Dear President Obama: Sell the Government's GM Stake Now
I know you're proud of the effort made by your team back in 2009 to save General Motors (GM).
You should be: You took a lot of flak for it at the time, but it has worked out better than we all expected.
GM 2.0 still has work to do, but it's already booking solid profits, has tons of cash in the bank, and is putting out some great new cars and trucks – with lots more on the way next year.
Saving GM was a big accomplishment for your administration (and to be fair, for President Bush, too, who got the ball rolling back in 2008). Heck, some pundits are saying that it might even have been the key to your reelection -- or at least to your victory in Ohio.
But as good as this GM thing has been for you, with the election now over, it's time to let go.
Mr. President, it's time for you to direct the Treasury to sell its stake in General Motors.
The Stock Price Is Stuck, and the Feds Are Part of the Problem
I know, I know, you haven't sold yet because the time hasn't been right. You need the stock price to get over $50 to have any hope of breaking even on your "investment," and it's been stuck below $30 for ages.
But here's the thing: You're part of the problem. Not you personally, but just the fact of the position held by the government. It's a huge, huge block of shares -- 500 million, to be exact.
Investors are reluctant to buy GM stock because they're afraid that when you do sell, the dilution will drive prices down.
It's kind of a catch-22: You want GM's stock price to go up before you sell so that you can tell taxpayers that you didn't lose money on the TARP program. But the stock price isn't going to go up to where you want it until after the Treasury cashes out. That's when big investors will feel comfortable about wading back in.
I know that you couldn't do it before the election. And nobody really expected you to -- not even GM CEO Dan Akerson. There would have been too much of an outcry over the loss, and the bailout had already become a big hot-button issue by summer. It just wasn't happening.
But now you've been reelected. You'll never have to face the voters again. You can afford to take the heat.
And if you do it right, it won't even hurt the stock price that much.
A Gradual Approach Is the Best Approach
Some investors seem worried about the possibility that you'll dump the stock all at once. But I know you won't do that. You'll have the Treasury Department sell it gradually.
An approach like that won't hurt prices much. It might even help. Once word gets out that you're starting to sell, GM's stock price is likely to begin moving up. The Treasury even turned a profit on AIG, though that seems less likely with GM. But still, you might get more for your stake than you think right now.
I know you'd like the stock to move up more before you start selling. But here's the thing: It has already come a long way recently. GM bottomed out under $19 a share in July. Since then, it has risen about 33%, thanks to good earnings and signs of progress in Europe.
But I get the sense that it's not going to go all that much further until you sell. I hope you'll get started soon.
Thanks for reading,
-- A GM shareholder
At the time of publication, Motley Fool contributor John Rosevear (@jrosevear) owned shares of General Motors. The Motley Fool owns shares of and has bought calls on American International Group. Motley Fool newsletter services have recommended buying shares of General Motors and American International Group.