More Bad News for Obama: A Slump at GM

With GM's stock price sagging, the government isn't likely to sell its stake any time soon.

President Barack Obama stands with Ed Welburn, vice president, Global Design General Motors, center, and Gerard Murphy, president of the Washington Area New Automobile Dealers Association, as they look at Chevrolet vehicles during, Tuesday, an. 31, 2012, at the Washington Auto Show at the Washington Convention Center in Washington.

Mitt Romney may have gotten it wrong.

He's been running ads bashing President Obama for car dealerships that were forced to close after the General Motors bailout and bankruptcy restructuring in 2009. But GM's bigger problem may be a stock price that's in retreat, prolonging the day on which U.S. taxpayers will get back their remaining $26.5 billion investment in the company.

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GM is a vastly better company than it was three years ago, when massive losses forced it into an unusual Chapter 11 filing, with Uncle Sam providing much of the funding needed for a fresh start. But the automaker has hit a rough patch this year. Second-quarter earnings tumbled 41 percent from 2011, and overall revenue fell, too. Losses in Europe are the biggest drain on GM's profits.

But the huge automaker has also stalled in its home market. North American car sales are up 14 percent so far this year, but GM's sales have risen only three percent. Its market share has fallen from nearly 20 percent a year ago to less than 18 percent. GM's stock price, which enjoyed a nice runup for the first three months of 2012, has since fallen back to about $20, leaving it flat for the year.

The downshift seems to have scotched any notion of the government selling its stake in the company prior to the November elections, since that would amount to a taxpayer loss of roughly $17 billion, and a major embarrassment for Obama. The government can hold onto its shares as long as it likes, and sell when the price is high enough to get all its money back. But the stock would have to hit about $53 for Uncle Sam to break even—a threshold that seems a long way off.

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Romney, Obama's Republican opponent, opposed the bailouts, and he's said that as president he would sell the government's stake in GM, even at a loss, in order to end Washington's involvement in a public company. Meanwhile, he's trying to win points in the campaign by reminding voters of the GM and Chrysler bailouts--even in states like Ohio and Michigan, where the bailouts saved thousands of jobs. Such attention may itself hurt sales, since it conjures up the "Government Motors" image GM desperately wants to play down.

Still, GM could rebound over the next couple of years, as a variety of factors turn back in its favor. One reason GM has lost market share this year has been the resurgence of Toyota, Honda and Nissan, after the 2011 earthquake and tsunami disrupted production and temporarily boosted the market share of Japan's competitors. Sales may swing back toward GM as pent-up demand for Japanese models eases.

GM has also been in a lull in its product cycle, with few new models in recent months to excite buyers. Ford, meanwhile, has rolled out its new Escape crossover, which is a hit that's drawing more people into showrooms. Chrysler has generated some buzz with the new Dodge Dart and a few other popular vehicles, like the Dodge Durango and Jeep Grand Cherokee.

GM will probably regain some momentum in 2013, when it rolls out its next generation of large SUVs, which are usually highly profitable. Meanwhile, Cadillac is on a roll, thanks to the new ATS compact, the XTS large sedan, and improving quality ratings. Chevrolet has three new models out or on the way—the Malibu and Impala sedans and the Spark subcompact—and a refreshed version of the popular Traverse crossover is coming next year as well.

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GM's bigger problem seems to be sustaining enthusiasm for its cars, which have dramatically improved since the days of wan, afterthought designs and cheap, subpar interiors. The Chevy Cruze, for instance, has been a hit with reviewers, ranking sixth out of 41 affordable small cars in the U.S. News rankings. Yet sales have tanked this year, as buyers lose interest and the always-tough competition intensifies.

The pressure on sales has brought a few anxious moves from the old GM playbook. Chevrolet recently launched a "total confidence" program that basically amounts to the kind of no-haggle pricing that was a hallmark of GM's defunct Saturn brand. Customers have shown little interest, presumably because they think they can get a better deal by negotiating with the dealer. GM has also boosted incentives after a determined effort to keep them down—yet that was one thing that slashed profitability and trashed GM's image prior to bankruptcy. The trial-and-error in GM's marketing programs make it look like the company is flailing, which may have been a factor in the recent resignation of global marketing chief Joel Ewanick.

Nobody would like to see the government sell its stake in GM more than GM. CEO Dan Akerson has complained about the company's unhappy status as a political football, and the toll that takes on sales and morale. But he's probably going to have to put up with it for a good while longer.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.