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Uh oh, General Motors (NYSE: GM)

Written By Briton Ryle

Posted April 15, 2014

Crashed Chevrolet Bel Air IIHS General Motors GM

Circumstances point to a possible criminal collusion between General Motors Company and the United States Department of the Treasury.

There is plenty of arguing taking place between GM and government investigative committees over the company’s negligence in the handling of serious safety issues. Defective ignition and steering parts in at least thirteen automobile models have already resulted in 13 deaths and dozens of injuries, and with failing air bags on two models resulting in over 300 deaths.

Emails, memos and other documents keep surfacing to indicate that the defects were known by company executives as much as a decade ago. Plenty of reasons are emerging that explain why such problems were not rectified early on, ranging from failed communication between company departments to inaccurate assessments of the seriousness of the defects.

But there may be another reason why nothing was done sooner, and why news of the defects have only just recently come to light. And it may involve the U.S. Treasury Department’s sale of its remaining stake in GM stock acquired during its 2009 bailout of the automaker.

Immediately following the Treasury’s disposition of its GM stock last December came a change in company leadership, a series of auto recalls, revelations of prior knowledge of the faulty auto parts, and a plunge in GM stock of more than 21% thus far.

It looks like the Treasury Department exited its GM position just in the nick of time. Coincidence or malfeasance?

A Case of Perfect Timing

When the Department of the Treasury bailed out GM in 2008-09, the agency received some 912 million GM shares, investing $49.5 billion into the automaker overall. When GM emerged from Chapter 11 restructuring a year later, the Treasury Department embarked on a systematic divestiture of its GM holdings:

• When the company issued its new IPO in November of 2010, the Treasury Department sold some 400 million shares at an approximate price in the $35 range.

• Another large sale of 200 million shares came in December of 2012 for $27.50 a share.

• Another 200 million shares were sold throughout 2013 in a price range of $30 to $38.

• On November 21st, 2013, the Treasury sold 70.2 million shares at approximately $38.50 each.

• The final sale of 31.1 million shares came December 9th, 2013, at around $40.50 a share.

All totalled – including stock sales, dividends, and cash paybacks – the Treasury Department recouped around $39 billion of the $49.5 billion extended to GM, resulting in a loss of $10.5 billion borne by taxpayers. But it could have been worse –much worse– if news of defective parts, deaths and lawsuits had come to light sooner.

Amid the negative publicity drawn by the recall of over 6 million vehicles, GM’s stock has plunged to the $32.50 area, down some 21 percent since the government completed its final sale. The Treasury’s last two sales in

November and December saved the government at least $421.2 million and $248.8 million respectively, for a total of $670 million.

You can see them wiping their brows and sighing, “Whew. We got out just in time. What a fluke.” But was it?

No Time Lost

What should strike us as odd is how quickly GM acted as soon as the Treasury completed its final disposition of GM stock on December 9th, 2013:

• The very next day – December 10th – the company announced Mary Barra would succeed Dan Akerson as CEO.

• Before the end of December, information regarding GM’s faulty parts, the deaths and injuries they caused, and the lawsuits they triggered were revealed to Barra and other higher ranking GM executives, according to Barra’s recent testimony.

• On January 4th, 2014, GM began recalling 69,000 pickups and SUVs from Chevrolet, GMC and Cadillac for a defect in the steering column that may cause the vehicle to roll away without warning.

• On January 31st, the maker recalled over 13,000 vehicles regarding improperly tightened suspension bolts and faulty airbags.

• On February 13th, the company recalled 780,000 Chevrolet Cobalts and Pontiac G5s to inspect and repair the ignition switch.

• On February 25th, GM recalled another 588,000 vehicles of Saturn Ion, Chevrolet HHR SUVs, Pontiac Solstice and Saturn Sky.

• On March 17th another 1.5 million vehicles were recalled due to defective airbags and other problems.

• On March 28th another 1 million vehicles were added to the faulty ignition switch recall.

• On March 31st another 1.5 million vehicles were recalled due to faulty power steering issues.

As of the beginning of April, more than 6 million GM vehicles have been recalled, all within the span of just 3 months.

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Too Good to be a Coincidence?

Information released by the company itself shows that most if not all of these defects were known by GM managers and some executives going back to 2005, 2003, and some as early as 2001. While some fixes were applied in those early years, recurring incidents of accidents, deaths and injuries continued, without much in the way of recalls during all that time.

And now, suddenly within the span of just three months, recalls are finally being conducted? How can it be that over the course of more some 10 to 13 years, GM never grasped the seriousness of these defects, and yet suddenly in just three months they were able to investigate and understand these problems thoroughly enough to issue recalls? How can they learn in three months what had eluded them over 13 years?

Perhaps the seriousness of the defects and the need for issuing recalls on a massive scale were known for years. But nothing could be done with this knowledge because the government still had millions of GM shares to sell.

Estimates put the break-even stock price at $76 per share in order for the Treasury Department to get its money back in full. They had to allow the stock price to appreciate as much as it could to reduce their bailout losses as much as possible. They had to hold back the bad news and recall actions as long as possible, and they stalled as long as they could.

As it turned out, the government managed to get out of GM’s stock right at the top – with its last sale of $40.50 completed just a week before the stock hit its $41,85 high.

The events of the last three months show just how quickly GM can act when it wants to. That the recalls over multiple defects affecting numerous parts were made in such close succession one after the other shows that the company had them all lined up ready to be announced. All the company was waiting for was the OK to proceed. Circumstances seem to show that the company was waiting for that word to come from the Treasury.

The Barra Sacrifice

Yet there is one more casualty among all the victims hurt by this apparent collusion between GM and the Treasury Department to withhold life saving information from the general public – the newly appointed CEO Mary Barra herself.

Her nomination the day after the Treasury’s final stock sale again shows the company had its ducks in a row long beforehand, and was just waiting for the final stock sale to proceed. The company knew that the public would be more willing to forgive a new CEO.

GM was probably also relying on Barra’s gender to soften the public’s outrage, probably thinking the public would be less angry at a woman than it would be toward a male.

One can’t help but wonder how much Barra suspects she has been selected as the “fall girl”, a sacrificial lamb to take away the crimes of the company before the real CEO they are hiding takes the top seat after Barra falls on her sword and takes the blame away with her.

It’s a shame if that is how Barra’s career ends, for her record shows she would have made a fantastic CEO – if only she had been given a fair and honest opportunity. But it seems her career will be the final casualty in a long list of injuries and deaths caused by this increasingly apparent collusion between GM and the Treasury.

Joseph Cafariello