U.S. plans to sell remaining 31.1 million GM shares by year end

U.S. plans to sell remaining 31.1 million GM shares by year end

Automotive News | November 21, 2013 – 9:50 am EST
— UPDATED: 11/21/13 5:52 pm ET – adds Canada statement
DETROIT (Reuters) — The U.S. Treasury Department said it expected to sell its remaining shares of General Motors Co. by the end of the year, a plan that may leave taxpayers with a shortfall of about $10 billion on the automaker’s 2009 bailout.

Treasury today said it had completed the sale of 70.2 million shares of GM stock and to date had recouped $38.4 billion from the $49.5 billion taxpayer-funded rescue of the Detroit company.

At current prices, Treasury would recoup another $1.2 billion from its remaining stake of 31.1 million shares, bringing its total recovery to $39.6 billion. Treasury said its initial cost basis for the GM shares was $43.52 per share.

If it completes the sale by year’s end, the Treasury would unload the GM stake on the earliest end of its projections announced last December. At the time, it anticipated selling the stake within 12 to 15 months.

GM shares today rose 1.1 percent to $38.12 — not far from their post-bankruptcy record price of $38.98 set on Jan. 3, 2011.

“Our goal was never to make a profit,” said a Treasury official who requested anonymity. “It was to save the U.S. auto industry.”

U.S. auto sales through October have risen 8.4 percent, with sales expected to top 15.5 million for the full year — comfortably above the recessionary trough of 10.4 million in 2009.

The Detroit automakers are profitable, too, although GM’s net earnings for the first nine months dropped to $4.3 billion from $5.0 billion in 2012. One thing that hasn’t changed is that the majority of those profits are still driven by large pickup trucks and SUVs, which contribute more than two-third of GM’s global pre-tax earnings.

Treasury said the final GM share sale would take place by year-end, subject to market conditions and if average daily trading volumes continue at recent levels.

Analysts have said Treasury’s exit from GM would lift the “Government Motors” stigma from the automaker, which would also be able to begin paying dividends for the first time since the restructured company returned to the market with an initial public offering three years ago.

Treasury’s sale of the shares “could lead to the lifting of compensation limitations for GM’s key executives,” Buckingham Research analyst Joseph Amaturo said in a note to clients.

The removal of those restrictions also may enable GM to offer a more generous and competitive compensation package if the board elects to search for outside candidates to succeed CEO Dan Akerson, said analyst Matthew Stover of Guggenheim Securities.

In a related matter, Canada’s government is seeking to maximize its return when it sells its shares in GM, a spokeswoman for Finance Minister Jim Flaherty said Thursday.

“We will exit the government’s stake in General Motors in a timely manner,” spokeswoman Marie Prentice said in e-mailed comments after the U.S. announcement. “We will divest because government shouldn’t be in the car business, but we will divest appropriately over time to ensure we maximize the return for Canadian taxpayers.”

The Canadian and Ontario governments in September agreed to sell 30 million GM shares worth about $1.1 billion to Bank of America Corp. and Royal Bank of Canada in a block trade, reducing their stake by 21 percent to 110 million shares.

In a quarterly filing to Congress in late October, the U.S. government said it already had booked a loss of $9.7 billion on its shares, which were acquired as part of GM’s Chapter 11 bankruptcy filing and subsequent bailout.

Treasury since then has whittled down its GM stake through a series of stock sales.

A healthcare trust for the UAW still owns a stake of about 10 percent in GM.

“While the U.S. Treasury’s equity stake draws to a close, our work to transform GM continues,” GM said. “We’re making great progress in our efforts to make the most of this second chance.”

A GM spokesman on Thursday said the company since July 2010 has invested $8.8 billion in 34 U.S. facilities, “saving or creating more than 25,000 jobs.”

The GM bailout was implemented under the government’s Troubled Asset Relief Program (TARP), which disbursed $421.6 billion and has recovered $406.7 billion. The total does not count Treasury’s additional shares in AIG, which Treasury valued at $17.6 billion in a Wednesday report.

GM, in a statement, said: “While the U.S. Treasury’s equity stake draws to a close, our work to transform GM continues. We’re making great progress in our efforts to make the most of this second chance by building outstanding cars and trucks, creating jobs and reinvesting in our country.”

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