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!
Comments
No way, The plan worked, GM is back, employing thousands, building great products profitably. The US should sell all GM shares ASAP, even at a loss and move on.
What I’m confused about is, did GM completely pay off the “bailout” loan?
Which amount are you referring to, Tim?
Didn’t the government also “invest” in the other auto manufacturers? If they did, why don’t we hear about them paying back their loans? Why is it always GM? And why are people still banking with the banks that got a bailout? Shouldn’t we all refuse to use their services since they took our tax dollars too?
I think it would be awesome if they held onto the shares and turned a profit. However, the general populace seems to have the attention span of a gnat and can’t see things in long term scenarios anymore. Everyone seems to have something to complain about. Loudly. And often without hearing the entire story thanks to the 10 second sound bites that masquerade as news nowadays.
I have been a Chevy girl my entire life and this whole affair has not wavered that support in the least. Regardless of how the government handles this, my garage will only have Chevys in it. =)
The only other bailed out auto company was Chrysler, and they are arguably not even a company anymore (owned by the Italian Fiat) so ty aren’t even worth arguing about.
Alex, pardon my ignorance as I really don’t follow politics a lot. I remember seeing a commercial where GM states they paid their loan back in full. I take it they had different types? Regardless, I just wonder why GM is always the scapegoat? Of I recall, Ford took some money too, albeit not the same amount as GM.
Of the 49.5 billion GM received from the treasury dept., a small amount was a loan. That loan was paid back in full (many years ahead of schedule) The balance of the cash was swapped for equity in the new General Motors Company. It is up to the treasury to liquidate their position in the company. It will be a long process. You can’t dump 500 million shares onto the stock market all at once, the value of the shares would plummet. If you want to see the government out of GM, vote Republican as I will! One of the first orders of business will be to unload the shares and subsequently blame Obama for all the losses incurred.
The government needs to be get out of the way. Pay restrictions are beginning to harm GM. Top execs aren’t going to wait around for the salaries they deserve.
Yes, what @Dave said above.
But I wonder about the executive compensation piece: now that executives are being rewarded with some serious stock options, perhaps the pay restrictions won’t be such a big factor…
http://gmauthority.com/blog/2012/03/gm-awards-akerson-with-76249-shares-of-gm-stock/
I didn’t think the gov’t should have sold the shares at all, but rather, conducted a full takeover and reaped all future profits ad infinitum. Think about it. If a large portion of all major for-profit US companies were owned outright by the gov’t, all profits would, in effect, be taxed as 100% because all profit would go straight to the treasury, thereby reducing the need for taxation. Workers, managers, executives would all still be employed, and yet there would be no 1% fatcats. The national debt could eventually be paid down, and income taxes could be a thing of the past.
Communism at it’s finest right here Ken.