White House holds onto GM stock despite pressure

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GM says it wants to lose its "Government Motors' stigma. Image: Mike Licht, Notions Capital.com/Flickr/CC BY

General Motors is pushing the U.S. Government to sell its remaining stock in the automaker. It says the stigma of being “Government Motors” is weighting down its chance to succeed. But the White House is refusing to sell its GM stock at a loss to the taxpayers.

GM stock left from bailout

In 2009, the U.S. Government offered GM $50 billion to keep it from bankruptcy. But GM’s management says it is being hindered in the marketplace by the bailout stigma, and wants to pay off its auto loans in Michigan, so to speak. It wants the Obama Administration to sell back its remaining 26.5 percent share in the company.

The U.S. Treasury Department, however, is in no hurry to sell off its stock at the current price. As of Friday, Sept. 14, GM shares were selling for $24.14. That is a $9 loss from the Government’s purchase price of around $33 per share in November 2010. That would result in a loss of about $15 billion to the taxpayers at this time.

In order to break even, the Treasury Department would have to sell its remaining shares at $53 apiece. That is likely not to happen anytime soon in this economy. The Treasury Department says it will consider letting the stock go when the selling price rises into the $30s.

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Business brisk despite ‘Government Motors’ stigma

As of last January, however, GM had regained its footing as the world’s best-selling automaker. Later in the year, it was unseated for the title by Toyota. But still, ranking at number two would suggest it is not being dragged down too severely.

The politics of bailout

Mitt Romney, should he get elected, has said he would sell off the remaining stock in GM, no matter what the loss to the taxpayers, as soon as he takes office.

But to sell at a great loss would be a blow to the current administration, which prides itself on successfully saving America’s automotive industry. It is not likely to sully that, particularly with the election less than two months away.

Success will out

The Wall Street Journal quoteda¬† GM spokesperson, who hinted at what may be GM’s only resolution in the matter:

“The Treasury will make its own decisions about their stake in the company like any other owner. Our job is to produce great cars and solid profits.”

If the automaker, poised to completely overhaul 70 percent of its lineup, continues to be aggressive and innovative in the marketplace, its success will grow and so will the price of its stock. Then the Treasury Department will be willing to sell control back to the automaker without shirking its promise to the American taxpayers.

Sources

Forbes
Wall Street Journal
Market Watch


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