US Treasury in no hurry to exit GM

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The government's controversial bailout of GM prompted some to label it "Government Motors." Image: Mike Licht, NotionsCapital.com/Flickr/CC BY

The U.S. Treasury under the Obama Administration has been part-owner of General Motors Co. for more than three years now. That association is not likely to end at any time in the foreseeable future, as the government is presenting no timetable for an exit.

GM stock performing poorly

Since its controversial Government-backed bankruptcy, the giant automaker has not performed as well on Wall Street as its recovery would have seemed to warrant. GM’s initial public stock offering in November, 2010, was $33 a share. This week, it closed at $22.37 per share, in spite of the automaker’s much-lauded recovery.

An April, defending the auto industry bailout, President Obama said:

“GM is now the number-one automaker again in the world.”

Huge losses with a swift exit

At this time, the government has been able to recoup about $23 billion of its nearly $50 billion bailout. The government still owns 26 percent, about 500 million shares, of the Detroit-based automaker. Initially, it owned a majority 61 percent of the company.

At the current price, the government would lose $15 billion of that bailout money if it liquidated its stock. The remaining stock would have to sell for at least $53 — more than double its current cost — for the government to break even.

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Faced with the prospect of steep losses last October, the Treasury revised its initial plan to exit GM as soon as feasible.

Investors remain short-sighted, Massad says

Assistant Treasury Secretary Tim Massad said in a recent interview that current investors are selling the automaker short:

“Our perspective is that the company has made real progress, but the market hasn’t given them as much credit for that as it might.”

GM eager for exit

The automaker is eager to be done with its federal alliance. Last June, Dan Akerson, GM’s CEO, expressed his frustration with the Obama Administration’s leisurely exit.

But Massad maintains that the exit will be shrewdly timed to prevent excessive losses:

“We have to balance maximizing recovery for the taxpayers with the speed of exit.”

Politically motivated?

Another reason for the delayed exit could be political. The Detroit News reports that Obama Administration officials have admitted to the Treasury’s sitting on the stocks until after the upcoming election in November. To do so sooner, says the news outlet, would remind voters of the bailout’s huge cost to the American taxpayer.

Sources

Philly.com
Detriot News
Autoblog


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