President Barack Obama’s re-election opens a clearer path for the government to begin selling its 32% stake in General Motors, though the administration has given no indication of when such a sale will happen.
“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.”
On Monday, GM secured a new $11-billion credit facility, fueling speculation it would use some of it to buy back shares. 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.”
Whiston said he expects a federal sell-off to take six to 24 months.
The government’s 500 million shares must sell at an average of $53 for taxpayers to break even. The stock closed Thursday at $24.72.
“We believe that the U.S. Treasury is likely to begin selling down its stake in GM shortly after the election,” Barclays analyst Brian Johnson wrote in a note to investors this week. “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 $49.5 billion GM bailout argued that the aid saved jobs, let GM reduce debt, and cut costs deeper and faster, which prevented a collapse that would have devastated suppliers and other automakers.
Opponents countered that it benefited the UAW at the expense of bondholders, and that the industry would have survived.
The Treasury has said it is balancing the desire to sell shares with the need to recoup more cash. The stock is down more 24% from GM’s $33 initial public offering price in November 2010, though it gained modest traction in recent weeks and is up from a low of $18.80 on July 25. A Treasury Department spokesman did not respond to a call Wednesday seeking comment for this report.
Since its IPO, GM has not commented on the government’s shares or whether it wants them sold. But in September, former CEO Ed Whitacre wrote in the Wall Street Journal urging the government to sell its 500 million shares “as quickly as possible.” He spoke for himself, not GM.
“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 pay that were a condition of the federal loans have made it harder to recruit and retain talent. Sale of the government shares would let GM operate without such restrictions.
“Selling now would eliminate (loan) restrictions and allow GM to function more effectively,” Whiston said.
Nathan Bomey, Detroit Free Press
