By Brendan Moore
The chatter in Washington is that the U.S. Treasury Department is going to sell most of its shares it received in General Motors stock in 2009 as part of the auto industry bailout package, perhaps as early as this summer. The reasons are either political or financial, depending on whom you ask. Some will tell you that the Obama administration wants the sale this year so that the federal bailout of GM is a non-issue in the 2012 presidential election, and some say that the sale is going to happen this year because the Treasury department thinks the current stock price is as high as it’s going to get for the foreseeable future.
Either way, unless the share price climbs above an unlikely $53 a share before the sale date, the Treasury’s dream of making a profit on the bailout is not going to be realized. At $53 a share, the federal government breaks even on the $50 billion it “loaned” GM, but at the current share price of approximately $30 (well below the $33 IPO price of last November, which raised around $20 billion), taxpayers would lose around $11 billion.
The U.S. Treasury currently owns 500 million shares of the reconstituted GM, which represents 33% of the company’s worth.
Of course, it’s worth pointing out that at the time of the bailout, many people thought the government would not recover any of the money given to GM, and, that GM would go under despite the money, leaving the taxpayers with nothing (no jobs, no company) and out $50 billion. So, if that scenario was considered likely, there is some solace in the fact that the taxpayers got something from an economy perspective and they’re going to lose only $11 billion on the deal, but that is certainly not an optimum outcome from anyone’s perspective.
The Treasury department has made no official statement on a sale, but did tell a Wall Street Journal reporter this: “Planning for the sale of our remaining GM stock is still at an early stage, and the IPO lock-up does not expire until late May. At that point, we will consider all of our options, based on our twin goals of protecting taxpayers’ interests and exiting as soon as practicable.”
If there is a sale this year, and GM shares gain in value after the Treasury department sells, the Treasury and the Obama administration will then be open to criticism that they should have been more patient and waited to sell their shares until a date at which a profit could be made. The Treasury unit has some pretty astute market watchers and auto industry watchers employed there, so obviously they’re betting that a rise in the stock price is unlikely.
General Motors reported a profit for the first quarter of 2011, but is now being buffeted by the same forces hurting other automakers – rising oil prices, a slowly-recovering global economy, etc.
It may seem that Chrysler has been forgotten, but it hasn’t. It’s just that Chrysler is another narrative entirely, and is in a much different situation from both a market perspective and a financial perspective. The bailout of Chrysler is probably not going to end as well for the American taxpayers, but that is a different article for a different day.
Brendan Moore is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses in marketing, sales, front-end operations, and strategy. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.
That is a great title.
And a great opportunity to say to a lot of people, “I told you so”.
Hmmm, I don’t know how to interpret that exactly. Because 11 billion is a lot of money, but is it less money than it would cost in unemployment checks, more mortgage foreclosures, other federal, state and local aid to the unemployed and their familes, and then the same to all the other people affected in the ripples from GM going down? I’m thinking 11 billion might look like a bargain next to that, but I really don’t know.
Wonder how much we will lose on Chrysler?
Is the bailout of GM really that unpopular with the majority of people in the country? I know right-wing people don’t like it, but don’t most people support it? I would think that from a political perspective, Obama gains from the bailout since the people that don’t like it weren’t going to vote for him anyway, no matter what he did or didn’t do. I think most people want to keep their manufacturing jobs here in America.
We spend so much money on so many stupid things like the tax breaks for agribusiness, tax breaks for oil companies, etc and we funnel those billions and billions of dollars to them every year, year after after year. Then there’s the money spent so far in Iraq, which has been going on for many years, and must be over a trillion dollars now. Are we getting anything for all this money? At least we’re getting something for the one-time money spent on GM. We get jobs staying here, industry staying here in case we need it in time of war, etc.
@johannes
The reason people have a problem with the GM bailout is because it has been one of the most poorly run corporations in history. They’ve been losing market share and hemorrhaging money for decades and all the bailout has accomplished is for them to continue business as usual.
Forget politics, hold on to the stock for a while longer.
Lots of folks in a class discussion group think GM paid the Govt all that was borrowed. Is that true? I also told them the public is still facing a big loss on the stock. What is the status of unpaid loans and how much the public is under water on the stock? Thanks