No more Government Motors: US selling GM shares

The U.S. government's foray into the car business is slowly coming to an end.
Associated Press
Dec 20, 2012

The Treasury Department said Wednesday that it will sell its remaining stake in General Motors in the next year or so, winding down a $50 billion bailout that saved the iconic American car giant but also set off a heated debate about government intervention in private business that even influenced this year's presidential election.

Taxpayers will lose money on the deal, but it gets the government out of the car business. GM has done well over the past three years, piling up $16 billion in profits as car sales bounced back. Now it looks forward to losing the stigma of government ownership — including the derisive moniker "Government Motors" — that it claims cost it sales since it left bankruptcy protection in 2009.

As part of a deal announced Wednesday, GM will spend $5.5 billion to buy back 200 million shares from the Treasury from now through the end of the year. That will leave the government with 300 million shares, or a 19 percent stake, which it plans to sell during the next 12 to 15 months.

The government bailed out GM with $49.5 billion during the financial crisis in 2008 and 2009. Otherwise the struggling automaker would likely have been auctioned off in pieces. The Treasury Department says it will have recouped about $28.7 billion after GM completes its buyback. So, breaking even would require selling the remaining 300 million shares for an average of about $70 each.

That's more than double the current trading price. GM will buy the 200 million shares at $27.50 each, about an 8 percent premium over Tuesday's closing price of $25.49. The shares shot up more than 8 percent to $27.60 in midday trading Wednesday.

At a more realistic price of $30 apiece, the government gets back $9 billion for its remaining shares. That means taxpayers would recoup around $38 billion, or about 77 percent, of the initial investment, resulting in a loss of about $12 billion.

GM says having the government as an owner kept customers away from dealerships. Chief Financial Officer Dan Ammann told reporters Wednesday that GM has "market research that we've done over time that has suggested that the government involvement in the business has had some impact on sales." He added that GM should benefit when the government is completely out.

As part of the stock buyback deal, GM almost immediately will be allowed to own a corporate jet or be required to manufacture a certain percentage of cars and trucks in the U.S. GM says it already has exceeded the manufacturing requirements and will continue to do so for the foreseeable future. It has no immediate plans to buy or lease corporate jets, but it has chartered jets for executive travel at times.

However, government-ordered pay restrictions will remain in effect until the Treasury completes the sale of its remaining 19 percent stake. CEO Dan Akerson has said the pay limits have hurt the company as it tries to recruit top talent.

The bailouts of GM and rival Chrysler were part of the Trouble Asset Relief Program created by Congress during the financial crisis in the fall of 2008. Last week, Treasury sold its final shares of stock in insurance giant American International Group, which had received the largest amount of government support during the financial crisis. With Wednesday's GM stock buyback, the government has recovered $386.5 billion — 92 percent — of the $418 billion in funds disbursed through the TARP program.

The GM bailout played a role in this year's presidential election, helping President Barack Obama capture the key state of Ohio, as well as Michigan. Ohio is second only to Michigan in auto-related employment. Obama's opponent, Mitt Romney, opposed the federal bailout, instead favoring private funding to get GM through bankruptcy. But private loans weren't available early in the financial crisis.

Treasury said Wednesday that the investment in GM was worth it.

"The auto industry rescue helped save more than a million jobs during a severe economic crisis," said Timothy Massad, Treasury's assistant secretary for financial stability. "The government should not be in the business of owning stakes in private companies for an indefinite period of time."

Massad said that exiting the GM investment "is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests."

Initially the government got 912 million shares in exchange for the money it loaned to GM. It sold 412 million shares for $33 apiece in GM's initial public stock offering in November of 2010.

GM shares rose shortly after the IPO, but then slid as the U.S. economic recovery slowed and Europe's economy took a turn for the worse. As the shares fell, the government balked at further sales.

Although GM is paying a premium for the government shares, Ammann GM's other shareholders benefit because the number of shares on the market will be reduced about 11 percent. That should increase the value of the remaining shares.

The move was approved by the GM board on Tuesday evening after the company got opinions from its management and financial advisers, GM said.

GM will fund the deal out of its cash balance, which at the end of September was close to $32 billion.

 

Comments

Swamp Fox

The government lost money, the salary employees lost money, new hire hourly emplyees lost money, the private investors lost money, who won, the union....

Bluto

First , the government knew it was going to lose out going into this . Second , Everyone from the top to the bottom took a pay cut . Third , How do you lose money as a new hire ? Let's see , no job = no money , newly hired in = money in pocket . Forth , Private investors would have lost money regardless if GM failed . And exactly how did the unions win ? This was a bitter pill for everyone , but the alternative would have been worse on our economy .

looking around

You have it right Bluto, I've asked many salaried folk who have retired if they lost anything more than the Union workers and all agree they have not. Our health benefits and insurance programs were taken over by the union and co-pays have changed, salaried were given funds to purchase their insurance. The PBGC covers all of their pension benefit and hourly gets a portion from PBGC and because of negotiations prior to the bailouts GM pays a make up for those that had retired with thirty or more years of service but were not of the age to collect Social Security. At age 62 when S.S. begins that make up is dropped. The total pension benefit then is recalculated and the PBGC and Social Security comprise the entire benefit. So if you look at it realistically those who collected that make up did so for a very short time if at all. If a salaried person had full credits and was 62 they lost nothing and at 65 would get medicare as all of us union do also. I've challenged any salaried person who retired to lay their paperwork out beside mine and show me where I benefited over them and have never had a single taker!

2cents's picture
2cents

(And exactly how did the unions win ?)

Rank and file indirectly voted for the guy for president in 2012 that gave GM tax payer’s cash. Maybe tax payers should have been given GM stock certificates?

Factitious

Everyone knows management was incompetent and over-compensated, but so was most of their white-collar workforce, and there were WAY too many of them. The majority of them were worth NOTHING to the company. At least most of the union workers actually did something for their paychecks.

Why do we always blame the people at the bottom? At least when they have a union they can protect themselves from the idiots in the executive suite, whose idea of fuel-efficiency is hybrid YUKON.

The buck stops with management.

Contango

The GM IPO was $33.00 @ share.

In order for the govt. to break even on the deal, the price would have to be around $54.00 @ share (a 65% increase).

Did the taxpayers lose money? You betcha.

Where was Mr. "Bail out king" Obama on the Hostess bankruptcy? Guess he didn't need those union votes anymore huh?

GM will NEVER lose the Govt. Motors moniker.

I bought a 2012 Nissan Altima Sedan 3.5 SR in June. When my '04 LeSabre is gone, that's it; no more GM for me.

The Bizness

Hostess didn't hire nearly as many people as GM, if GM would not have been bailed out the government and country would have lost a lot more, in actuality many analyst say we broke even on the deal when taking into account the amount of people that would have taken on unemployment benefits, lost payroll tax, and new retirees.

Emplyees:
Hostess <20,000
GM >200,000 (not to mention suppliers such as KBI)
Also some estimate that if GM went under ford would have been driven towards bankruptcy as well.

44846GWP

Come on Winnie, are you kidding? Do you think Hostess going under has the same impact on the country as GM? Are you that foolish? One in eight Ohio jobs support the Auto industry, how many support Hostess? Get real Winnie, your statment is non-sense.

44846GWP

Moderators have removed this comment because it contained Personal attacks (including: name calling, presumption of guilt or guilt by association, insensitivity, or picking fights) and Personal information.

Contango

It's called "pay me now or pay me later" Zippy.

Ya paid cash? Ya must have lousy credit.

44846GWP

Sorry Winnie, my credit score is 770, yours is?? I paid cash because I can, sorry you can't. Get a better job.

Contango

The credit manager said that he'd seen few as high.

It's called cash flow Zippy. You lost the ability to invest that cash in potentially appreciating assets to buy a depreciating one. LMAO!!!

Also, a 0% loan is a depreciating loan. Ya gotta factor in inflation.

44846GWP

You should tell Ric Edelman and Suzy Orman your thinking, I'm sure they would love to hear it. lol!

Contango

And I should care what they think why Zippy?

44846GWP

You could stand to learn a thing or two, thats why.

Contango

Again: You wasted the potential to appreciate that capital and used it to purchase a depreciating asset. Call Ric Edelman yourself or that flake Suzy Orman and tell 'em what you did Zippy. :)

Wealthy people buy appreciating assets, poor people buy depreciating ones and call them "investments"; where does that leave you?

MiddleRight

I can't believe that our community organizer in chief lost money on this deal?

Nor'easter

ANOTHER BARACK BOONDOGGLE

Bluto

So , who would have won by letting GM fail and how would they have won ? Please explain .

bored reader

They could have and should have gone thru a structured BK. They would have come out stronger. However, the union would have not gained all the they did and obumbles wouldn't have the votes from the union.

BW1's picture
BW1

Well, the bondholders would have retained their standing as specified BY LAW. GM DID fail, and DID go bankrupt. What the government did was ignore the existing bankruptcy law on the books and move the UAW to the head of the line as payback for all their campaign contributions, spitting on the rule of law and the predictability it provides so people will invest.

Bluto

So , what you're saying is that bankruptcy would have kept the rich , rich at the sacrifice of union employee's jobs ? Wow !!! Things would have been much better that way .

Pete

The Great UAW Kickback. The gift that just keeps on taking!

deertracker

How much money did you all lose? Did you lose a job? Did your taxes go up? Those community organizational skills served him well on Nov. 6th. You guys are such HATERS. It's actually funny!

TKeegan73's picture
TKeegan73

The Gov't is selling the shares back at $27.50 a piece to GM, nice way to waste money considering GM had 16 billion in profits? I want to buy stocks at that rate in GM but I wouldn't buy many because it won't be long before the UAW puts things right back in the hole for GM without the Gov't having their hand in it. JMHO

mikel

ungrateful bastards:

"GM says having the government as an owner kept customers away from dealerships. Chief Financial Officer Dan Ammann told reporters Wednesday that GM has "market research that we've done over time that has suggested that the government involvement in the business has had some impact on sales." He added that GM should benefit when the government is completely out."

rickross2

Buy Ford. No bailout, local benefits.

Contango

It's all smoke and mirrors with GM.

They're selling cars by offering subprime loans and channel stuffing. It's only a matter of time before it's DOA once again.

http://news.investors.com/busine...

http://www.zerohedge.com/news/20...

How many of you Pres Obama supporters have bought a new GM?

The Bizness

I bought a Chevy in 2010, and plan on buying an electric Chevy spark next year or a volt....

44846GWP

Moderators have removed this comment because it contained Personal attacks (including: name calling, presumption of guilt or guilt by association, insensitivity, or picking fights).

Contango

I own far more shares and am more invested in U.S. companies than you Zippy.

The resale value on my loaded Altima will be much better than your cheap POS.

44846GWP

You wish. Why don't you move to Japan.

Contango

To show your support Zippy, you oughta bank with Ally Bank (the ol' GMAC), it still about 70% owned by U.S. taxpayers.

http://en.wikipedia.org/wiki/All...

Obama smoke and mirrors.

The Big Dog's back

If the Gov hadn't bailed out GM, winnie would have been pi$$ing and moaning about it.

Contango

@ Dog:

When are you gonna trade in that ol' Mazda for a new GM or Chrysler product?

44846GWP

Very true.

KURTje

Moderators have removed this comment because it contained Personal attacks (including: name calling, presumption of guilt or guilt by association, insensitivity, or picking fights).

Contango

"The United Auto Workers control about 65 percent of Chrysler and 17.5 percent of General Motors."

http://www.slate.com/articles/bu...

Obama smoke and mirrors.

FORWARD SOVIET!

goofus

Anyone that buys a new car should take Econ 101 again, a depreciating experience from the onset. Sign the papers and lose thousands!

44846GWP

I buy new, keep it untill I run it into the ground. I get my moneys worth out it. Leaseing is throwing money away.

KURTje

Again removal. Tells me it is getting through. Strange how weak most of America is. Probably only a matter of time until total ban.

goofus

While you are running the wheels off go by the ADSEA auction in Columbus as soon as you take delivery of your brand new vehicle and run it through the auction. Good luck on your many thousand dollar loss!!!!!

44846GWP

I don't buy a car to sell it and make money. I buy it for transportaion! It's not meant to be an investment! Where did you ever get the idea that its an investment? When you but a new t.v. or computer, is it an investment? No, so why do you think a car is? Time for you to go back to school.

Contango

You paid cash Zippy; therefore you treated your new car purchase (a depreciating asset) as an investment.

Will a current USD in your pocket be worth more or less in the future?

Ever read "Rich Dad, Poor Dad"?

44846GWP

Sorry Winnie, I paid cash because I could. I bought the car for reliable transportaion, NOT as an investment to make money!

44846GWP

I also paid 50 cents (cash) for the paper yesterday, does that make it an investment? Dope.

Contango

You "invested" 50 cents for information. Small purchases tend to add up however.

If you subscribe it's cheaper on a per copy basis.

Contango

Zippy writes:

"I bought the car for reliable transportaion,..."

It's spelled "transportation." :)

Not a case for paying cash for a new vehicle.

Like you, the poor spend large amounts of their disposable income for depreciating assets like TVs, cars, clothes and other non-necessities so they can enjoy life and not to make money, which is why they're poor.

Buying a reliable late model used car for cash mighta made sense.

Better read “Rich Dad, Poor Dad.”

Have you called Ric and Suzy and bragged about how financially astute you were?

BTW: If it can be deducted as a business expense, leasing a vehicle can make sense but ya gotta run the numbers.

44846GWP

Winnie, you are not as smart as you think you are.

Contango

You blew your savings on a depreciating asset; how "smart" is that Jughead?

Even factoring in a 0.9% interest rate for a new car loan, it's less than the rate of inflation - money ahead.

When making that large of a purchase, ya need to consider the present AND future value of a USD.

Got a six months or more emergency stash; maxed out your "k" and an IRA?

goofus

Gov't Motors Employess to Receive Bonuses up to $7,000 Each...!!!!!
And GM will still lose billions through OPEL!!!!!

http://247wallst.com/2012/12/21/...

KURTje

Maybe Alan West's idea of cutting SSI can happen to those that qualify.....heh-heh.

Otis B. Driftwood

Almost two thirds of GM’s jobs are in other countries. The sad truth is GM will not have to pay federal taxes for the next decade or so. Quite a gift from the Obama car czar.

Dr. Information

So because GM actually didn't come and take money out of my paycheck its not a loss for the nation? Look at all the bailouts that have failed......BILLIONS of dollars wasted. This administration will go down as the worst in history. They can't even pass a budget in what.....4 years now. Great leadership .

BushelBob

Bailout Bush gave Government Motors 3 bailouts followed by 2 more by Obomb'em. Both presidents showed U.S. tax victims that Republicans and Democrats are two sides of the same corporatist coin. That's why Gary Johnson reaped over a million votes in 2012 as a Libertarian. Uncle Sam is in debt for over $70 trillion, which can never be repaid. Borrowing from our great-great-great (. . . ) grandchildren's futures cannot continue.