Are We Still Paying the Price for GM’s Bailout Blues?
With all of Genral Motors’s (NYSE:GM) recent good news, it is easy to get caught up in the U.S. automaker’s post-bankruptcy success story. Posting lucrative earnings reports, rejoining the S&P 500, buying back more and more of the U.S. Treasury’s shares — it is almost as if the 2009 government bailout didn’t even happen. But it did. And as much as it seems like only a thing of the past, it is still significantly affecting the government and American taxpayers now, and will likely continue to do so for years to come.
Almost everyone remembers GM’s embarrassing government bailout, which led to the exchange of $49.5 billion for a “Government Motors” nickname that the U.S. automaker is still trying to shrug off. The U.S. Treasury got 61 percent of GM’s stock as a result of the bailout, and while that percentage has been cut down significantly since that time, the government — along with taxpayers — are still very far from breaking even.
The price of GM shares have risen 25 percent so far this year, but The Associated Press explains that’s not enough. Not even close to enough, as a matter of fact, because for taxpayers to break even on the government bailout, the stock would have to sell for $95.51 per share, and that’s about three times more than what it is currently going for.
So while the price of shares is still rising, if the government decided to sell its remaining GM shares at the current stock price, it would end up losing about $11.2 billion on the bailout — only reeling in $6.9 billion on the sale. Taxpayers would fare even worse, coming out $18.1 billion below even.
Still, the Treasury isn’t expecting to make a full exit from the investment until April 2014. While it began with 61 percent of GM’s stock, that number was cut down to 33 percent in November 2010, after the automaker’s initial public offering. The government has also made considerable sales progress this summer, especially before GM rejoined the S&P 500, and it now owns close to 14 percent of shares, according to a June 6 report.
GM was not the only big name bailed out in 2009. Ally Financial, GM’s auto lender, also received help, and the Treasury still owns 74 percent of that company. This has spun the web even further, because Residential Capital, that firm’s mortgage supplier, has now also filed for bankruptcy protection — meaning that the Treasury can’t sell its Ally stock due to mortgage liabilities.
The Associated Press elucidates that Special Inspector General Christy Romero, author of the July quarterly report to Congress, is not overly happy with the progress the government has seen from its payouts four years ago.
Romero said, “We really want to see what’s the plan here. How are taxpayers going to recoup our money? Are we taking a loss?” It still remains to be seen how the U.S. Treasury expects to recover, but Romero has continued to demand answers about the auto bailout, as well as the mortgage aid program that has also been criticized for years.
While there are still many unanswered questions, Romero’s report is still a good reminder that GM may be making a solid recovery, but its past is still far from fully being resolved.