General Motors' Shares Surge on Treasury Exit Plans

What: Shares of General Motors (NYSE: GM  ) surged more than 3% in early trading today as the U.S. Treasury Department announced¬†plans to exit its position in the largest Detroit automaker by year's end. Treasury said it had completed the sale of 70.2 million shares of General Motors common stock and will launch a plan to sell the remaining 31.1 million shares. This isn't set in stone, and the final exit -- originally set for March 2014 -- depends on market conditions and trading volumes.

So what: This announcement means that the Treasury has recouped $38.4 billion for taxpayers from the overall General Motors investment. That means taxpayers are still on the hook for roughly $10 billion, so the recouped funds may not be enough to quiet the nickname "Government Motors".

Now what: Treasury's approaching the exit as a GM shareholder is important for investors in a multitude of ways. For one, it will be important to watch executive compensation levels that have been held under tight control while the Treasury held a large stake in the company. Compensation limits will be lifted once the Treasury stake closes. That doesn't mean General Motors will immediately begin to float lofty raises or bonuses, but it's definitely something to keep an eye on.

On the bright side for GM investors, the Treasury exit schedule likely sends the automaker much closer to reinstating its dividend to common stock shareholders. That will be especially true if Ford (NYSE: F  ) continues to increase its dividend, as some analysts anticipate in the near- to medium-term future.

What's the upside: The upside for General Motors is pretty enticing. The company is trying to repair its image in the U.S., as well as globally, and Treasury's exit will help significantly. That's even more important when you consider that General Motors will be tackling its largest vehicle portfolio refresh in company history -- refreshing, redesigning, or replacing 90% of its vehicles by 2016. Having a clean, or at least cleaner, brand image will help those new cars sell.

General Motors is quite different than crosstown rival Ford in one aspect: profits. Ford consistently brings in margins above 10% in North America, while General Motors hopes to reach that level by mid-decade. However, General Motors is much more globally diversified and has a strong position in the world's largest automotive market, China.

Ford is racing to grow its top-line revenue and sales to match General Motors, while GM is racing to improve operations to bring its fat top line to bottom-line profits, which Ford already does. If General Motors can take notes from its archrival about how to consolidate global platforms and improve operations, the upside for GM profits over the next three to four years will be significant.

Why are we saying goodbye to "Made-in-China"?
The Economist
compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And everyone from BMW, to Nike, to the U.S. Air Force is already using it every day. Watch The Motley Fool's shocking video presentation today to discover the garage gadget that's putting an end to the Made In China era... and learn the investing strategy we've used to double our money on these 3 stocks. Click here to watch now!

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2737980, ~/Articles/ArticleHandler.aspx, 9/28/2016 11:29:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:01 PM
F $12.09 Up +0.11 +0.92%
Ford CAPS Rating: ****
GM $31.90 Up +0.30 +0.95%
General Motors CAPS Rating: ***