U.S. Treasury expects GM shares to rise before it will sell
DETROIT (Reuters) -- The U.S. Treasury expects General Motors Co.'s stock price to rise in the future, offering the government a better chance to cut its losses in the automaker, people familiar with Treasury's thinking said.
While the government does not have a specific price threshold at which it would seek to exit its remaining 500 million GM shares, the Treasury closely tracks the value of its stake in relation to U.S. taxpayers' $50 billion bailout of GM in 2009, the people said.
One major factor analysts cite that could boost GM shares early next year is the planned rollout of highly profitable large trucks.
With an expected share-price increase, the Treasury does not feel it is prudent to unload a big chunk of shares prematurely at the current levels, the people familiar with the Treasury's thinking said. With 500 million shares, even a $1 gain in the share price can shave $500 million off the expected loss.
Another idea that GM had considered in the past was for the U.S. automaker to buy back a portion of the Treasury's stake directly from the government. But that idea was rejected by the government last year and people familiar with Treasury's thinking said there had been no recent high-level conversations with GM about it.
Treasury Secretary Timothy Geithner met or spoke with GM CEO Dan Akerson three times over five days in early March, according to records of Geithner's meetings released by the Treasury Department on Friday.
A U.S. Treasury spokesman declined to comment, but government officials have said in the past that they want to sell the GM stake as soon as practicable while also maximizing value for taxpayers.
GM spokesman Jim Cain said, "We routinely keep Treasury officials informed of our progress and have discussed the government's investment strategy with respect to GM, but there is no proposal on the table from the company."
The Obama administration, which received a nearly 61 percent stake in GM's common stock as part of the bailout, cut its holding to about 32 percent after the automaker's $23.1 billion initial public offering in November 2010.
GM closed on Friday at $24.80 per share on the New York Stock Exchange, below the IPO price of $33 per share and well short of the $53 threshold at which the government would break even on its investment.
Won't recoup the investment
However, with market challenges in Europe still weighing on GM and the Treasury's intention not to remain a long-term investor, federal officials do not expect to recoup their investment fully, people familiar with the situation said.
With product roll-outs picking up steam -- GM has said more than 70 percent of its U.S. vehicle lineup will be redesigned or refreshed this year and in 2013 -- the Treasury's exit from its stake could start next year, the people said.
Wall Street analysts have said GM's stock will benefit most heavily from the rollout of its full-size pickup trucks and SUVs starting in the second quarter of 2013.
The combined U.S. sales of the Chevrolet Silverado and GMC Sierra pickups rank No. 2 behind Ford's big truck, the F-150, and GM's trucks generate a profit of $12,000 to $14,000 per vehicle according to analysts. Citi previously estimated the new trucks could bring GM more than $1 billion in additional operating earnings in 2013 and 2014.
Early last year, GM officials flirted with the idea that the company might use some of its gigantic cash pile to buy back a portion of the shares directly from the Treasury, sources told Reuters at that time. At the end of the second quarter, GM had almost $33 billion in cash and securities.
Whitacre says sell
On Thursday, former GM CEO Ed Whitacre called on the Treasury to sell all of its GM stake as quickly as possible, saying it was a "distraction" for the company. Whitacre said he had wanted the government to sell its entire investment during GM's IPO.
Treasury officials believed selling shares directly to GM -- at a price significantly lower than the $53 breakeven point -- could be viewed as a sweetheart deal and rejected the idea, Reuters reported last year. That stance has not changed, people familiar with Treasury's thinking said on Friday.
In addition, GM stock is liquid enough that the Treasury could sell in the market if it wanted, without having to sell shares back to the company, the people said.
GM shares are struggling more because of losses in Europe and a still-fragile economic recovery in the United States, not because of the government's position in the automaker, the people said. In the past, GM officials and some investors have said the Treasury stake is an overhang on the stock's value.
Investors and analysts have pointed to American International Group<AIG.N>, which had the same kind of overhang due to a government stake. Yet its shares still rose enough for the government to make a profit after selling shares worth tens of billions of dollars.
Soyoung Kim contributed to this report.Contact Automotive News