Care needed with General Motors stake sale

The bailout of General Motors played an important role in the re-election of President Barack Obama, but now comes the hard part, which is unloading the government's stake, probably at a big loss.

GM received US$51 billion from the US Treasury in 2009. Taxpayers have recouped US$24 billion and still own 32 per cent of the company. The problem is that GM shares are trading at less than half the price the government said it needed to break even.

Selling the shares was politically precarious before the election because that would have locked in a loss of US$14 billion at yesterday's closing price. Now, cutting the stake could be good for GM's image and stock.

The question is how and when.

"They can't wait for the shares to turn a profit because they know it's not going to happen," Phillip Swagel, assistant treasury secretary for economic policy under president George W. Bush, said. "They will wait a reasonable time after the election, as people focus on the fiscal cliff and tax reform. Then they will start to sell off the shares."

Obama was unlikely to sell all 500 million shares at one time, as Republican candidate Mitt Romney had suggested he might, Swagel said.

That will reassure investors concerned that GM's largest shareholder would batter the stock with a share dump.