General Motors is ready to break its 4-year ties to the government and move on. But that’s not going to happen just yet.
When the Treasury Department gave GM a $50 billion bailout through TARP, it was with strings attached, of course. Today the government has recouped $24 billion, but it still has a 26% stake in the company, which amounts to 500 million shares – and it’s not in a rush to dump them.
But GM is getting antsy. Earlier this year, the company floated an offer to buy 200 million of the government’s 500 million shares (Bloomberg). The Treasury didn’t jump on the offer, so the company’s CEO tried another route…he wrote an op-ed in the Wall Street Journal to explain all the reasons why the government needs to “step out of the way”.
He wrote, “the government has been an active participant in GM’s management for more than three years, and that’s long enough…GM spends an awful lot of time checking in with the people who administer TARP…for a global company, that adds up to a lot of distraction”.
What GM sees as a distraction, the Treasury sees as watching taxpayer dollars. And the way the government is ‘interfering’ is by limiting executive pay…it’s not telling the company what kind of cars to make or where to make them.
GM is going to have to be patient. When the Treasury Department gave the company a bailout, they didn’t expect to turn a profit. But that doesn’t mean they want to eat a massive loss, either. Especially with taxpayer money.
The government would have to sell its remaining 500 million shares at $53 per share just to break even. Shares are trading at around $23.00…meaning a loss of around $15 billion if it sold all its shares right now.
No one wants taxpayers to take a bath on GM’s bailout. But the argument can easily be made that the Treasury Department is not a hedge fund, and should not speculate about share price or hold out for a number that may never come.
GM would like to see the government “sell every last share it owns”. But dumping all of its shares, flooding the market and depressing the stock price further doesn’t sound prudent.
Understandably, GM doesn’t like the stigma of “Government Motors”. But it also shouldn’t like the fact that the stock is technically a long-term sell.
GM is the world’s #1 automaker. It has reported a profit for ten straight quarters. GM is “alive”. But it has the government to thank for that. And when the government throws you a rope, you don’t get to decide when to throw it back.