GM Camaro 2013Why hasn't Uncle Sam sold its shares of General Motors (GM)?

When GM went public again in late 2010, the federal government did sell some of the shares of GM it acquired as part of the 2009 auto industry bailout package. But the Treasury still owns 500 million shares -- a 32% stake in the world's largest automaker. Why not cash out?

Some have suggested that Washington is holding on to its remaining shares so that it can influence future car design. The theory goes that President Obama wants more hybrid and electric cars on the market, and what better way to get them than by holding a big stake in GM -- big enough to give him big leverage?

Here's the problem with that theory: It's not really happening.

It's true that GM -- like Ford (F) and just about every other automaker -- is working hard to create more fuel-efficient models. However, GM's leaders insist that the government hasn't used its ownership stake to push GM to change its product strategy.

Notwithstanding high-profile "green" models like the controversial Chevy Volt, GM still produces plenty of not-so-green trucks and SUVs -- brawny (and thirsty) sports cars like the V8-powered Chevy Camaro and Corvette. And it will continue to do so, because GM engineers are confident that they'll find ways to keep delivering products like these within the tough new U.S. fuel economy guidelines.

So, no, the Feds aren't holding on to their (our) GM stock for policy reasons. There's a much simpler explanation for why the government hasn't sold its shares yet. It's not a prudent investment move.

The Real Reason the Feds are Hanging On to GM

Remember that the government's big stake in GM is a result of the auto industry bailouts. Under President Bush, and later President Obama, the Troubled Asset Relief Program made a series of loans to GM amounting to $49.5 billion.

GM and the Feds agreed, as part of the automaker's bankruptcy and restructuring in 2009, that those loans would be paid back with a mix of cash and stock. So far, according to GM, about $23.1 billion of the total has been "repaid or returned to the U.S. Treasury." That leaves GM's IOU to the Treasury at roughly $26.4 billion.

But -- and this is important -- technically speaking, GM has already settled its cash loan with the government. As of April 2010, GM had paid back all the cash it was required to pay under the conditions of the TARP deal. GM also bought back some special preferred stock that it had issued to the government, and made payments of interest and dividends.

That's it. That's all the cash GM owed, and GM paid it back well ahead of schedule. The rest of the loan was paid in stock -- the 500 million shares we're talking about here.

The sale of some stock in 2010 is part of the $23.1 billion that has been returned to the Feds. The remaining shares are right now valued at $13 billion: 500 million shares at $26 each. But the government's breakeven point is around $53 a share.

Selling now would leave the Treasury with a $13.4 billion loss on its bailout of GM, and there's no way that the Obama administration is going to willingly take a loss like that -- especially not during an election year. So unless the stock goes way up, past the government's breakeven point, a sale isn't happening -- not before the election, and maybe not for a while after.

There you have it: The 32% stake in GM has nothing to do with pressuring GM to make more "green" cars. It's simple math, plus a smidgen of election-year politics.

Motley Fool contributor John Rosevear owns shares of General Motors and Ford. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, as well as creating a synthetic long position in Ford.




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34 Comments

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Douglas Karr

No mention of the non-union auto workers who lost their pensions. No mention of the auto companies and layoffs that DID happen. No mention of the continued federal purchases of GM cars to help prop up their sales. No mention of the federal grants provided to GM to put more taxpayer money in their pocket. Would be great if you provided a very clear picture of GM and its problems rather than scratching the surface here. They'd be in a lot deeper trouble without the Feds manipulating their numbers.

September 17 2012 at 12:49 PM Report abuse rate up rate down Reply
eliandpat

All well and good for the feds on their GM stock strategy but what happened to the stockholders and bondholders who were screwed when GM was forced into bankruptcy by Obama. The stockholders I would think were GM employers, retirees and the general marketplace w/o any word of recovering anything. Sure GM is making profits or should I say the feds are making profits on their 32% ownership. Buy GM stock why you'd have to be half crazy.

May 02 2012 at 12:34 PM Report abuse rate up rate down Reply
Gumby

i THINK that nobody can take over tesla motors as TEsla will be able to grow organically on its own beginnign with the wealthy and fabulous buying its cars until the food chain is moved down to regular Joe 6 packers. I dont think it iwll be so cheap but it will make sense in light of no gasoline, mainetenace . This is why it is soooo important to kick Big Oil where it really hurts!! Big OIl must learn a real lesson !

March 28 2012 at 7:44 PM Report abuse rate up rate down Reply
Gumby

TESLA MOTORS IS MOST ADVANCED ELECTRIC CAR AROUND AND WILL TAKE LUNCH FROM EVERYBODY AROUND IF TESLA MOTORS CAN EXPAND PRODUCTIN TO LOWER COSTS OF EACHUNIT AS KN OWN AS SCALE OF ECONOMICS.. .IT CAN BE A REAL SLEEPER CAR COMPANY THAT WILL OVERTAKE THE WHOLE WORLD WITH ITS PATENTED TECHNOLGOY OIN POWERTRAIN SO ADVANCED THAT IT CAN GO UP TO 200 MILES PER CHARGE OR ABOUT $8 WORTH ... WOW!!

March 28 2012 at 7:42 PM Report abuse -1 rate up rate down Reply
allen schroeder

The reason should be pretty obvious--because the stock price is going up ! Isn't that what every smart investor is expected to do?

March 28 2012 at 7:13 PM Report abuse rate up rate down Reply
John Murphy

G.M is standing in the way of Investors path of destruction. The pan was the use G.M for every dime they make.. dump it and strip its bones like the vultures they are. Then ride Toyota to the top then do the same. then onto Hundia/Kia. But they can't kill G.M now they are mad.

March 28 2012 at 5:59 PM Report abuse rate up rate down Reply
Gumby

cough coughaaaaaaaaaaaarrrgh coughing where did that hairball come from !!??

March 28 2012 at 5:44 PM Report abuse -2 rate up rate down Reply
Gumby

Oil is now the Newest Renenwable Energy Kid on the Block! Tooting horns and glitter !!

March 28 2012 at 5:44 PM Report abuse -2 rate up rate down Reply
Gumby

I am not sure about whether to hate or love Big OIl besides its obscene profits amounting to hundreds of billons of dollars.. Yo see,, there is a real bunch of stakeholders in Big Oil all around the World!! you know? Trillons and trillons of dolars invested in Exxons, Chevrons, Concoos, Totals, BPs, Shells, Unocals, Andarkdados, Rusaoils, Chinese oil, Braziloils, Petrofinas, Vivaoils, youname it , all around We produce 100,000,000 barrels of oil everyday and refine 2,3,4 or 5 billons gallons of gasoline and kerosne and heating oil EVERYDAY EVERYDAY EVERYDAY INCLUDING vALENTINE DAY!! LVOE LVOE OIL !!! BEAT HEARTS!! Where the heck did I get the figures??? I dont care what you are thinking.. I am close enough to the accurate facts quite close not off the ball park in any way.. Iti sreallly big STINKER!! I soemtimes wonder how our vast ocean system of 7 names including Pacific, Atlantic, Indian, Arcitc, umn what else I forget.. anyway still couldnt absorb the stinker full of CO, NOx, Co2 HO, etc.. It is like having several active belching volcanos going on everyday and it should make youi really wonder hard if not harder!! REmembver I didnt even include coal , natural gas and um ah millons of cords of firewood !!!~ Wow , man! The poor populatin are still burning firewood for heaven;'s sake!! This should be more than enough to give the thickest skulled rednecks a liitle reddy pause, shouldnt it? It should !! yeah it should , man!

March 28 2012 at 5:34 PM Report abuse -2 rate up rate down Reply
frank1946

So what improvements is GM making to the Volt ?

Prius C just came out, where is the Volt B ?

Japanese take 18 months to make significant upgrades, GM takes how long ?

March 28 2012 at 5:31 PM Report abuse +2 rate up rate down Reply