The Facts & Figures Of The GM Bailout: Part 2

Suffice to say that there there was a significant amount of FUD as it relates to the U.S. Treasury’s December 2012 announcement to exit its ownership of General Motors. So, as before, we decided to clear things up.

Quick Facts

• The U.S. Treasury recouped $23.1 billion as part of the Initial Public Offering of General Motor stock in late 2010 (and other repayments), leaving the government with $27 billion outstanding of the total $49.5 billion in federal assistance.
• The U.S. Treasury announced in December 2012 that it plans to sell its 500.1 million remaining GM shares over the next 12 to 15 months, with the 15 month mark being March of 2014.
• General Motors has purchased 200 million shares at $27.50 per share by the end of 2012, resulting in $5.5 billion towards the outstanding $27 billion. This leaves the government with about 19 percent of GM’s shares (down from 32 percent), which it then plans to sell publicly throughout 2013 and possibly into 2014.
• For the time being, Canada plans to keep its 9 percent stake in General Motors

Breaking Even

• For the government to recoup its investment, it would have to sell the remaining shares at an average price of $53 a share. The stock closed Thursday, January 10th at $30.45.
• The automaker’s stock price is likely to rise throughout 2013, as confidence in an independent GM that isn’t subject to possible political manipulation builds among the public at large. Several analysts are forecasting a share price of $33 on average within by the end of 2013.
• That price would be even higher if GM is quickly able to resolve the albatross that is its loss-making European operations that are plagued with high costs, inflexible labor unions, and a recessionary European economy. GM expects to keep posting losses in the region until 2015, when it expects to break even. Meanwhile, competition in North America remains highly robust.
• If the Treasury sells its remaining shares at that price, then it would result in roughly a $6 billion loss. That is separate from the loss on the sale of 200 million shares to GM.
• The government will likely realized a total loss of $12 billion on the bailout.
• However, the government never expected to make a profit on the transaction, with Treasury and White House officials having consistently said that the investment in the automaker would result in a loss. “That continues to be our view and today’s announcement is consistent with that outcome,” an administration official said.

Outside The Numbers

• The re-election of President Barack Obama may have created a clearer path for the government to sell its remaining stake in GM, although this hasn’t been confirmed.
• The U.S. government’s full divestiture from GM may result in the “Government Motors” stigma being eliminated. Barclays analyst Brian Johnson said in a research note that “GM customers (perhaps importantly for pickups) who may have been alienated by government involvement may now purchase a GM vehicle.”
• The automobile industry rescue commenced under President George W. Bush and expanded under President Barack Obama.
• Supporters of the $49.5 billion bailout of General Motors argue that the move saved jobs, allowed GM to reduce debt, cut costs, kept America in the automotive business, and prevented the collapse of a company whose disintegration could have devastated suppliers and even competing automakers during a recession. Meanwhile, opponents counter that the bailout benefited the UAW at the expense of bondholders; they also tender that the industry would have survived.
• Whether the “Government Motors” stigma continues to taint GM after the divestiture is complete remains to be seen. But you already knew that.