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CHICAGO (MarketWatch) -- The Treasury Department is resisting General Motors' push for the government to sell off its stake in the auto maker, The Wall Street Journal reports. Following a $50 billion bailout in 2009, the U.S. taxpayers now own almost 27% of the company. But the newspaper said GM executives are now chafing at that, saying it hurts the company's reputation and its ability to attract top talent due to pay restrictions. Earlier this year, GM presented a plan to repurchase 200 million of the 500 million shares the U.S. holds with the balance being sold via a public offering. But officials at the Treasury Department were not interested as selling now would lead to a multibillion dollar loss for the government, the newspaper noted.
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.
U.S. Balks at GM Plan
DETROIT—The Treasury Department is resisting a push by General Motors Co. 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.
U.S. Reluctant to Sell GM at Big Loss
The Journal points out that if the stock is sold at the current price of about $24, it would trigger a loss of $15 billion. Shares would need to rise to $53 for Treasury to get its money back. GM’s shares reached almost $40 in early 2011.
GM’s CEO Daniel F. Akerson has been widely criticized for two things.
The first has to do with GM’s ongoing losses at its Europe operations — Opel and Vauxhall. GM lost $341 million in Europe in the second quarter and, on an annual basis has lost money since 2000 which at this point totals $12 billion. There is no end in site for the losses. GM has bled market share in Europe. The company’s market share in the region was 8.4% in the second quarter, down from 8.8% the quarter before. The market remains dominated by VW, BMW and Daimler, PSA Group and Renault Group.
The second problem GM has not been able to solve is that its U.S. sales have flagged. Toyota (NYSE: TM), pushed part way out of the market by recalls and slow production due to the Japanese earthquake, has roared back. GM’s U.S. market share through eight months last year was 20%. That was down to 18.1% through the same period this year. GM’s products have not been good enough to keep sales moving up as fast as the market in general.
GM needs to show the government, and its other investors, that it has a means to get its shares back to $30, before there is any discussion about $40 or $50. Treasury can wait GM out until Akerson retires or is fired and a new management team gets a shot at improving the firm’s earnings.