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Why Shares of General Motors Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes – just in case they're material to our investing thesis.

General Motors' Headquarters in Detroit. Photo Credit: General Motors

What: Shares of General Motors (NYSE: GM  ) , the largest U.S. automaker, surged nearly 5% yesterday after news the Treasury Department sold more shares of the company in October.

So what: In 2009, General Motors found itself in dire circumstances and was forced to file a unique bankruptcy in which the government extended $49.5 billion in loans to the troubled automaker in exchange for $2.1 billion in preferred stock and a 60.8% equity stake.

Treasury has been winding down its position in General Motors, and in September its ownership was down to about 7%. It wasn't reported exactly how many shares were sold off in October, but Treasury said it recouped another $1.2 billion from stock sales. Given the amount recouped and rough trading prices of General Motors in October, Treasury's position is likely now less than 4%. 

The optimism that Treasury could actually rid itself of all shares earlier than its intended March 2014 deadline was enough to send the stock higher. All in all, Treasury has now recovered slightly more than $37 billion of its investment in General Motors through repayments, stock sales, dividends, interest, and other income.

While Treasury won't make a profit from its investment in General Motors, and actually stands to lose roughly $10 billion, there is more to consider. Treasury's investment helped save an estimated 1.4 million plant and supplier jobs in the automotive industry. That's roughly 16 times the number of employees that GM has in the United States. 

Now what: Treasury's ownership in General Motors has been a huge drag on the stock price, as well as the company's reputation -- the nickname "Government Motors" can still be heard on a daily basis. As Treasury finishes unloading the remaining shares of the automaker, it will mark the end of the worst chapter in GM's history.

It's more important than ever that General Motors attempts to rebuild a reputation that has suffered drastically; it plans to refresh, replace, or redesign 90% of its vehicle lineup by 2016. That plan was kicked off this spring when its 2014 Chevrolet Silverado and GMC Sierra hit the showrooms. General Motors needs its most important and most profitable vehicle, the Silverado, to help gain lost market share. The vehicle was years overdue for a redesign. The less consumers remembering "Government Motors", the better GM's sales potential will be for investors.

General Motors still has much work to do. It needs to improve its market share in the U.S., where Ford is consistently gaining ground. Ford is also producing margins in North America that consistently exceed 10%, a goal that General Motors plans to attain in a few years' time. GM has its work cut out for it, but Treasury exiting its position faster than anticipated will be a huge first step.

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  • Report this Comment On November 14, 2013, at 7:05 PM, AmericanFirst wrote:


    Where are your facts to to support your statement? - "TheTreasury's investment helped save an estimated 1.4 million plant and supplier jobs in the automotive industry. That's roughly 16 times the number of employees that GM has in the United States support your following statement "

    The Philadelphia Inquirer and many others disagree with your statement...........see the below:

    In April, 2012 Obama’s Treasury Department claimed that “the auto industry rescue saved more than one million American jobs.”

    However, The Philly Inquirer reported in May, 2012 that Obama had known for over three years that his administration’s claim is false.

    ““Obama’s economic advisers told him during an April 2009 meeting that auto-industry job losses would only be a fraction (10 to 20 percent) of these claims, even for the much weaker Chrysler. The advisers reported the obvious: Bankruptcy would not cause all General Motors’ jobs to be lost and, even with cut backs, suppliers would pick up other work. But these private warnings were never admitted to the public.”


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