Time for America to cash out of GM?

May 4, 2012: 11:13 AM ET

Many inside the Detroit giant want to be rid of the "Government Motors" jokes. Whether that will lead to a rebound in its stock price is another matter.

By Doron Levin, contributor

ObamaFORTUNE -- The Obama administration is holding on tightly to its 28% stake in General Motors Co., while Republican contender Mitt Romney advocates that the government should sell its GM shares pronto -- even at a loss.

Many inside the Detroit-based automaker seem to share Romney's point of view. "We're tired of the Government Motors jokes and we're tired of the Obama Motors jokes," says one GM (GM) executive, speaking on the condition of anonymity. "Of course we wish the U.S. would sell," this person adds. The company has been weary of saying anything that might be interpreted as ingratitude toward a government that arranged and financed its life-saving 2009 bankruptcy to the tune of $50 billion in loans and equity.

Officially, GM's position is that shareholders are free to do as they wish. "The long and the short of it is that shareholders will do what they want to do in their own time," said Selim Bingol, GM's vice president of public affairs. "The government didn't intend to become a longterm holder, we would expect them to get out of the stock."

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The Internet resounds with criticism of the U.S. government's rescue of GM, as commenters have vowed to show their displeasure by avoiding GM brands like Chevrolet, Cadillac and Buick, as well as those made by Chrysler Group LLC, the other Detroit-based automaker rescued by Washington. To what extent GM sales are hurt isn't clear. Jeremy Anwyl, vice chairman of the Edmunds.com automotive website, said "I'm not even sure how much consumers know that individual brands are made by GM."

Investors have been hard on GM since its public offering in November 2010. Shares were offered at $33 and have declined in value by about a third over the past 18 months. The U.S. Has already sold roughly half its stake. But to make taxpayers whole on the remaining $27 billion owed to the U.S., the stock would have to be sold at an average of $51 a share, more than double its current price. By not selling, the Obama administration at least preserves the possibility an eventual full repayment. By selling, Anwyl said, "the loss is locked in."

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One factor holding back GM profits and stock price is uncertainty about its future in Europe, where losses contributed to a 69% decline in first-quarter profit to $1 billion. GM Europe lost $256 million in the quarter, before interest and taxes, compared with a scant $5 million profit a year ago. A second factor holding back demand for shares may be the apprehension that a sudden sale by the U.S. Treasury could swamp the market and send share prices plunging.

Speaking earlier this week at the Milken Institute Global Conference in Los Angeles, Obama's former "car czar" Steve Rattner said the U.S. ought to wait until 2013 or 2014 to sell. He said the Treasury always assumed that it could hold GM shares for up to seven years.

Clearly the president's re-election campaign is hanging its hat on a healthy GM -- Vice President Biden has floated a potential campaign slogan of "Osama is dead, GM is alive" -- as one of Obama's key accomplishments in office. And candidate Romney is trying to distinguish his policies from those of his opponent while emphasizing that he, too, is pleased that Detroit is on its feet.

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Yet the best development of all for GM – and its shareholders – will be a clever and speedy resolution of its perennial woes in Europe. Higher share prices on the heels of stronger earnings will make political squabbles seem like a distant memory.

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