As much as General Motors' (NYSE:GM) earnings report released last week was an earnings report, it was also a banner for President Obama's re-election campaign. After being rescued by the government three years ago, "Government Motors" looks like it has made a turnaround.
In 2009, GM got $19.4 billion in loans, and $30.1 billion in debtor-in-possession financing; and in exchange for that, the U.S. got 60% of the company.
And now, after surviving on government life support, GM posted the highest profit in its 103-year history. The company posted profit of $7.6 billion in 2011…beating its previous record of $6.7 billion in 1997. And the company reclaimed its spot as the world's largest automaker after global sales rose 7.6%.
As good as the headline sounds, there are problems under the surface. And as much as the headline is a great campaign line, reality is brewing under the surface. The company's Europe business lost $747 million last year…the 12th straight year that European operations have lost money. Another problem: GM's global pension shortfall widened to $24.5 billion underfunded last year.
And the really big problem: taxpayers are still on the line with GM. The Treasury still holds 500 million shares and the stock would have to basically double in price for taxpayers to break even.
GM is up 34.8% so far this year, but it's still below its post-bankruptcy 2010 IPO price. But more to the point, the stock is still a long-term sell and it looks overbought at this point. And for that reason, last week's headline is no reason to call this a buying opportunity.
(Click chart to expand)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.