President Obama’s General Motors hypocrisy
The Wall Street Journal reports today that General Motors executives have asked the Treasury Department to sell its stake in the giant automaker. The administration has refused.
Oddly enough, today we also learned that the Obama administration is launching a complaint at the World Trade Organization over China’s allegedly unfair subsidizing of its auto industry. The United States will charge the Chinese government with subsidizing auto and auto parts producers from 2009 and 2011 to the tune of $1 billion. (Protectionism, it seems, always becomes a vital component of economic policy when a candidate is campaigning in Ohio.)
Remember, when President Barack Obama pursues nationalization, he’s making a gutsy call and “saving” the American auto industry. Democrats brought up the bailout 150 times during the Democratic National Convention. It was such a gutsy call, in fact, that U.S. taxpayers, who rescued the heavily unionized automaker, now own around 26.5 percent of the company.
Yet back in June of 2009, President Barack Obama claimed taxpayers were only “reluctant shareholders” after the government took its stake in General Motors. “What we are not doing — what I have no interest in doing — is running G.M.”
He went on:
“They, and not the government, will call the shots and make the decisions about how to turn this company around. The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions.”
If General Motors believes it needs to extricate itself from government to be successful, why would reluctant shareholders stand in the way?
GM executives reportedly feel the company is tainted by the stigma of bailouts. It has also reportedly struggles to institute pay caps imposed by Washington during the bailout, as they undermine the company’s ability to recruit top candidates. Pay caps might be wonderful for populist messaging, but they make no sense in the real world. Moreover, this entire situation is another example of why government shouldn’t own companies: Even when it’s not involved, it is.
So why won’t the Treasury Department sell the remaining shares? Well … November.
If the Treasury sold its stake, it would have to admit, despite all its big talk of success , that the venture cost taxpayers a bunch of money.
As I write GM’s shares stand at around $24. If the U.S. sold it shares today it would lose another $15 billion on the bailout. GM stock would need to reach $53 a share for the U.S. to break even. The Wall Street Journal reported that the Treasury Department will start thinking about unloading shares when it hits the $30s. Well, G.M.’s 52-week high is $27.68 and its value has been halved in the past two years.
And for those who believe that the Treasury Department is really waiting for a more favorable stock price; you’re probably going to be waiting a long time. With demand in Europe and China weakening, Moody’s Investors Service recently lowered its growth forecast for global auto sales next year.
Moreover, the Treasury Department itself estimates that government will lose more than $25 billion — 15 percent higher than its previous forecast. So why wouldn’t it move now?