Hold or sell? What should Treasury do with GM Stake?

GM is doing a lot better than it was a couple of years ago. Profits and market share are on the rise. But despite the company’s best efforts, GM stock is being hammered by external factors totally outside its control.

The threat of European economic Apocalypse, a weak US economy, and rising oil prices have driven the value of GM stock to the point where US taxpayers are in a $25.5 billion hole, according to CNNMoney. GM shares opened at $33 a year ago, but are now trading closer to $20 and change. For US taxpayers to break even on their GM investment, the company’s stock price would have to more than double.

What are the chances of that happening?

Analysts have suggested GM’s stock price could potentially soar if everything goes its way, which seems unlikely.  The company has strong market positions in the US and China, and has made huge inroads into cleaning up its balance sheet. But the unfolding weirdness in Europe could derail the US Treasury’s hope of a quick sell-off and a break-even scenario. A European recession would flatten car sales in the US and China, which could pummel GM shares to around $10.

Steven Ratner, the Obama administration’s point man for the GM bailout, balked at the idea that Treasury wants to unload its 30 percent stake ASAP so “Government Motors” will not emerge as yet another polarizing stump issue in the 2012 election cycle. Treasury asserts it will proceed patiently yet cautiously to ensure taxpayers get the best return possible while not lingering for too long as a major shareholder in a private company — which most would agree is not a constitutional obligation of the Republic.

So what should Uncle Sam do with his stake in GM? It all depends on how long he’s willing to stick out some potentially rough road ahead — both economically and politically.

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Photo by Mike Licht, used under a Creative Commons license.

 

James Bryant

James Bryant is a writer and editor for the First Research team at Hoover's.

Read more articles by James Bryant.

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