News Column

Way Cleared for Sale of Treasury's GM Shares

Nov. 9, 2012

Nathan Bomey

money

President Barack Obama's re-election opens a clearer path for the government to begin selling some of its 32 percent stake in General Motors, but there is no indication of when such a sale will happen.

On Monday, the automaker secured a new $11 billion credit facility, fueling speculation that some of that money could be used to buy back some of the government's shares.

"The Obama administration could just go ahead and unload the stake quickly and probably not have to take too much fallout," Morningstar analyst David Whiston said in an interview. "They would still get some negative publicity, though."

The government's 500 million shares must sell at an average of $53 before taxpayers can break even. The stock closed Thursday down 31 cents at $24.72.

"We believe that the U.S. Treasury is likely to begin selling down its stake in GM shortly after the election, regardless of the outcome," Barclays analyst Brian Johnson said in a note Monday. "We believe that the Treasury is likely to announce a gradual sell-down plan, similar to what it has done for its stake in AIG."

Supporters of the government's $49.5 billion in assistance to GM argued that the aid preserved jobs, enabled GM to reduce debt, and cut costs deeper and faster, which prevented a collapse that would have devastated suppliers and other automakers.

Opponents countered that the rescue benefited the United Auto Workers union at the expense of bondholders and that the industry would have survived the failure of the largest U.S. automaker.

The Treasury Department said it is balancing the desire to sell shares with the need to recoup more cash. The stock has fallen about 24 percent since GM's initial public offering in November 2010.

The stock gained modest traction in recent weeks.

A Treasury Department spokesman did not respond to a call Wednesday seeking comment for this report.

On Oct. 31, GM reported a $1.5 billion profit in the third quarter, and its stock jumped 9.6 percent. Shares are up more than 30 percent from a low of $18.80 on July 25.

Morningstar's Whiston said he expects a government selloff to take from six to 24 months.

Some analysts suggested the company could tap the credit line to buy shares back from the government, a vote of confidence in its future that could drive shares upward.

But Whiston said the credit facility was "needed to give GM the proper liquidity to function for its size" because its previous $5 billion facility "was too low."

Since its IPO, GM has not commented on the government's stake or whether it wants the shares sold.

But in September, former CEO Ed Whitacre wrote an editorial in the Wall Street Journal urging the government to sell its 500 million shares "as quickly as possible." He was speaking for himself, not the company.

"Nothing has really changed because it's always been up to the Treasury to decide how to manage their investment in GM," GM spokesman Jim Cain said Wednesday.

But some GM executives have expressed concern that limits on executive compensation that were a condition of the federal loans made it harder to retain talented leaders and recruit new ones.

"Selling now would eliminate TARP restrictions and allow GM to function more effectively," Whiston said.



Source: (c)2012 Detroit Free Press Distributed by Mclatchy-Tribune News Service.