DETROIT (Bloomberg) -- General Motors Co., saved by the Obama administration with a $50 billion bailout, is making more money than it has in its history, adding jobs and gaining market share.
It's still a headache for Barack Obama.
GM closed Thursday at $20.70 a share, less than half the $53 price that the U.S. Treasury Department needs to break even. Since Dec. 19, when the shares closed at their lowest price since an initial public offering last year, the shares have risen for three straight days. The stock still needs to rally almost 50 percent to reach $30 a share, the minimum price the Treasury Department would consider for a secondary offering, said three people familiar with the matter.
That puts Obama in a quandary. When Republicans nominate a candidate in August, the government will probably either still own a substantial portion of GM or will have sold the stock at a loss that could be more than $10 billion. Obama's opponents can criticize him either way, said Dan Ikenson, an economist at the Cato Institute, a Washington think tank.
"The administration is in a Catch-22," he said. "They want to hold on and get the best price, but the longer they hold onto it, they come open to the scorn that the administration still has a horse in the race and could make policy that is favorable to GM."
Investors are holding back on buying GM while they expect that the U.S. will be selling hundreds of millions of shares that may push down the price, said Adam Jonas, a New York-based analyst at Morgan Stanley. After the government sells, the shares should rally, he said.
In Europe, GM's operations will lose money in 2011, the company said last month, after assurances earlier in the year that it would break even. Now GM management is talking about possible restructuring plans for its Opel unit. That makes investors nervous, said Peter Nesvold, an analyst at Jefferies and Co.
With economic struggles in Europe, GM's exposure to its car market makes investors even more concerned, he said. Ford Motor Co., also exposed to European risk, has fallen 35 percent this year through Thursday, while GM dropped 44 percent.
GM's pension plan is underfunded. The plan was $22.2 billion short at the end of 2010. Analysts will get an update when fourth quarter earnings are announced in the next two months. Investors probably will remain wary until then, Nesvold said in a phone interview.
Next year will also be a transition year for new models. GM is preparing to introduce new pickups late in 2012. That means GM will temporarily lower production of its profitable Chevrolet Silverado and GMC Sierra pickups while retooling factories for the new models. That will lower profits, Nesvold said.
While GM built up its inventory of trucks in anticipation of that switch, a Bloomberg Industries analysis says U.S. automakers may increase cash discounts to clear out vehicle stockpiles and maintain market share as Toyota Motor Corp. and Honda Motor Co. run plants overtime to make up for production lost this year to natural disasters in Japan and Thailand.
GM's profitability this year, as measured by earnings before interest and taxes relative to revenue, lags behind Ford, Volkswagen AG and Hyundai Motor Co., according to an analysis by Morgan Stanley Investment Banking.
GM CEO Dan Akerson is trying to hold down costs to improve those EBIT margins, including by turning down heat in offices. The automaker hired Hackett Group to identify back-office savings at headquarters and throughout North America, including salaried job cuts, two people familiar with the matter said this week.
Nesvold expects GM shares to reach $24 within 12 months. The average of 13 analysts' estimates issued in the last two months, including Nesvold's, is $32.04. Selling at that price would add up to a $10.5 billion loss for the government.
The Treasury Department wants a minimum of $30 a share for its 32 percent stake and would prefer to sell above the IPO price of $33 a share, according to the three people, who asked not to be identified revealing private plans. If the analysts are right, GM shares won't reach the IPO price before the election.
Steve Rattner, who led Obama's automotive task force that oversaw the restructuring of GM, said in an interview that Republicans will try to use the auto bailout against Obama and the Democrats. The president will have to make a case that the bailout saved the economy from a deeper recession, Rattner said.
"The auto industry will be a centerpiece in this election in terms of what Obama did and what the Republicans say they would have done," Rattner said. "Obama will have to say that if he hadn't done it, things would be worse. Whether the American public will believe that, we'll find out."
This year, Obama and some of his staff members made stops in Michigan and Ohio to tout saving GM, Chrysler Group LLC and many of the parts makers that rely on Detroit's car companies. In May, Ron Bloom, who at the time was Obama's special assistant for manufacturing policy, gave a speech at a Chrysler plant outside Detroit and cited an independent study that said the bailout saved 1 million jobs.
The Treasury Department has said that losses on the auto rescue are probably inevitable.
"We're going to lose money in the auto industry on net, but we did this for the jobs we were going to save, not to maximize return," Treasury Secretary Timothy F. Geithner said at a Detroit Economic Club event on April 28. "We're not a private investor. Our job was to protect the country."
GM has hired or called back 13,000 workers since August 2009 and plans to add 6,300 more workers over the next four years. The George W. Bush administration provided GM with cash, starting with $4 billion on Dec. 31, 2008, that kept the automaker solvent until the Obama administration could manage the 2009 bankruptcy.
"My view with regards to the bailout was that, whether it was by President Bush or by President Obama, it was the wrong way to go," Republican candidate Mitt Romney said at a Nov. 9 debate in suburban Detroit. Romney has said U.S. bankruptcy laws work fine without White House involvement.
With GM solidly in the black and poised to take the global sales crown back from Toyota, the public is less focused on the automaker or its government ownership, said Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank in Washington. Republicans will still try to rekindle the issue, he said in a phone interview.
"By and large the public has moved on, but that doesn't mean the Republicans won't try to make it an issue," Holtz- Eakin said. "The Republicans are actively taking surveys and doing focus groups to see how they can attack the Democrats. It's easy to remind the public about the bailout."
The Obama campaign, meanwhile, is planning to put Republicans on the defensive for not supporting the industry.
"While the Republican candidates would have let the American auto industry be liquidated by uniformly opposing the rescue loan, the president made the tough decision to extend the loan in order to save 1.4 million jobs and require a restructuring plan that has led American automakers to produce the cars of the future," said Ben LaBolt, a spokesman for the campaign.
Selling GM's 500 million shares at today's price would mean a loss of about $17 billion. That would create a political fallout that neither GM nor Treasury wants, said Morgan Stanley's Jonas.
"It would be difficult to stand that big of a taxpayer loss," Jonas said in a phone interview. "If Treasury were to sell at these prices, it would be a political issue and would tarnish GM's commercial image. If we were the financial adviser to Treasury, we'd say, 'Don't sell.'"