White House in a pickle over its GM exit plan
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
It’s no secret the Obama administration would prefer to offload the U.S. government’s remaining stake in General Motors. Adding a successful exit from at least one of the automakers it bailed out to the profits made on Uncle Sam’s banking exploits would be a handy feather in the president’s cap as the election season heats up. So reports that the U.S. Treasury is considering another stock sale later this year should come as no surprise. The trouble is GM’s shares aren’t cooperating.
The Detroit automaker’s stock is wallowing some 10 percent below its $33 per share debut last November. Lackluster fourth-quarter earnings, rising oil prices and expected supply chain disruptions following the Japanese earthquake and tsunami have made shareholders moody. If the outlook doesn’t pick up, a flood of shares from the government would make them downright cranky.
Of course, GM would probably welcome a government exit sooner rather than later. The potential hit to the stock price would be outweighed by the ability finally to shake the “Government Motors” moniker it has worn since it first took taxpayers’ money in 2008. And even President Barack Obama and his Democratic party could make an argument for selling at a loss. The bailout saved jobs and the Midwest economy, outweighing the $12 billion hit implied by GM’s current share price.
And retaining a stake come election season would be a political liability. Some voters already suspect Obama’s Democrats of being closet socialists. Hanging on to GM shares would hand Republicans an easy target they would be sure to attack.
But a rush to sell brings its own headache: Treasury only breaks even if it sells for more than $52 a share, some 73 percent above the current price. The stock’s unlikely to hit that any time soon. So a secondary offering in the next few months would hand Obama’s opponents another welcome gift.
Take the 2012 elections out of the picture and the need for a quick exit is much less compelling — and taxpayers would have a better shot at getting their money back. There may come a time when it makes sense for Uncle Sam to cut his losses, but that decision should be driven by economics, not politics.