With General Motors Co. increasing its earnings and widening its market share, the Obama administration is in a dilemma and may be opening itself up to criticism no matter what it does. The $50 billion government bailout had rescued GM. Last Thursday, GM closed at $20.70 a share -- less than half the $53 price that the U.S. Treasury Department requires to break even. On Dec. 19, its shares closed at their lowest price since last year’s initial public offering.
Since then, the shares have increased for three consecutive days. Sources said that the stock would have to rally nearly 50% to attain $30 a share. This is the minimum price that the Treasury Department would consider for a secondary offering. This August, when a candidate is nominated by Republicans, the government will most likely either still own a significant portion of GM or it would already have sold the stock at a loss that could be over $10 billion.
Dan Ikenson, an economist at the Cato Institute, a Washington think tank, said, "The administration is in a Catch-22.” He explained that GM is hoping to wait to obtain the best price but the longer they’re holding on to it, the more its critics will say that the administration “still has a horse in the race and could make policy that is favorable to GM."
Adam Jonas, a New York-based analyst at Morgan Stanley, said that investors are holding back on purchasing GM due to the expectation that the U.S. will be offering hundreds of millions of shares for sale. This may lower the price but then its shares are expected to rally soon after the government sells. [source: Bloomberg]