As a portion of the focus of the 2012 U.S. presidential election turns to the auto bailout, most of the talking heads are referencing break-even numbers for The General’s rescue. To summarize: the government invested $49.5 billion in GM in the summer of 2009 and has so far recouped $22.3 billion. The Treasury still owns 500 million shares that would need to sell for around $53 each to make back the remaining $27.2 billion, with the stock currently trading around $25. That much we know, as we hear it almost every day in the news and read it online and in newspapers. But what we don’t hear is the other possibility, which involves the government making a profit on the GM bailout.
What if the Treasury holds on to its portion of GM stock and sells it in a few years — when the stock could be trading at, say, $100 a share? That would result in a net profit of approximately $20 billion on top of recouping the “remaining” $27.2 billion. In other words, what’s the rush of selling immediately — why not wait for a while longer to cash out?
Of course, some will be quick to point out that the profit does not take into account the debt service cost involved in not cashing out sooner. But when one considers the fact that the U.S. deficit is growing every day by a much, much larger amount, the debt service cost is negligible, at best.
Now, this is all just in theory — and should be treated as such. But what the theory doesn’t consider is the PR aspect of holding on to the shares for longer than what some would say is necessary. So with all the talk about “giving the tax payers back their money”, perhaps the most interesting question is whether public perception would change if the government were to profit on its investment in GM. What do you think? Talk to us in the comments!