August 27, 2011

THIS IS an editorial page, not a stock tip sheet. Still, maybe the Obama administration should have paid attention when we urged it to start selling off the Treasury Department’s stake in General Motors. That was on April 25, when GM’s stock sold at about $30 per share. The administration didn’t sell then, and it’s still not selling — with GM down to about $23.

So much for all those reports that Treasury wanted to exit GM by summer’s end, just as it exited its much smaller stake in Chrysler this year amid much fanfare. The government continues to hold 500 million shares, about 26.2 percent of GM; its hesitation has cost the taxpayers $3.5 billion in paper losses since our editorial.

To be sure, market timing is a mug’s game. The goal of sinking $51.3 billion into a restructured GM was not to make a profit for the Treasury; it was to rescue a major part of the U.S. manufacturing base.

In fact, the likeliest outcome all along has been that the government — i.e., the taxpayers — would lose money. History will judge the GM rescue based on the totality of its results, which include not only the dollar cost to taxpayers but also the broader benefits of avoiding an industrial meltdown at the height of the 2009 recession.

However, the administration’s policy creates the appearance of playing politics with its GM stake. Hanging on to the stock, even as it drops, protects President Obama from the hit he will take when the government’s loss changes from hypothetical to real. But a buy-and-hold strategy isn’t without cost to the Treasury — i.e., the taxpayers. Like any other investor who keeps his money tied up in an underperforming asset, the Treasury forfeits the benefits it might reap by cutting its losses and redeploying its funds, perhaps to reduce the deficit. And, of course, it runs the risk that the stock will go down even more.

No one is saying the government should hold a fire sale. But it could announce a plan to sell its shares in GM at regular intervals over the coming months, regardless of price, so as to minimize market distortions. There will be losses. The benefits, though, would include reassuring the business community that this president really does have an exit strategy for federal ownership of industry — and relieving GM of the “Government Motors” stigma, which still hampers its efforts to woo car buyers and prospective executives.

As we said in April, selling GM creates financial risk for taxpayers and political risk for Mr. Obama no matter when the government does it. So Treasury might as well get on with the job. Maybe this time it’ll take our advice.