Shares of General Motors (NYSE:GM) were off to the races again on December 9 after a report in The Wall Street Journal noted that the government could finish selling its stake by the end of the week. With government ownership expected to soon be out of the way, some are wondering whether the negative image of a government bailout will linger with GM and depress future sales.
My view is that GM can overcome this negative publicity, and a few companies have already shown it is possible to continue selling to the general public even after major negative public perception.
Gulf Coast mess
Back in April 2010, BP (NYSE:BP) pulled off an excellent display of publicity at its worst. Not only did the Deepwater Horizon spill become the largest such oil spill in history, but the event had every element of negative press available. From the 11 workers killed on the platform, to the images of Gulf Coast beaches and animals covered in oil, it would be hard to imagine how BP could ever create a worse PR disaster.
Adding to that was BP's then-CEO Tony Hayward and his infamous "I want my life back" quote, and BP's inability to plug the well. These kept the situation in the news for months.
There were fears that BP would go bankrupt paying for the disaster, or that some mass boycott of the oil giant would dry up sales. But neither of these things happened. Today, BP is worth more than $140 billion, litigation is ongoing but less threatening, and consumers are still filling up with BP gas.
Despite months of media attention, environmental damages, loss of human life, and foot-in-mouth comments from the CEO, BP keeps on going today. And while there are still above-average risks associated with the stock, BP is now a top-notch dividend payer.
Perhaps no company has become more associated with the financial meltdown in 2008 than megainsurer American International Group (NYSE:AIG). Just as the full picture of AIG's risk and excess was coming to light, the insurer needed a government bailout of $182 billion. But the bad publicity didn't end there. Stories of multimillion-dollar bonuses being paid out, and lavish trips taken on company money enraged the public to the point where Congress considered passing a bill to tax back 90% of the bonuses given out by companies taking government funds.
In the darkest days of negative publicity, AIG ditched the AIG name for its property and casualty unit, and renamed it Chartis. Clearly, AIG was aware of the negative public image the events surrounding the bailout had caused.
But looking at AIG today, we see a massive insurance company that's free from government ownership. Solid profits are, once again, being reported, the company is buying back stock, and a small dividend has been reinstated. Perhaps most signaling the turnaround in the AIG image is the rebranding back to AIG, and the prominent use of the AIG name in company commercials.
There will always be people who have completely sworn off GM vehicles, whether for reliability, performance, or bailout/politcal issues. But there are also people who can't stand vehicles from Ford, Chrysler, Toyota, Honda, or any one of many other automakers.
The auto bailouts developed a political nature to them that has brought them to be associated with Democrats and, specifically, President Obama. (This comes despite the first part of the bailout being administered under President Bush.) However, GM had still been showing strong sales during its time under partial government ownership despite this political association.
But there is also a good chance that the bailout/politcal image will wear off over time. Already, it's being helped by lowering (and soon eliminating) the government's stake in GM. And time also has a way of washing out previous impressions. We saw AIG going from being a political pariah to a company actively building itself around the AIG name.
As time progresses, the image of GM as Government Motors should fade as the public begins to accept the automaker as the private corporation it is once again. After all, if consumers still buy despite a record oil spill or a $182 billion bailout (over three times the size of GM's), the "Government Motors" label just may not be that big a problem for GM.
Alexander MacLennan has the following options: long January 2015 $34 calls on General Motors, January 2015 $40 calls on General Motors, GM Class B warrants, GM Class C warrants, AIG warrants, and long January 2015 $50 calls on BP (ADR). This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool recommends General Motors. It recommends and owns shares of American International Group and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.