The Joplin Globe, Joplin, MO


June 11, 2012

Sagging GM stock price worries more than shareholders

DETROIT — General Motors shareholders might not ask many hard questions as they gather Tuesday in Detroit for their annual meeting, but that won’t erase the nagging question that persists throughout this combative election year: How much might U.S. taxpayers lose on their investment in the nation’s largest automaker?

Despite some blockbuster earnings of late, the stock has been stuck at low levels compared to its issue price of $33 on Nov. 18, 2010.

The U.S. Treasury, GM’s largest shareholder with a 32 percent stake, won’t have a high-ranking representative at the meeting, according to a source familiar with the matter.

Despite posting a $7.6 billion profit in 2011 and another $1 billion in this year’s first quarter, GM stock is trading between $21 and $22. That’s about one-third below its initial public offering price, and less than half the approximate $53 price at which the government would break even on the $49.5 billion invested prior to GM’s 2009 bankruptcy restructuring.

Republican presidential candidate Mitt Romney said last week that he would sell the government’s remaining 500 million shares immediately if he is elected.

President Barack Obama’s campaign officials have said selling anytime soon would further depress the price and maximize taxpayers’ loss.

“For GM investors, the question is: Regardless of who wins the election, when will the government get out?” Morningstar analyst David Whiston said.

Meanwhile, GM is still formulating a plan to turn around its European business, which has lost money for the past 12 years.

It is considering closing one or two plants, but in Germany, where no automaker has closed an assembly plant since World War II, union contracts prohibit GM’s Opel unit from doing so before the end of 2014.

“In our view, the factor that’s kept investors out of the stock is Europe,” with investors concerned about “how bad it could get,” wrote Jefferies & Co. analyst Peter Nesvold in a research report.

GM spokesman Jim Cain said the company is focused on “the things we can control” - namely, developing a solid mix of products, including global brands Chevrolet and Cadillac.

“We accomplished a lot in 2011, and we continue to chip away at problem areas, address risks to the company; but more than anything, we’re focused on delivering a product program to help us grow around the world, and that’s in great shape,” Cain said.

Analysts agree that the government’s continued stake in the automaker scares off many prospective investors. But shares of Ford, which recently reclaimed its investment-grade credit rating, also are depressed.

“Autos are an out-of-favor sector,” said Barclays analyst Brian Johnson, who still rates GM shares as undervalued.

Despite the government’s stake, some investors are embracing GM, including legendary investor Warren Buffett’s Berkshire Hathaway, which bought a chunk of GM shares during the first quarter.

The Treasury Department wants to recover as much money for taxpayers as possible without lingering too long.

“The company has made real progress, but the market hasn’t given them as much credit for that as it might,” said Timothy Massad, assistant treasury secretary for financial stability. “Moving forward, we’ll continue to balance maximizing recovery for taxpayers with speed of exit.”

Whiston, the Morningstar analyst, said investors want the Obama administration to spell out a plan to cash out of its equity stake in GM, preferably over time. Selling all at once likely will drive down the stock price further. Another option would be for GM to buy back shares.

Cain said GM is not anxious about the government’s stake.

“The question of government ownership gets more attention in the newsroom than in the boardroom precisely because they’re not involved in the operation of the business,” Cain said. “It’s clear that they’ll act on their own timetable.”

In China, GM continues to post strong results, but a slowdown in the auto sales growth rate is of some concern.

In North America, the company posted a $1.7 billion profit in the first quarter.

This summer, GM plans to introduce a few all-new vehicles, including the Cadillac XTS full-size sedan, the Cadillac ATS compact sedan and the Chevrolet Spark mini car.

But 2013 is an even bigger year for new GM products, such as the redesigned Chevrolet Impala and all-new Chevrolet Silverado and GMC Sierra full-size pickups.

In Europe, investors are waiting for GM to outline a reorganization plan that closes excess factories, such as the Opel plant in Bochum, Germany.

“The silver lining is that when Europe (eventually) comes out on the other side, GM will be even stronger than before,” Jefferies’ Nesvold wrote.

Another issue that some shareholders may ask about Tuesday is the plan GM announced June 1 that gives 42,000 salaried retirees the choice of taking their pension benefits in a lump sum.

GM is paying Prudential Insurance Co. of America about $4 billion to start delivering monthly annuity payments to those eligible retirees who don’t choose the lump-sum option.

Dan Ammann, GM’s chief financial officer, said the company expects to reduce its obligation by $26 billion through its deal with Prudential. But pension benefit advocates warn that those taking the lump sums will be accepting more risk.

Prudential would assume responsibility for the benefits of 118,000 retirees covered by the agreement and begin making the benefit payments in January.


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