Feb. 12, 2013 at 12:34 PM ET
With General Motors’ stock rising by as much as 60 percent since last summer, the long-term cost of the 2009 auto industry bailout has shrunk substantially – but would still top $20 billion at the current GM share price, according to the latest report on the rescue by the U.S. Dept. of the Treasury.
The government began propping up both General Motors and Chrysler – and their finance subsidiaries – in late 2008, under the outgoing Bush Administration, as it became increasingly likely the two makers would plunge into bankruptcy. The rescue effort was ramped up after the Obama Administration came into power, ultimately raising the investment to $85 billion.
Initially, the Treasury warned that it might lose as much as $44 billion as GM and Chrysler filed for Chapter 11. The price tag has since risen and fallen repeatedly, largely based on the stock price of the remaining government holdings in General Motors.
A large chunk was sold off for $33 a share when GM launched its initial public offering, or IPO, in November 2011. Last December, the government sold off another 200 million shares for $5.5 billion. That leaves it with 300 million shares, or a 19 percent stake in the nation’s largest automaker. The White House has said it plans to sell off that remaining stake by March 2014.
A new, quarterly report by the Treasury now places the anticipated loss at $20.3 billion. That was based on a price of $28.83 a share. In fact, GM began trading this morning at $28.53, but it has been showing strong momentum in recent months, rebounding from a low of $18.72 last summer. If it continues its upward momentum the losses could be shaved by billions.
Nevertheless, few expect GM to come anywhere near the $70 per share figure it would need to reach for the Treasury to recoup its entire investment on the 2009 automotive bailout.
Some analysts have forecast the stock could rebound closer to the $50 range. But there are a number of issues that continue to hold things back. GM actually lost some market share in the U.S. last year and it remains to be seen if it can reverse that decline in 2013. The bigger issue is the maker’s ongoing problems in Europe where it has gone into the red 13 years in a row. And with the Continental market still in turmoil, few expect a turnaround anytime soon.
The automotive bailout was funded by money Congress originally set aside for the rescue of the collapsing financial industry, the $700 billion Troubled Asset Relief Program, otherwise known as TARP. Ultimately, $484 billion was actually used for banks and lenders and for the auto industry.
The total losses now projected by the Treasury come to $55.5 billion, down from $59.7 billion in the previous quarterly report. Along with the sale of the remaining GM shares, the ultimate cost appears closely hinged to what the government can get for its remaining 74% stake in Detroit-based Ally Financial, the former General Motors Acceptance Corp.
That exit has been repeatedly postponed and the latest report projects a $5.5 billion loss, though Ally spokeswoman Gina Proia says the lender is “highly confident” of repaying its debt “in full.”
The automotive bailout became a highly controversial subject during the most recent presidential election campaign, despite having been supported by both a Republican president and his Democratic successor.
GM officials have been pressing the Treasury for an exit hoping that by severing ties they can eliminate oversight of such matters as top executive salaries – and push past the point when critics continue to decry the company as “Government Motors.”
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