Uncle Sam's GM Investment Is Still Coming Up Short

GM
In a new report, the Treasury Department says it expects to lose more than $25 billion on its bailout of the auto industry during the financial crisis.

That's a big number, more than a quarter of the total cost of the bailout. But General Motors (GM) had record profits last year -- and GM's former CEO said that the company had "paid back" the Feds, as did Chrysler.

How can this add up? And what has to happen for taxpayers to get their money back?

Paid in Full ... but Not in Cash

The federal government spent about $85 billion bailing out the auto industry during the economic crisis -- about $25 billion under President George W. Bush during his last days in office, the rest under President Obama.

Not all of that went to GM -- about $12 billion went to save Chrysler, and some went to Ally Financial, formerly GM's financing arm, and some other players -- but GM got the lion's share, just under $50 billion.

Technically, under the terms of the bailout, GM has in fact paid back its obligation to taxpayers. Its payments were a mix of cash and GM stock, which is exactly what was called for in the agreement.

In fact, the automaker did everything it could to pay off its loan early: It made the last cash payment, $5.8 billion worth, in April 2010. That was years ahead of schedule.

So why does the Treasury say that it's still out over $25 billion?

Several reasons, but here's a big one: GM's stock price hasn't played along.

Get the Jumper Cables

GM's "payment" to the Feds included stock. A lot of stock. The government has sold some, but it still owns 500 million shares of General Motors.

GM's stock rose to almost $39 after its return to the public markets in late 2010, but it's been all downhill since. Right now, GM is stuck around $20 to $21 a share, a range it has been in for a while.

Here's the problem: For the Feds to break even on the bailout, the shares of GM still owned by the Treasury have to get up to around $53 a share.

That's not happening -- at least, not any time soon. That's not exactly GM's fault: Believe it or not, CEO Dan Akerson and his team are -- for the most part -- doing a solid job of getting GM's house in order.

Eventually, GM's stock price should reflect the progress they're making. But even though Akerson is doing pretty well, and even though GM's profits in 2011 were at an all-time high, there are several factors holding back GM's stock:

  • Europe is a mess. Like rival Ford (F), GM is losing big bucks in Europe: $361 million in the second quarter alone, thanks to ongoing economic troubles that have clobbered car sales. A turnaround is coming, but it could take a few years. Meanwhile, losses could continue, and investors hate that.
  • GM's losing ground at home. GM's share of its most important and profitable market -- the USA -- has fallen in recent months, a fact that might have contributed to the recent ouster of its global marketing chief. Upcoming new cars and trucks should help, but they're a year or two off. Meanwhile, discounts are up, sales are down, profits aren't what they could be, and Wall Street remains concerned.
  • The Fed might dump its investment. 500 million shares is a lot of stock. If the government decides to bail on its investment after the election, the price will drop further as all of those shares hit the market. That possibility makes investors nervous.

GM has other problems that worry investors, but what they all have in common is that they're likely to be resolved in time -- but it could take a few years. Eventually, GM's share price should rise quite a bit -- in fact, for a long-term investor, GM stock might be a pretty good buy right now.

But taxpayers -- or at least, the Treasury Department -- may decide not to wait for that likely-but-not-certain rise. And the way things look now, that means a big loss is likely.

How Did GM Pay Back Its Bailout


At the time of publication, Motley Fool contributor John Rosevear owned shares in 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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Mr. Peachy®

Since when is the Federal Government allowed by the Constitution to invest our money into a failing company? Just sayin'...

October 22 2012 at 1:15 PM Report abuse rate up rate down Reply
kyledefranko

Folks, our country is going to hell in a hand basket. Extreme partisan politics is causing the USA to become a nation divided. Democrats label Republicans of being elite, greedy war mongers. Republicans label Democrats as bleeding heart, tax and spend communists. Hundreds of millions of dollars are spent to communicate all of this negative rhetoric to us, the Citizens. Then we go and do the same our fellow Citizens. Mean spirited comments like those written in response to the GM piece are written. Our leaders spend countless hours on "political strategy" and the preparation of vicious, accusatory speeches. All that time and money, for what; rampant unemployment, sick Americans who don't have health insurance, a collapsing economy. I could go on and on. We hire (elect) our leaders to represent us in Washington. Are they doing what we hired them to? Very questionable. Folks, we need to revisit the concept of respect for our fellow man. Respect no matter what political party they belong to. Let’s drop the partisan crap and get back being a proud, hardworking nation where we can have hope for the future. Think about it.......

September 16 2012 at 8:27 PM Report abuse rate up rate down Reply
mdmichel8888

who do you think saves this country everytime theres a crisis the AMERICAN CAR COMPANIES.....but everybody forgets about that!!!!!!!!!!!!!

August 19 2012 at 8:49 PM Report abuse rate up rate down Reply
1 reply to mdmichel8888's comment
Mike

Boy do you have that all wrong---it is the american tax payer not the car companies !! The U S Goverment Buys a hell of alot of cars each year--because of this bailout the Goverment switch to buying 80The% or more of the needs they need from GM !! That again is Tax payrer's Money doing ther buying !! The UAW worker is just like our over paid atheles---way over paid !!!

October 15 2012 at 1:31 PM Report abuse rate up rate down Reply
John Galloway

go to hell redummucans, greedy racist communist bastards

August 16 2012 at 4:29 PM Report abuse rate up rate down Reply
John Galloway

What about the trillions we spent on the Bush wars???? GM is a drop in the bucket......When is Bush going to pay for these wars....make Romney pay his taxes

August 16 2012 at 4:27 PM Report abuse rate up rate down Reply
John Galloway

what about hte trillions we spent on the Bush wars??? Who is going to pay for them?? I did not vote for them....If they ask me to go ..I would say no......what about the trillions lost with the Bush tax cuts??? Romney should pay more

August 16 2012 at 4:26 PM Report abuse rate up rate down Reply
1 reply to John Galloway's comment
wlouche

Like Obama's wars, except Libya, approved by Congress. You voted through your representive in the House and Senate. Bush tax cuts like the wars could have been stopped 4 years ago, President Obama decided not to.

August 16 2012 at 8:33 PM Report abuse rate up rate down Reply
talari

Emperor Nero sat surrendered and withdrawn as he pulled out his violin and played sweet music as his once mighty empire burned all around him. Rome's failure was the result of greed, corruption, moral decline, failed policies, and military conquest that his country could not afford. Obama, like Emperor Nero is just one man, there's nothing he can do to change the course of his country. We are all to blame.

August 16 2012 at 1:14 PM Report abuse +1 rate up rate down Reply
pdbliz

WILL THE BLACK PANTHERS BE AT POLLING PLACES THIS ELECTION LIKE BEFORE,,,,,WITH BASEBALL BATS ,,AND,,,,,,OLD ERIC HOLDER,,REFUSED TO EVEN SLAP THEM ON THE HAND...
PEOPLE,,,YOU BETTER PREPARE YOURSELF FOR WHAT MAY BE COMING....!!!!!!! DEAD PEOPLE WILL VOTE,,,ILLEGALS WILL VOTE,,,SOME PEOPLE WILL VOTE 100,S TIMES...
DEMOCRATE WAS ONCE THE WAY OF AMERICA,,,,,,,BUT,,YOUR FATHERS DEMOCRATES ARE NO MORE.!!!!!!! THEY ARE SOCIALIST,,,,COMMUNIST AND ECT.!!!!!!

August 16 2012 at 1:05 PM Report abuse +1 rate up rate down Reply
pdbliz

HAS ANY OF YOU DEMOCRATES,,READ,,OBAMAS BOOK,,,,,,,,,,,,,BESIDES EATING ,,,DOG,,,,
IN OBAMAS YOUNGER DAYS,,,,,,THEY WORSHIPED,,,,THE MONKEY GOD,!!!!!!!!

READ HIS BOOK,,,,DO NOT BELEIVE ME,,,,READ OBAMAS BOOK.......

August 16 2012 at 1:01 PM Report abuse +1 rate up rate down Reply
pdbliz

THE BLAME GAME,,,,,,,,,,,,WHAT PART DOES DESTROYING THIS COUNTRY DOES OBAMA PLAY,,,,,
BUSH IS GONE,,,,AND,,YOU DO NOT HEAR BUSH SAYING ANYTHING NEGITIVE ABOUT OBAMA,!!!
BUSH HAS CHARACTER,,,,,,,OBAMA AND HIS THUGS,,,WELL,,ARE JUST THAT.!!!

August 16 2012 at 12:59 PM Report abuse +1 rate up rate down Reply