Government to end GM ownership
DETROIT — The government's foray into the car business is slowly coming to an end.
The Treasury Department said on 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 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 on Wednesday, GM will spend $5.5 billion to buy back 200 million shares from the Treasury 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 once 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 nearly 7 percent to close at $27.18 on Wednesday.
At a more realistic price of $30 apiece, the government gets back $9 billion for its remaining shares. That means taxpayers would recoup about $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 said on 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 United States. 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 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, favoring private funding to get GM through bankruptcy. But private loans weren't available early in the financial crisis.
Treasury said on 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 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 by about 11 percent. That should increase the value of the remaining shares.
The move was approved by the GM board on Tuesday evening based on opinions the company got 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.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Concurrent Technologies focuses on developing batteries for renewable energy, electric cars
- Auto industry slows for bad weather, but stays on course
- Oil glut forces producers to seek out more storage tanks
- Foreign central banks buck Fed, cut interest rates
- Company proposes building 2 gas-fired power plants in West Virginia