Do people like the General Motors (GM) comeback story? Is the Pope German? For well over a year now, 'General Motors is back' has been a real people pleaser. The Obama administration is even running for reelection under the tag that "Bin Laden is dead, but General Motors is alive."
And the stock has danced along, up over 2.5% on Friday to round out a good week during a year in which the stock is up about 16%.
But the General Motors comeback conversation just turned for the worse, as was only a matter of time. That's why we're tilting against the grain and suggesting selling the stock. The turn in conversation will drag the stock over the next few days.
Here's what happened: The Wall Street Journal ran a big story this morning, which already has gums flapping, called "U.S. Balks at GM Plan: Government Is Reluctant to Sell Auto Stake at a Huge Loss." The story is about how the relationship between GM and the government, portrayed as an idyllic private-public partnership, has turned fraught. GM wants the government to sell; the government, nervous, is refusing.
That's emblematic of more trouble unfolding.
The General Motors Comeback story has been pumped by a lot of self-serving interest groups, including the federal government. But realistically, putting politics aside, while General Motors made a few improvements around the edges after getting a $50 billion handout, its best showings came in the wake of the Japanese tsunami when arch nemesis like Toyota (TM) and Honda (HMC) were all but inoperable. "General Motors is back" might have never existed without Toyota and Honda on their backs.
Now comes this news that the relationship between GM and the government, which has effectively served as the public relations arm of the auto giant-telling and re-telling the comeback tale without that complicated detail about no competition for over year-has turned rancid.
GM wants the government to sell some or all of the 500 million shares they own. They don't like the stigma of being known as "Government Motors," unlike Ford (F), which said "no thanks," to government loot. The Journal added that GM, a little more than 25% owned by the government, was bristling at the pay restrictions and "curbs on corporate jet use," that come harnessed to government ownership.
That level of entitlement will not endear GM to the public.
This is part of the messy underside of the GM story. And it's one we're just starting to hear about as Toyota and Honda return to form, adding competitive tension and giving lie to the deceivingly simple "GM is alive" tale.
GM, to be clear, is no lost cause: it has over $30 billion in cash and reported a second-quarter profit of $1.85 billion, marking more than two years of profits. But severe problems in Europe and the re-gathering force of Japanese competition has been narrowing profits and will do so even more going forward. Worse, steeped in the simplicity of the "GM The Comeback Kid" tale, the stock market has been blithely ignoring this clear and present challenge.
If the government could sell its stake at a profit, which would allow it to crow, it would. But the true comeback at play here-Toyota and Honda-have gotten in the way of an even sharper move up in the price of GM's stock.
The General Motors Comeback story was the greatest story over told. As the conversation starts to turn, we suggest selling this stock.