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lookahead: automotive

Dan Akerson, chief executive officer of General Motors Co., May 14, 2012.Victor J. Blue/Bloomberg

The descent of General Motors Corp. into bankruptcy protection seems like a distant memory given the recovery in the auto sector, but there's an aspect of that event that still hangs over the company.Government ownership will be very much on the minds of the car maker's senior executives and likely some shareholders as well as they gather for the annual meeting of its successor, General Motors Co.Ö, on Tuesday in Detroit.

The market is bouncing back in a healthy fashion, the company posted a profit of $7.6-billion (U.S.) in 2011, GM is a dominant player in China, the world's largest market, and it's working on a plan to fix a long-standing mess in its European operations.

But it's beset by a languishing stock price, as the company itself noted in the circular for the annual meeting.

"Although, by objective measures, our 2011 results were an improvement over 2010, they did not compare favourably to some of our key competitors, and this was reflected, in part, in the price of our common stock and in our relative total shareholder return," the circular said.

In addition, the terms of the $60-billion-plus bailout of GM by the U.S., Canadian and Ontario governments restricts what the company can pay its executives.

That could lead to an inability to attract and keep key personnel and "inhibits our ability to align incentives and rewards with our business plan, which is fundamental to any successful commercial enterprise," the document added.

The U.S. government owns 30 per cent of GM's common shares while the federal and Ontario governments hold 8.4 per cent.

GM chairman and chief executive officer Dan AkersonÖ told The New York Times in a recent interview that it's a concern for him.

"I try not to let it bother me, but the fact is it does bother me,"Ö the paper quoted Mr. Akerson as saying.

The major reason that ownership is still in place is GM's stock price, which is well below the $33 a share level at which the shares of the restructured company began trading in November, 2010, in its initial public offering.

If the governments were to sell at Friday's closing price of $22.05Ö, they would face massive writeoffs of the more than $60-billion they funnelled to GM as part of its restructuring. GM has repaid about $12-billion of that amount – including $1.58-billion in principal and interest to the two Canadian governments.

There are, however, some encouraging signs for GM, including a recovery in the U.S. pickup truck segment, which is a key market for the company and one that was devastated by the recession and the collapse of the U.S. real estate market.

That rebound has convinced Barclays Bank PLC analyst Brian JohnsonÖ to note that GM has a potential upside of 69 per cent if its shares hit his price target of $37.