General Motors: Still in Trouble

May.13.11 | About: General Motors (GM)

By David Silver

Starting at the end of April, shares of General Motors (NYSE:GM) started a nice rebound after being under a considerable amount of pressure since the beginning of January. The strength didn't last long as earnings, high fuel prices, and less than stellar economic data combined to pressure the automaker. Also hanging over the company are the unfunded pension liabilities and the pending sale of stock from the Treasury. The latter was dispelled yesterday as the Treasury has indicated it would not be rushing to the exits with respect to its GM investment. This makes the second wait and see approach from the Treasury this week, the other being AIG.

There were rumors that the Treasury was going to sell as much as $20 billion of its investment in AIG, but the stock has been under so much pressure, it only seems prudent to not sell such a large amount given the current market environment.

Back to GM... Treasury has indicated that it hopes to make money off its GM investment, but let's be honest, the stock has to basically double before the American taxpayer will make any money. This leaves the Treasury with two options:

  1. prop up GM with whatever positive news there is out there, get the stock above $50.00 and then sell; or
  2. sell most if not all of the investment now and put that money to use elsewhere.

The U.S. government is still one of the largest shareholders for GM; however, with the government out of the picture it would remove a huge cloud that was hovering over the company. Investors knew that eventually the U.S. government would get out of GM, so the over dilution fear would be faced. Additionally, GM could then begin repurchasing shares. I am not a fan of GM's shares right now, but do think that over the next two years, the company will reinstitute its dividend.