Obama bought high on GM, now thinking of selling low

Barack Obama reportedly plans to spend perhaps $1 billion of his supporters’ money to run for re-election next year. What are his ambitions going to cost taxpayers? Some $11 billion on GM stock alone, the way things look right now.

From The Wall Street Journal:

The U.S. government plans to sell a significant share of its remaining stake in General Motors Co. this summer despite the disappointing performance of the auto maker’s stock, people familiar with the matter said.

A sale within the next several months would almost certainly mean U.S. taxpayers will take a loss on their $50 billion rescue of the Detroit auto maker in 2009.

To break even, the U.S. Treasury would need to sell its remaining stake — about 500 million shares — at $53 apiece. GM closed off 27 cents a share at $29.97 in 4 p.m. trading Monday on the New York Stock Exchange, hitting a new low since its $33-a-share November initial public offering.

Shares have been hurt by rising fuel prices, industry production disruptions and management turnover. At Monday’s price, and taking into account shares sold during the IPO, taxpayers would lose more than $11 billion on the rescue if the government dumped the rest of its stake now.

Government officials are willing to take the loss because the Obama administration would like to sever its last ties to the auto maker, the people familiar with the matter said. A summer sale makes it more likely Treasury could sell all of its stake in GM by year’s end, avoiding a potentially controversial sale in the 2012 presidential election year. (emphasis added)

Our $49.5 billion bailout of GM, in exchange for a 61 percent stake in the company, implied a market capitalization for the company of about $81 billion. Right now, the market has GM valued at about $47 billion — less than three-fifths of the higher figure. Heck, its market cap today is less than what the U.S. spent to bail out the company. (Canada spent billions more on GM.)

Mickey Kaus has been harping on GM’s disappointing stock performance for months now. Before the WSJ report was posted, he wrote this Monday about the price of GM stock falling below $30 a share:

No way the taxpayers get their money back at this rate — for that to happen shares need to climb to around $50. And that’s under a conservative estimate of the government’s investment, one that ignores the tax … “spending.” …Sorry, Steve! …Underlying the decline: GM’s market share is not looking good. (italics and links original)

The company’s market share, should you choose not to click through that last link, fell about three percentage points last month, below 16 percent. Here’s a chart showing the share price since the IPO.

While it’s understandable that Obama wouldn’t want the “Government Motors” line hanging around for next year’s campaign, is rushing into an $11 billion loss really any better politically? Not to mention, you know, the best interests of the country.

How quaint of me, I know.

– By Kyle Wingfield

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68 comments Add your comment

Dabir Dalton

April 19th, 2011
5:49 am

Kyle if the republican party had the best interests of the country in mind you just might have a point. Obama is only doing what the republicans have always done: Serve the interests of their campaign donors and to hell with the country and the people who voted em into office.

Road Scholar

April 19th, 2011
6:23 am

Cut the losses and sell. Or would you hang on to the stock and watch it fall further? Kyle, what guarentee do you have that the stock will increase in price? Are all the rich people with tax reductions going to buy it , sort of like trickle down?

Chris Matthews

April 19th, 2011
6:40 am

Worst President in American History! Obama is clueless and spineless! All of his grand plans have failed!

Jason

April 19th, 2011
7:27 am

And if he didn’t sell the narrative would be “The government has no place owning industry. They’re holding on so all the workers will be obligated to vote for the Democrats. They’re holding on so they can force tree hugging cars on the public that they don’t want. They’re holding on so they can punish dealers who donate to Republicans and reward those who donate to Democrats.” Come on, you’re getting into Newt Libya territory.

Govt. should trade credit default swaps

April 19th, 2011
7:32 am

Our government should sell its steak in GM and take the proceeds and invest in credit default swaps on government debt. They’d make a fortune and erase the national debt in a matter of weeks!

$11 billion is a lot of money, but TARP was $700 billion and we’ve wasted over $1 trillion on the disasters in Iraq and Afghanistan.

$11 billion is a lot but keep in mind that GM is hiring back everyone who was laid-off.

Certainly we should have jobs programs that are less costly. But we should have jobs programs. Don’t we need bridges repaired, and food inspected. I don’t want any more lay-offs and furloughs of police, fire fighters and teachers.

If you want congress to address the budget and debt crisis, ask them to create jobs programs. Tax revenues would grow and escalate with this type of investment. Cutting social programs does nothing to address what this nation needs. Cutting social progams makes the books look good for this quarter, but will damage our nation’s future prospects. Jobs programs are a way to build for the future.

Toby

April 19th, 2011
7:35 am

Nothing that 15 million jobs wouldn’t cure.

Terd Fergesun

April 19th, 2011
7:41 am

Gee, Obama’s administration did not get the full value on GM, what a shock. The man could not make a lemonade stand profitable and we are suprised by this news? Another example of his great leadership and why this country is in the economic mess it is in.

JJ

April 19th, 2011
7:44 am

mmm, GM steak. Tasty

Jefferson

April 19th, 2011
7:45 am

What do you think of the loan we made to Goldman Sacs ? AIG ? Win some, lose some ? Or just throwing little balls of stink in a fan ?

Faux and Friends

April 19th, 2011
7:46 am

@Chris Matthews “Worst President in American History! ”

Sorry to disappoint CM, but Dubya’s got Obama beat on that one by a country mile!

Hmmmmmm

April 19th, 2011
8:02 am

Worst President in American History………. It’s close, and I would have never thought he could out do Bill Clinton, but it looks like Obama has raised the bar…. Kinda sad. But hey, that’s what the american public wanted….

mike

April 19th, 2011
8:09 am

Interesting since it was a republican administration which started this whole mess in the first place. But as always you people look for somebody else to place the blame. Something you people have done since Christopher landed in this country with those other boatloads of crooks.

[...] the taxpayers would lose “more than $11 billion,” according to the WSJ. That seems like a lot of money to kiss off if the quick sale is designed to help Obama’s reelection (as opposed to helping GM by removing the “Government Motors” hex). To make the [...]

JKL2

April 19th, 2011
8:30 am

But GM paid back all the loan money…Didn’t see this one coming. Of course the money from the sale will be shuffled off into some other program instead of paying of the debt like all the TARP money was.

http://www.youtube.com/watch?v=EfH46DTAkxo

Georgia Voter

April 19th, 2011
9:08 am

KW said, “…is rushing into an $11 billion loss really any better politically? Not to mention, you know, the best interests of the country.”

Putting this piece into context (emphasis mine):

“The Congressional Budget Office Tuesday trimmed its estimate on the cost of the Troubled Asset Relief Program to $19 billion…

‘That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding foreclosures. Other transactions with financial institutions will, taken together, yield a net gain to the federal government, in CBO’s estimation,’ the non-partisan office said in its fifth report on the program.

http://www.smartmoney.com/news/on/?story=on-20110329-000433

KW doesn’t have to like, but we’re far better off with the Bush/Boehner/Beck/Palin TARP program (thanks guys) than we would have been without it. It helped to save jobs, helped to prevent the economy from going into free fall, and ultimately cost taxpayers little to nothing relative to what the program saved taxpayers. It wasn’t a perfect program. Far from it. But it was a lot better than doing nothing, and doing nothing is what many are arguing that we should have done.

Peter

April 19th, 2011
9:10 am

Please anyone who would label Obama as the worst president in history has his head in the sand…..

Come on now Kyle……. How do we pay for Bush’s wars ?

DW

April 19th, 2011
9:18 am

I dont get it republicans. First your pissed that the govt is involved… now your pissed that they are getting out? WHAT DO YOU WANT?

jconservative

April 19th, 2011
9:23 am

Name the last 4 presidents to sign a balanced budget.

Answer:
Bill Clinton, Bill Clinton, Bill Clinton and Harry Truman.

The contest for worst American president is neck and neck; guaranteed to be a photo finish.

And the winner is?______________ (fill in blank)

DW

April 19th, 2011
9:25 am

If Kyle is SOO bullish on GM stock, why doesnt he dump HIS savings in it?

Jimmy62

April 19th, 2011
9:28 am

I wanted the government to never be involved in the first place. GM was/is a failed business, nothing is going to change that. It should be in the dustbin of history, with the money people threw at GM instead being invested new enterprises without the various albatrosses around the neck of GM.

But yeah, divest immediately, even with a loss, and don’t make decisions like this again. Those of us who believe in the free market were against this from day one.

And we were undeniably right!

DW

April 19th, 2011
9:31 am

@jimmy

Fair enough. I have no problem with that. So why the big deal about them selling the stock now???

Intown

April 19th, 2011
9:34 am

Taking a capital loss here will off-set all his capital gains on the bank bailout! :)

Jimmy62

April 19th, 2011
9:37 am

DW: Dunno, you’ll have to ask Kyle about that cuz I don’t see the point in hanging on. Frankly, I don’t think there’s a chance in hell GM’s stock is going to rise, so I say sell now before it goes even lower. Sell, and end this debacle as soon as possible, let GM go through a normal bankruptcy procedure, and make the UAW, which was given billions of dollars in GM stock at the expense of creditors and investors, lose the money they were given. End the bailouts and the giveaways to failures.

DW

April 19th, 2011
9:37 am

Hey Kyle, you got an inside scoop on GM since youre so sure its going up or this just more Obama bashing for doing something that George W was going to do anyways but put off until obama was in office?

jt

April 19th, 2011
9:42 am

Housing……..destroyed.

Auto manufactoring……..destroyed.

Primary education………….destroyed.

Now on to secondary education.

In the progressive’s world, there is no place for the middle class.

JF McNamara

April 19th, 2011
9:47 am

Cut your losses. Get rid of it now.

The only reason we bought it was to stabilize the economy by avoiding mass layoffs. It worked. Claim victory and move on.

Kyle Wingfield

April 19th, 2011
9:48 am

DW and others: The point is that the decision isn’t being made because the WH thinks GM shares are going to slide even further and it’s best to get out before that happens, which would be regrettable but reasonable, but because the WH wants this resolved before the election. So, as I said, it’s politics over sound judgment.

Kyle Wingfield

April 19th, 2011
9:52 am

Which is yet another reason that, as I’ve said numerous times before, we should have let GM go through a normal bankruptcy proceeding rather than bailing it out and taking a majority ownership stake.

Tall

April 19th, 2011
10:10 am

Mr. Wingfield:

With regard to your 9:52 am comment…..true. The Federal government has underwritten a leveraged buyout with our tax dollars and sold it at a loss. Most of the readers here don’t understand that.

DW

April 19th, 2011
10:10 am

And where would that have gotten us? Another million people unemployed….

DW

April 19th, 2011
10:13 am

@kyle

Maybe they DO think the shares are going lower. Look how input prices are soring.. now they have to raise the price of cars.

A True Progessive

April 19th, 2011
10:18 am

Thank you for your explanations Kyle.

Truth is, we liberal softies don’t know a thing about economics, finance, or the stock market.

But we are experts on bringing up George Bush and rethuglicons in response to complaints about Our Great Leader, the first (1/2) black president.

All the while, being recklessly ignorant of the ongoing current disaster that is the present United States of America and it’s likely downfall from empire building and its resultant murder of civilians, cancerous authoritarian nationalism, and the lie that is its counterfeit currency.

So where were you when Bush did that thing he did. Huh Kyle? You Poo Poo Head.

carlosgvv

April 19th, 2011
10:22 am

But…but…but….We had to keep GM in business because they were too big to fail.

Tall

April 19th, 2011
10:22 am

DW: Do you know how to push buttons on a calculator? Do a little basic math and you might be startled by how much money it cost to “save” those jobs. This was nothing more than payback for UAW support during election time. Don’t be surprised if GM starts laying off workers because they are overstaffed.

Tall

April 19th, 2011
10:23 am

True Progressive: You need a therapist.

Don't Tread

April 19th, 2011
10:37 am

I opposed the bailouts from the start for this very reason. For years, GM spent too much money in sales and marketing, and not enough money in research and development. They should have been allowed to fail (bankruptcy and the subsequent purging of ineffective management may have done them some good). Obama’s meddling in private enterprise has turned a “contained” failure into a colossal failure.

As someone once said: “GM – not in my driveway, and not in my portfolio.”

DW

April 19th, 2011
10:47 am

@Dont Tread

Where were you when George W was giving them emergency loans until he left office?

Boehner Tears

April 19th, 2011
10:51 am

Maybe the stock sale will restore the resale value of my Cadillac Cimarron.

Don't Tread

April 19th, 2011
10:52 am

Right here. I opposed that too.

If you can’t run a business…you shouldn’t be in business.

DW

April 19th, 2011
10:53 am

@dont tread

agreed… but under that logic should we have just let all the banks fail too? Just let the entire financial world come to an end?

Just Saying..

April 19th, 2011
10:58 am

Kyle-
And your stock portfolio is up or down…?

poison pen

April 19th, 2011
11:38 am

You don’t think that the UNION votes had anything to do with it, do ya?

Scooter (The Original)

April 19th, 2011
11:39 am

The federal government underwrote GM just as they underwrote sooooo many bad home loans through Fannie and Freddie. The only thing to big to fail is politicians’ egos.

DD

April 19th, 2011
11:42 am

The only reason Obama bailed out GM was the union pure and simple. He owed them and the US taxpayer subsidized the unions ownership interest in GM. At the onset GM should have gone into private B’ruptcy and reorganization whereby they could have scrapped the existing union contracts whose pension and benefit provisions for workers (many are no longer working there) were far beyond the market and one reason for the company’s inability to be competitive. Obama’s motives were purely political and he will reap the benefit in 2012 when he calls in his marker from the union. The fact is, the sky would not have fallen and GM would have reorganized minus the federal involvement and billions in losses. But then again, what are a few billions Obama when we are talking about trillions. After all, he believes the US is the ultimate greed filled, oppressive, capitalist nation that obtained it’s position via the exploitation of the planet.

Thulsa Doom

April 19th, 2011
11:54 am

So Obama is throwing away more of our tax money. What else is new?

Just Saying..

April 19th, 2011
11:54 am

Geez…Yeah, let’s hold on to that stock til “I at least get my money back”. And at that time, inflation will reduce the value to…And the opportunity cost of foregoing what you could accomplish today with $39B is…
And it’s fair to view this in terms of stock profits, because that’s a normal function of government, right? There were no political, jobs, or core American industry considerations present at that purchase/rescue Decision Point (oops, is that copyrighted?) at all, right?
Come on, Kyle, you’re smarter than that. Right?

Ivan

April 19th, 2011
1:11 pm

“Which is yet another reason that, as I’ve said numerous times before, we should have let GM go through a normal bankruptcy proceeding rather than bailing it out and taking a majority ownership stake.”

Nothing to add here. Just thought I’d quote it since it speaks loudly as to why it was a such a bad idea to begin with.

Jimmy62

April 19th, 2011
2:00 pm

Just saying: Yes, there were jobs on the line, but those jobs are going to go away anyway, because no matter how much money taxpayers are forced to pump in, GM is a failed enterprise, and nothing was going to save it. So instead of letting it get broken up, and the parts going to new enterprises, or existing successful ones, and the workers perhaps taking their expertise to companies with a potential for success, we locked all that monetary and intellectual capital into a failed enterprise, doomed from the start.

So yeah, for the long term outlook on jobs and industry in the United States, Obama did the exact opposite of what he should have done. Bankruptcy procedures have worked well for a long time in this country, whereas bailouts have tended to fail just about every time. Look at the original Chrysler bailout. It saved the company for a couple of decades, but also kept them locked in to a lot of the same bad planning that led to the initial failure. So years later they were sucking at the government teat yet again.

Businesses must make their own way, if they can’t they should fail. What’s amazing is that all these supposedly anti-corporate lefties were so excited to spend billions on GM, while the supposedly pro-business righties were against. It’s not really amazing, but it does illustrate the complete lack of understanding on the part of lefties about how the free market should work, and how the free market does NOT mean crony capitalism, which is what the auto bailouts were all about.

Fix-It

April 19th, 2011
2:22 pm

Obozo would bankrupt a lemonade stand, what a great business man… NOT

Peter

April 19th, 2011
2:34 pm

Well Fix-It…….thanks for showing off your “Big Brain “….HA HA HA…..did you think that up all by yourself, or did the lemming in you come out ?