Getting the Government Out of General Motors

Cashing out will be good for the company but bad for taxpayers | Treasury “will wait a reasonable time period after the election”

Keith Naughton and Mark Clothier


Nine months ago, money manager Jim Kee took a gamble on General Motors that has yet to pay off. He says that’s because the “Government Motors” tag that dogged GM throughout the presidential campaign is depressing the price of the 500,000 shares he bought. “GM has still got the dead weight of government involvement limiting their flexibility,” says Kee, president of South Texas Money Management in San Antonio.

President Obama managed to fend off attacks from the right and turn the GM bailout into a winning issue with voters in Ohio and other Midwestern states. Now comes the hard part for his administration: unloading the government’s stake in the company. While taxpayers have recouped $24 billion of the $51 billion pumped into the failing automaker in 2009, the federal government still owns 32 percent of the company, and shares are trading at less than half the $53 price Washington needs to break even. Tax-payers are looking at a loss — $14.4 billion at Nov. 14’s closing price — yet selling could be good for GM’s image and its stock.

With the automaker on track to lose as much as $1.8 billion in Europe this year, China’s growth slowing, and the U.S. economy stuck in low gear, prospects are dim for a doubled stock price. “They can’t wait for the shares to turn a profit because they know it’s not going to happen,” says Phillip Swagel, assistant Treasury secretary for economic policy under President George W. Bush. “They will wait a reasonable time period after the election, as people focus on the fiscal cliff and tax reform. Then they’ll start to sell off the shares.”

Obama’s unlikely to unload all 500 million shares at once, Swagel says. That should reassure investors who worried that a President Romney would have made good on a campaign promise to dump the stock, which could have caused the price to plummet. “You have one shareholder who is a likely seller and owns a third of the stock,” says Matthew Stover, an auto analyst in Boston with Guggenheim Securities. “Investors see that and think, ‘Look out below!’ ” The government will probably shed its shares over time as it has done with its stakes in banks and American International Group. “Treasury has done a very good job of disposing of shares of TARP banks, and that provides a pretty good road map,” says Swagel, now a professor of economics at the University of Maryland School of Public Policy.

“We’ll continue to balance exiting as soon as practicable and maximizing value for taxpayers,” says Timothy Massad, the Treasury’s assistant secretary for financial stability. GM has the means to buy: On Nov. 5 the automaker secured an $11 billion revolving credit line, which gives it the liquidity it needs to pick up the government’s shares, says Barclays auto analyst Brian Johnson.

The administration might want to wait until the Detroit auto show in January, when GM unveils a redesign of its top-selling Chevy Silverado pickup. That could move the stock price toward the $33 a share Treasury got for 412 million shares at GM’s initial public offering in November 2010. Even chopping the government’s 32 percent stake in half might boost the stock price, says Stover. “If they get it to 15 percent or below,” he says, “I think people will stop talking about it.”

The bottom line Investors want the government to shed its stake in GM, though doing so now would mean a loss of about $14.4 billion.


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