by Susan J. Aluise | April 21, 2011 12:57 pm
The Treasury Department reportedly is gearing up to dump “a significant share” of its General Motors (NYSE:GM) stock as early as this summer.
The immediate impact is that taxpayers will lose a hefty share of the more than $50 billion the Obama administration poured into the company two years ago to keep it afloat. Longer term, a Chinese state-owned automaker could emerge winning a bigger stake in a premier American brand.
Published reports earlier this week said the Treasury Department has yet to contact GM about a sale date, but such a sale could happen this summer of early fall.
To the investment community, the timing of what may amount to a government-run fire sale on GM stock seems puzzling. After all, GM’s performance has shown some bounce – its March sales rose 6%.
The government already sold off more than $13 billion worth of GM in the company’s IPO in November – at a mere $33 a share. The Congressional Oversight Panel, which watches bailout programs, said the Treasury would have to sell all remaining shares at $53 a share just to break even.
And that’s simply not going to happen in the short run. Since hitting $38.67 on Jan. 27, GM shares have slid more than 20%. The rumors of a government fire sale are not likely to inject any significant lift into the stock price in the short term.
So why would the guardian of the American taxpayer’s cash not exercise a little patience and wait for a better return on their investment? Because the urgency to offload GM stock is driven by political realities.
In his budget speech last week, Obama announced plans to close the deficit – which will run $1.5 trillion this year alone – by raising taxes on household incomes above $250,000, eliminating a broad array of itemized deductions and making hefty new cuts in defense and national security budgets.
Going into an election year, Republicans are bound to hammer away at the government’s ownership of GM as failed corporate welfare funded by individual taxpayers and small business owners.
So if a quick sale of the government’s remaining 26% stake of GM benefits neither the automaker nor the taxpayers then, to quote the ancient Roman statesman Cicero, “Cui Bono”? The answer, oddly, may be China’s largest automaker, Shanghai Automotive Industry Group. The company’s SAIC Motor unit has engaged in joint ventures with GM since 1997 and purchased nearly a 1% interest in the company during GM’s November IPO.
Also, Shanghai recently consolidated all of its auto assets into SAIC to boost its competitive power and profitability in the global auto industry. At the Shanghai Auto Show on Monday, GM announced plans to double the number of cars it sells in China, and expanding the level of coordination between the companies may be the only realistic way to make that happen.
All things being equal, expect SAIC to be at the front of the line when Treasury exits the auto business this year.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
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