have said.

There is also a political calculus. A deal at this time could be fraught for the Obama administration, which has maintained that the bailout saved hundreds of thousands of jobs at a critical time for the U.S. economy and was a win-win for business and taxpayers alike. Huge losses on taxpayer investment in the auto maker's stock could tarnish the administration's overall record in recovering crisis-era bailout money.


Republican nominee Mitt Romney has criticized the auto-industry bailout as too lenient on unionized auto workers and has said he would immediately sell the government's stake if he is elected.

Some GM officials acknowledge the uphill battle in persuading the government to sell. But they have no plans to abandon the effort. . . .

A Treasury spokesman . . . said the government has no plans to be a long-term stockholder in GM but also wants to "maximize taxpayer returns." . . .

The government says it has already made a profit on the emergency funds injected into banks at the time of the financial-industry bailout. The Treasury has so far collected $264.7 billion after investing $245 billion in more than 700 banks. . . .

GM is now in solid financial shape, with little debt and more than $33 billion in available cash. Analysts believe GM needs roughly $20 billion in cash to operate comfortably. A buyback would cost the company about $5 billion at the current share price.

It is unclear if the government's gamble—that GM's share price will rise significantly—will pay off any time in the foreseeable future. That is because the company's prospects, especially in Europe, are murky.

GM has racked up losses in its Opel unit in Europe and analysts have expressed skepticism about how quickly that business can be turned around. Profits have also narrowed over last year.

Additionally, GM faces a U.S. auto industry recovery that is proving slower than analysts and executives expected, while sales growth in China has slowed. Meanwhile, it has experienced turmoil in leadership ranks with the ouster of some key executives.

The U.S. has recovered roughly $23 billion of its GM bailout . . . .

GM shares have been trading well below the $33 initial public offering price of 2010, when the government sold a major chunk of its stake in the auto maker. Many on Wall Street thought GM shares could top $50 within a year, but few expect the stock to reach that level in the near future now."

Summing Up

The government as an astute or even as an amateur investor makes no sense.

That said, the government as an astute market timer whose officials will know exactly when to sell its remaining GM shares makes no sense either. None at all.

Of course, what is a fact is that the presidential election will be held early in November.

Thereafter the Obama administration, whether it wins or loses, can decide to sell its stake for a big loss and not have to worry about what taxpayers think about it.

Only in America.

Thanks. Bob.

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