Goodbye, 'Government Motors': Treasury Set to Sell Last GM Shares

No more Government Motors: U.S. selling GM shares







By TOM KRISHER

DETROIT -- The U.S. government's foray into the car business is slowly coming to an end.

The Treasury Department said Wednesday that it will sell its remaining stake in General Motors (GM) 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.



____

AP Business Writer Martin Crutsinger in Washington, D.C., contributed to this report.




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rec636

Clownbama is the biggest MORON to ever hold any office in the history of the United States. He should be put in jail for treason and anyone who voted for him should not be aloud to ever vote again for anything.

December 20 2012 at 9:39 AM Report abuse -2 rate up rate down Reply
boonelw

Saab cars USA denied my warranty while working at world trade center after 9/11.Saab oil sludge was the cause for engine failure. Will never buy GM Car again. Thank you Arroway Saab in westchester county for not helping me with my manufacturer warranty. Hope you both go out of business one day. From First responder.

December 20 2012 at 9:03 AM Report abuse rate up rate down Reply
marine1942

Government (Obama) is giving taxpayers. Huge loss.
But he did win Nobel Economics Prize didn't he ?
Guess all those courses in black studies did help.

December 20 2012 at 8:36 AM Report abuse -2 rate up rate down Reply
pmjohnson1717

Another great investment loss from the Prez.

December 20 2012 at 7:36 AM Report abuse -2 rate up rate down Reply
Lifes a Beach

Go buy a volt & get some of your money back, it's what I did. I charge at work for free, no GHG even bc they have solar on the roof. 5000 miles so far on 1/2 gallon of gas - 10,000 mpg. 10,000 miles for $1.50, best car ever. Don't spend all your time whining, go get your money back.

December 20 2012 at 6:38 AM Report abuse +1 rate up rate down Reply
perky699

The $12 'billion loss the taxpayers took on this deal was not so much to bail out GM, but to all but insure that the UAW members all voted for Obama. Romney was right to say that GM should have reorganized under Chapter 11 and severely limited salaries, pensions and healthcare for their employees. The fat UAW salary packages over the years contributed mightily to their economic collapse.

December 20 2012 at 5:49 AM Report abuse -1 rate up rate down Reply
1 reply to perky699's comment
MIchigan Man

That is true. That is also why the union members fight so hard to maintain the political clout. They do this by contributing to the politicians who will support them. It is always a fight between big business and big labor.

December 20 2012 at 8:07 AM Report abuse rate up rate down Reply
bandy4321

Isn't our government wonderful? Shhhhhh.......don't tell the taxpayers they just got screwed......whisper.....

December 20 2012 at 5:15 AM Report abuse +1 rate up rate down Reply
thahashtronaut

Sold all the shares for a 50% loss. Bailing out the billion dollar corporations and giving the taxpayers the losses!

December 20 2012 at 4:38 AM Report abuse -1 rate up rate down Reply
seekthetruth123

How much is this going to cost the American public ? The current value of GM stock is not enough to cover what GM still owes the government, the same holds true for Chrysler. Will this madness ever end !

December 20 2012 at 2:41 AM Report abuse -1 rate up rate down Reply
ajt22864

Wow blaiming the government's involvement for GM's demise. I'm not understanding why US tax payers have to take a 12 billion loss, it's highly obious they need a babby sitter. Wasn't it college educated corporate execs that actually created their own demise in the first place. Now that they can't fly in corporate jets, big bonusus they want Uncle Sam out of the deal. Not to mention dumping health care on to the unions and slashing corporate pensions down to 1/3. Well give it back and let them sink this time. These big coporations get the big tax breaks yet still haven't created jobs in the US. Time for them to pay the piper...

December 20 2012 at 2:28 AM Report abuse +2 rate up rate down Reply
1 reply to ajt22864's comment
bandy4321

Yep...there will be another bailout...coming soon!!

December 20 2012 at 5:16 AM Report abuse rate up rate down Reply