Is GM Feeding Rumors About its Finances?

There are some big rumors circulating about the finances of bailed-out General Motors. The first of these is that GM is considering repurchasing Treasury’s stake in the automaker and were circulated by sources who, according to a Bloomberg report, “didn’t want to be identified.” The message was that GM is so cash-rich that they were considering buying back shares from Treasury, thus eliminating the government overhang on the company. This stance raises questions about past actions at GM. Why did GM issue $2 billion of new stock to help fund pension plans if they have adequate cash to do so? Why did GM’s wholly owned finance arm need to issue half a billion dollars of junk bonds for “general purposes” if they are so flush with cash?

GM CEO, Dan Akerson, also floated the rumor when he was asked in a Detroit News interview if GM was considering buying back Treasury’s shares. Akerson disingenuously paused for 8 seconds before declining to answer and stating, “But we have a lot of cash.” Why so coy, Mr. Akerson? GM buying back taxpayers’ stake would be a great solution, if GM is in such great financial shape. This would be a win-win solution; Treasury could get a fair market price for its shares and the overhang of government ownership and fears of dilution from future sales of the securities would be gone. So, if this is a real possibility, GM should put up or shut up. Get the deal done or stop spreading rumors that seem to be designed to give the appearance of financial strength at GM.

A more recent rumor has potential buyers bidding on GM’s money losing European Opel division. A Wall Street Journal report cites unidentified “insiders” as the source of this rumor. The fact that GM did not immediately dismiss the rumor as unfounded speculation seems to have angered German Chancellor, Angela Merkel, who (according to a Reuters’ story) demanded clarity. Another Reuters’ report states that the rumors also didn’t sit well with union representatives as Opel works council head, Rainel Einenkel, demanded an explanation as well. Einenkel says that the speculation is damaging to sales at Opel.

Executives at GM seem to be more concerned with perceptions than with profitability. Unfounded rumors that point towards positive developments at GM will not drive share price higher. It also bothers me that the only investors who would be swayed by speculative reports are the smaller individuals as more astute money managers ignore the spin.  Major media sources seem to be very cooperative in spreading the rumors while ignoring the ongoing weaknesses at GM. The story that financial news networks should be focusing on is Akerson’s call for higher gas prices after he made comments that higher gas prices would be “very detrimental” to the auto industry. Now that is a story that gives a more telling indicator of the quality and philosophy of GM’s present management, and it is not a pretty picture.