A Bumpy Road Ahead for General Motors?

Strong new products like the all-new 2014 Chevy Silverado have helped push GM's stock price up this year. Photo credit: General Motors Co.

Shares of General Motors  (NYSE: GM  ) were up about 3.6% last month, and have risen about 50% over the last year. Those gains have come despite heavy selling pressure: The U.S. government has been selling off millions of General Motors shares it received as repayment for the company's 2009 bailout.

General Motor's stock has risen because its business has been improving. With the government now saying that the last of its shares will probably be sold this month, GM's stock could rise more dramatically. But as Fool contributor John Rosevear explains in this video, GM's stock could hit a near-term pothole before that happens. 

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An abbreviated transcript of the video:  
Hey Fools, it's John Rosevear. General Motors stock was up about 3.6% in November, much of that gain coming after the U.S. government said that it plans to sell off the last of its GM shares by the end of the year. That should be great news for GM shareholders, although there's a little bit of a catch. The U.S. Treasury Department has been selling GM stock on the open market since early this year, and will have sold off around 300 million shares once its selling is complete. All that selling has probably put some downward pressure on GM's stock, but it has still risen about 50% in the last year as GM's business has continued to show improvements. Once that selling is completed, it should have more room to rise. That will be good news for GM shareholders. But as I said, there's a catch that could cause some trouble for GM in the short term. These shares that the government has been selling are of course the last of the shares that the government received as partial payment for the $49.5 billion in loans that it gave to GM to get it through the economic crisis and through bankruptcy restructuring. GM has long since satisfied the terms of those loans, paying them back with a mix of cash and stock as per the original agreements. But the thing is, GM's share price hasn't been as high as everyone hoped when the government and GM agreed on the terms of the deal. It's looking like the government is going to come up about $10 billion short on the repayment of those loans once all those shares are sold. Now, the government is already saying that a $10 billion loss here is totally worth it, given that the bailouts for GM and Chrysler essentially saved the entire US auto business. And I'm sure that GM CEO Dan Akerson and his advisors already have a carefully thought-out strategy for talking about this when it arises. But there's likely to be an outcry from folks who think they can use this to score points at President Obama's expense, and that could create a bit of a firestorm for GM that will need careful handling. Of course, it could end up that the government announces the end of its selling in the week between Christmas and New Year's when nobody's paying attention, and maybe that will turn out to be the strategy here. But it's something that shareholders need to watch. Thanks for watching, and Fool on.


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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.

  • Report this Comment On December 08, 2013, at 12:49 AM, jimatmad wrote:

    I keep hoping that things might change, but I really have to remember to stick to my 4 Rules for the Internet:

    1 Do NOT read Motley Fool auto articles.

    2 Do NOT read Motley Fool auto articles.

    3 Do NOT read Motley Fool auto articles.

    4 Do NOT read Motley Fool auto articles.

  • Report this Comment On December 08, 2013, at 2:27 PM, SkepikI wrote:

    I however, JR DO read your articles when you care to WRITE them and I read this one and the transcript. THANK YOU much! It was totally worth the effort on your part.

    This is one of your more interesting updates and speculations on the trajectory of GM stock and public opinion. I certainly think Government Motors is in for some rough sledding ahead as the curious and open minded public who remain to buy shares as the government exits dwindles.

    It seems to me that the US Treasury have done about as good as they are going to do at divesting shares on a rational timeline. Sort of a damned if you do damned if you don't position that should never be repeated. I would very much like to keep in tune with this string of events not because I will ever be a GM shareholder (I won't..EVER) but for the insights it presents on "moral hazard" and on effects across the industry. A seminal moment in history to my thinking....

    Please keep up the good work and please keep up on transcripts if you insist on videos.

  • Report this Comment On December 09, 2013, at 9:46 AM, Jason87467 wrote:

    GM may have cost the US government 9.3 billions, but how come nothing is said about Ford or Chrysler?

    Ford got a loan which not a single penny has been paid yet, and also received money that no one seems to know about. So to me your reasoning looks mute.

    http://www.forbes.com/sites/joannmuller/2012/08/29/automaker...

    http://jalopnik.com/5704575/ford-bmw-toyota-took-secret-gove...

    http://jalopnik.com/5704575/ford-bmw-toyota-took-secret-gove...

  • Report this Comment On December 09, 2013, at 1:02 PM, SkepikI wrote:

    ^ GM got those loans too, plus the 10 big ones down the drain. Chrysler, a two time loser was not quite as bad as GM, but is beyond redemption anyway, so its not worth discussion. Given history, though I thought differently at the time, I now think Chrysler should have been put out of business the first time, Lee Iaccoca miracles notwithstanding....

    Saving Chrysler twice a mistake for the ages...

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