| Sept 21
Sept 21 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
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
Chief Executive 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.
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.
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
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 F rid ay.
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, 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.