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By JEFF BENNETT and SHARON TERLEP
[image] Bloomberg News
GM executives are frustrated with the U.S. stake. Above, Dan Akerson, GM's CEO.
DETROIT—The Treasury Department is resisting a push by General Motors Co. GM -0.90% to sell the government's entire stake in the auto maker—the latest source of tension between two unlikely partners thrust together at the depths of the financial crisis.
The Treasury Department is resisting a push by General Motors to sell the government's entire stake in the auto maker. Jeff Bennett reports on Markets Hub. Photo: Reuters.
U.S. taxpayers kept the nation's largest auto maker by sales afloat with a $50 billion bailout in 2009 and now own 26.5% of the Detroit company.
But GM executives have grown increasingly frustrated with that ownership, and the stigma of being known as "Government Motors." Executives have said the U.S.'s shadow is a drag on its reputation and hurts the company's ability to recruit talent because of pay restrictions. Privately, executives are also irked at the continued curbs on corporate jet use.
Earlier this summer, GM floated a plan with Treasury officials to repurchase 200 million of the roughly 500 million shares the U.S. holds in the auto maker, according to people familiar with the discussions. Under the plan, Treasury would sell the remaining shares through a public stock offering.
But Treasury officials aren't interested in GM's offer at the current price and aren't in a rush to offload shares, according to people familiar with the matter. The biggest reason: A sale now would leave the government with a hefty loss on its investment.
At GM's Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake. While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, people familiar with the government's thinking have said.
There is also a political calculus. A deal at this time could be fraught for the Obama administration, which has maintained that the bailout saved hundreds of thousands of jobs at a critical time for the U.S. economy and was a win-win for business and taxpayers alike. Huge losses on taxpayer investment in the auto maker's stock could tarnish the administration's overall record in recovering crisis-era bailout money.
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Republican nominee Mitt Romney has criticized the auto-industry bailout as too lenient on unionized auto workers and has said he would immediately sell the government's stake if he is elected.
Some GM officials acknowledge the uphill battle in persuading the government to sell. But they have no plans to abandon the effort.
"The Treasury will make its own decisions about their stake in the company like any other owner," a GM spokesman said. "Our job is to produce great cars and solid profits."
A Treasury spokesman on Sunday referred to previous comments by Timothy Massad, the department's assistant secretary for financial stability, who said the government has no plans to be a long-term stockholder in GM but also wants to "maximize taxpayer returns."
The standoff is a sign of the sharply different exit strategies at GM and the Treasury Department.
Last month, the Obama administration increased the estimated loss on the $85 billion auto industry bailout, which also included aid to crosstown rival Chrysler Group LLC and auto parts suppliers, by $3 billion to more than $25 billion. That amount is still smaller than the government's initial estimate of a $44 billion loss. Chrysler is already free and clear from its government bailout after taking out a loan to pay back what it owed.
Earlier this month, the Treasury Department made $20.7 billion from a stock sale of American International Group Inc. AIG +1.37% and became a minority shareholder in the insurer for the first time since the financial crisis. Treasury's stake is now down to about 16% of AIG's outstanding common stock.
The government says it has already made a profit on the emergency funds injected into banks at the time of the financial-industry bailout. The Treasury has so far collected $264.7 billion after investing $245 billion in more than 700 banks.
The U.S. is still in the red on its investments in Fannie Mae and Freddie Mac, which have received $188 billion in taxpayer support. It continues to own stakes in about 300 mostly small financial institutions that owe Treasury $9.6 billion. The U.S. has been accelerating its sale of those bank holdings, auctioning off several dozen since April.
GM is now in solid financial shape, with little debt and more than $33 billion in available cash. Analysts believe GM needs roughly $20 billion in cash to operate comfortably. A buyback of 200 shares would cost the company about $5 billion at the current share price.
It is unclear if the government's gamble—that GM's share price will rise significantly—will pay off any time in the foreseeable future. That is because the company's prospects, especially in Europe, are murky.
GM has racked up losses in its Opel unit in Europe and analysts have expressed skepticism about how quickly that business can be turned around. Profits have also narrowed over last year.
Additionally, GM faces a U.S. auto industry recovery that is proving slower than analysts and executives expected, while sales growth in China has slowed. Meanwhile, it has experienced turmoil in leadership ranks with the ouster of some key executives.
The U.S. has recovered roughly $23 billion of its GM bailout, which funded a government-managed bankruptcy that allowed the auto maker to slash costs and shed billions in debt, setting it up for a record profit in 2011. The auto maker reported a second-quarter net income of $1.85 billion, which was the company's 10th straight quarterly profit.
GM shares have been trading well below the $33 initial public offering price of 2010, when the government sold a major chunk of its stake in the auto maker. Many on Wall Street thought GM shares could top $50 within a year, but few expect the stock to reach that level in the near future now.
GM this summer rolled out a plan to eliminate the risk around its pension obligations to white-collar retirees by paying Prudential Financial Inc. PRU +2.01% $29 billion to take over $26 billion in assets and obligations. About 70% of the company's U.S. vehicle lineup is expected to be new or freshened through 2012 and 2013.
GM's willingness to buy back shares could address concern over the potential disruptive effect of offloading a massive amount of stock at once could have on the market.
The auto-industry rescue was initiated by President George W. Bush and then substantially widened by the Obama administration as GM and Chrysler skidded toward insolvency amid the U.S. financial crisis. Rival Ford Motor Co. F +0.10% avoided a bailout and bankruptcy by essentially mortgaging the entire company for access to capital that would see it through the crisis.
[image] Bloomberg News
GM executives are frustrated with the U.S. stake. Above, Dan Akerson, GM's CEO.
DETROIT—The Treasury Department is resisting a push by General Motors Co. GM -0.90% to sell the government's entire stake in the auto maker—the latest source of tension between two unlikely partners thrust together at the depths of the financial crisis.
The Treasury Department is resisting a push by General Motors to sell the government's entire stake in the auto maker. Jeff Bennett reports on Markets Hub. Photo: Reuters.
U.S. taxpayers kept the nation's largest auto maker by sales afloat with a $50 billion bailout in 2009 and now own 26.5% of the Detroit company.
But GM executives have grown increasingly frustrated with that ownership, and the stigma of being known as "Government Motors." Executives have said the U.S.'s shadow is a drag on its reputation and hurts the company's ability to recruit talent because of pay restrictions. Privately, executives are also irked at the continued curbs on corporate jet use.
Earlier this summer, GM floated a plan with Treasury officials to repurchase 200 million of the roughly 500 million shares the U.S. holds in the auto maker, according to people familiar with the discussions. Under the plan, Treasury would sell the remaining shares through a public stock offering.
But Treasury officials aren't interested in GM's offer at the current price and aren't in a rush to offload shares, according to people familiar with the matter. The biggest reason: A sale now would leave the government with a hefty loss on its investment.
At GM's Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake. While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, people familiar with the government's thinking have said.
There is also a political calculus. A deal at this time could be fraught for the Obama administration, which has maintained that the bailout saved hundreds of thousands of jobs at a critical time for the U.S. economy and was a win-win for business and taxpayers alike. Huge losses on taxpayer investment in the auto maker's stock could tarnish the administration's overall record in recovering crisis-era bailout money.
Enlarge Image
image
image
Republican nominee Mitt Romney has criticized the auto-industry bailout as too lenient on unionized auto workers and has said he would immediately sell the government's stake if he is elected.
Some GM officials acknowledge the uphill battle in persuading the government to sell. But they have no plans to abandon the effort.
"The Treasury will make its own decisions about their stake in the company like any other owner," a GM spokesman said. "Our job is to produce great cars and solid profits."
A Treasury spokesman on Sunday referred to previous comments by Timothy Massad, the department's assistant secretary for financial stability, who said the government has no plans to be a long-term stockholder in GM but also wants to "maximize taxpayer returns."
The standoff is a sign of the sharply different exit strategies at GM and the Treasury Department.
Last month, the Obama administration increased the estimated loss on the $85 billion auto industry bailout, which also included aid to crosstown rival Chrysler Group LLC and auto parts suppliers, by $3 billion to more than $25 billion. That amount is still smaller than the government's initial estimate of a $44 billion loss. Chrysler is already free and clear from its government bailout after taking out a loan to pay back what it owed.
Earlier this month, the Treasury Department made $20.7 billion from a stock sale of American International Group Inc. AIG +1.37% and became a minority shareholder in the insurer for the first time since the financial crisis. Treasury's stake is now down to about 16% of AIG's outstanding common stock.
The government says it has already made a profit on the emergency funds injected into banks at the time of the financial-industry bailout. The Treasury has so far collected $264.7 billion after investing $245 billion in more than 700 banks.
The U.S. is still in the red on its investments in Fannie Mae and Freddie Mac, which have received $188 billion in taxpayer support. It continues to own stakes in about 300 mostly small financial institutions that owe Treasury $9.6 billion. The U.S. has been accelerating its sale of those bank holdings, auctioning off several dozen since April.
GM is now in solid financial shape, with little debt and more than $33 billion in available cash. Analysts believe GM needs roughly $20 billion in cash to operate comfortably. A buyback of 200 shares would cost the company about $5 billion at the current share price.
It is unclear if the government's gamble—that GM's share price will rise significantly—will pay off any time in the foreseeable future. That is because the company's prospects, especially in Europe, are murky.
GM has racked up losses in its Opel unit in Europe and analysts have expressed skepticism about how quickly that business can be turned around. Profits have also narrowed over last year.
Additionally, GM faces a U.S. auto industry recovery that is proving slower than analysts and executives expected, while sales growth in China has slowed. Meanwhile, it has experienced turmoil in leadership ranks with the ouster of some key executives.
The U.S. has recovered roughly $23 billion of its GM bailout, which funded a government-managed bankruptcy that allowed the auto maker to slash costs and shed billions in debt, setting it up for a record profit in 2011. The auto maker reported a second-quarter net income of $1.85 billion, which was the company's 10th straight quarterly profit.
GM shares have been trading well below the $33 initial public offering price of 2010, when the government sold a major chunk of its stake in the auto maker. Many on Wall Street thought GM shares could top $50 within a year, but few expect the stock to reach that level in the near future now.
GM this summer rolled out a plan to eliminate the risk around its pension obligations to white-collar retirees by paying Prudential Financial Inc. PRU +2.01% $29 billion to take over $26 billion in assets and obligations. About 70% of the company's U.S. vehicle lineup is expected to be new or freshened through 2012 and 2013.
GM's willingness to buy back shares could address concern over the potential disruptive effect of offloading a massive amount of stock at once could have on the market.
The auto-industry rescue was initiated by President George W. Bush and then substantially widened by the Obama administration as GM and Chrysler skidded toward insolvency amid the U.S. financial crisis. Rival Ford Motor Co. F +0.10% avoided a bailout and bankruptcy by essentially mortgaging the entire company for access to capital that would see it through the crisis.
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