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The U.S. Government Wants Out of GM -- but Maybe It Wants Out Too Soon

The U.S. Treasury is apparently planning to sell off its remaining equity in General Motors (GM) this summer, or by early fall at the latest. Word is that politics is driving the decision: the Obama administration wants out before the 2012 election. This makes sense, but it means taxpayers will be locking in losses.

GM is currently trading down from its IPO price of $33 per share. A variety of things are putting pressure on the stock, including GM's own management moves and business decisions. What's happening is that GM is starting to looks after its own interests in a proactive manner, and Wall Street is expressing dismay.

Detroit and the Street go their separate ways
I find myself in the unusual position of wholeheartedly agreeing with 24/7 Wall Street's Douglas McIntyre, whose auto industry take is usually the polar opposite of mine. But he's spot-on with this post:

Outsiders can only speculate about why the Treasury would sell its GM position this year. Perhaps the government believes it did not save the US car industry at all. GM's shares may be on a relentless move downward. High gas prices, high component prices brought on by commodity inflation, and competition from Japanese and European manufacturers may badly wound GM again. That prediction seems unlikely now. GM's market share in the US for the first quarter was 19.4% up from 18.7% in the same period last year. Japanese manufacturers will have trouble with exporting to the US and production levels at American plants because of the earthquake....

Treasury showed no patience as it dumped its stock in bank companies. It might want to give GM some time. Events show that GM's stock value will rise this year. Taxpayers should get the chance to make some money on GM or at least cut their losses.

It's about the market share, stupid
GM has a historic opportunity to gobble up U.S. market share and firmly re-establish itself as the nation's number one automaker. It's not implausible that its U.S. share will hit 25 percent by 2012, at which point the U.S. market could have returned to 15 million vehicles sold annually.

As an added benefit, for every point of share that GM snags, the competition will have to spend that much more to cut into GM's lead.

But it's also about politics, stupid
The Treasury isn't a private equity firm, so asking it to sit on the 26.5 percent stake in GM it continues to hold, post IPO, is probably unreasonable. And ultimately, GM wants the government off its back more than its wants the government to make money.

However, analysts see plenty of upside in GM, particularly when its booming China business is taken into account. At this week's Shanghai car show, for instance, GM is rolling out numerous new models intended specifically for that market.

I think the true driver is going to be the U.S. business, as profitable trucks sales rebound along with the housing industry and GM starts to finance subprime borrowers whose credit has been battered by the recession. But either way, GM's price should break out of its doldrums by autumn, even if the Treasury sells its equity at a loss.

Wall Street and DC v. Motown and Main Street
GM's likely to thrive over the next few years, so the government's desire to close the final chapter its bailout of the company won't make much of a difference to anyone but the taxpayer.

But distressingly, Wall Street appears to be skittishly ignoring GM's positive momentum. Is this because it wants to see a quarter of the company come to the markets at a bargain price? Maybe.

If that's the case, then the public ought to be outraged. And should insist that the government stick with GM not just until the Treasury can recover its investment, but actually turn a profit.


Photo: GM Media
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