Way cleared for U.S. to sell GM shares it still owns

11/9/2012

DETROIT — The bailout of General Motors Co. played an important role in the re-election of President Obama, who stumped on the issue in Midwestern swing states. Now comes the hard part: unloading the government’s stake, probably at a big loss.

GM received $51 billion from the U.S. Treasury in 2009. Taxpayers have recouped $24 billion and still own 32 percent of the company.

The problem is that GM shares are trading at less than half the price the government said it needs to break even. Selling the shares was politically precarious before the election because that would have locked in a loss. Now that the election is over, cutting the stake could be good for GM's image and its stock.

The question is how and when. With GM suffering as much as $1.8 billion in losses in Europe this year and Chinese economic growth slowing while the U.S. accelerates gradually, prospects are dim for a doubled stock price.

“They can't wait for the shares to turn a profit because they know it's not going to happen,” Phillip Swagel, assistant Treasury secretary for economic policy under President George W. Bush, said in an interview. “They will wait a reasonable time period after the election, as people focus on the fiscal cliff and tax reform. Then they'll start to sell off the shares.”

Mr. Obama is unlikely to sell all 500 million shares at one time, as Republican candidate Mitt Romney had suggested he might, Mr. Swagel said.

Rather, Treasury will probably engage in a measured sell-down over time, much like it has in exiting ownership in banks and insurer American International Group, which received taxpayer rescues from the Troubled Asset Relief Program that also funded GM's bailout.

GM's $51 billion was part of the government's $79.7 billion 2009 rescue of GM, Chrysler Group LLC, and lender Ally Financial.

“Treasury has done a very good job of disposing of shares of TARP banks and that provides a pretty good road map,” said Mr. Swagel, now a professor of economics at the University of Maryland School of Public Policy. “Treasury has taken some losses on the TARP shares on individual banks. But they said the best thing for us to do is to sell these off and get the banks back into fully private hands.”

Jim Cain, a GM spokesman, declined to speculate on the government's plans.

GM has the liquidity it needs to buy back government shares after securing an $11 billion revolving credit line on Monday, Brian Johnson, a Chicago analyst with Barclays Plc, wrote in a note that day.

Mr. Obama may want to wait to start selling until the Detroit auto show in January, when GM plans to display a redesigned version of the Chevrolet Silverado pickup, its top-selling model. That news could move shares in the direction of GM's November, 2010, initial public offering price of $33.