U.S. Treasury stake not the millstone GM makes out
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
General Motorsâ Dan Akerson deserves an A for effort. The automakerâs chief executive and his colleagues reckon the U.S. governmentâs 26.5 percent ownership hurts the Motown manufacturerâs image and its ability to hire people. But itâs not the millstone they make out.
The U.S. Treasury isnât convinced, so far, that it needs to offload its stake in the automaker, according to the Wall Street Journal. And thatâs the right response. Sure, for GM to be dubbed âGovernment Motorsâ is no compliment. But the moniker is nowhere near as prevalent as it was when taxpayers saved GM from collapse in 2009. And although the automaker has made good progress since – and thanks to – the bailout, it was only three years ago. Thatâs less than one full product cycle, so current management arenât yet in the clear to argue theyâve fully overcome their predecessorsâ disastrous failings.
Thereâs potentially more to the fear from pay restrictions linked to the bailout that could hamper GMâs attempts to hire the best people. But the government can grant waivers if the company puts forward a good case. Thatâs not ideal from a management perspective, but itâs not an insurmountable barrier.
GMâs other shareholders also donât seem bothered about Washingtonâs big stake. The company currently trades at 5.8 times the consensus estimate for next yearâs earnings, according to Reuters data. Thatâs hardly stellar for what is now a profitable company with $33 billion of cash on hand. But most automakers are afflicted by investor doubts about the rapidity of an industry turnaround. Bailout-free Ford, for example, trades at 6.8 times 2013 estimates. GM, with lower pre-tax operating margins and less-seasoned management, deserves to trade at a discount to its big rival.
The governmentâs large stake may well become more of a drag once investors look more favorably on the industry as a whole. Until then, thereâs nothing wrong with Akerson trying to buy back shares while he considers the stock cheap. But for Treasury Secretary Tim Geithner, selling now would lock in a $15 billion loss on his departmentâs overall investment. The Treasury can afford to take Akersonâs grumbles with a pinch of salt and exit on its own schedule.