Taxpayers won't win on General Motors shares

The bailed-out carmaker's stock price would have to more than double by next year for Uncle Sam to profit. What are the odds?

By Jonathan Berr May 20, 2013 3:20PM
General Motors Corp. headquarters in Detroit (© Paul Sancya/AP Photo)Shares of General Motors (GM), Detroit's largest automaker, have surged more than 17% this year, eclipsing their $33 IPO price. That's mostly thanks to strong performances in the U.S. and China. The stock's appreciation, however, won't be enough to make U.S. taxpayers, who still own about 16% of the company, whole on their investment.

As the The Wall Street Journal noted, Uncle Sam would need to sell the government's GM shares at about $79 apiece to break even on the bailout. Even with its recent run-up, the stock on Monday afternoon traded around $33.75, nowhere near that level. The paper said the Treasury Department plans to exit GM by April 2014. Unless GM introduces an affordable electric car that doubles as a supersonic jet, odds are remote that the stock will reach that level before the planned sale.

Unfortunately, the fact that the government still owns such a large percentage of GM's stock is holding the shares back. Many people on Wall Street will avoid companies that have partial government ownership. The U.S. could sell part of its position and delay selling the rest in the hopes of getting a better price, but that seems unlikely. The government wants to show that GM can stand on its own two feet, even if that means taxpayers take a bath on the deal.

Early in the Great Recession, in 2008, the government made a bridge loan in GM that started Washington, D.C., down the road to the ultimate bailout. In a statement at the time, President George W. Bush said the move was needed to avoid a "disorderly bankruptcy and liquidation for the automakers." Though it's impossible to prove that's what would have happened, that prospect probably sent shivers up the spines of many people on Wall Street.

The auto industry didn't help its own cause. GM and Chrysler showed a remarkable tone deafness to their situation when they traveled to Washington for bailout hearings in corporate jets. Ford Motor (F) CEO Alan Mulally sensed the financial crisis coming and built up the company's cash reserves, so Detroit's No. 2 didn't need a rescue. The other companies needed all the help they could get.

During the latest presidential election, President Barack Obama repeatedly pointed to his administration's bailout as a success, especially since Republican Mitt Romney penned an op-ed piece titled "Let Detroit Go Bankrupt." It certainly cost Romney votes in key states such as Michigan and Ohio.

If the U.S. loses big on its GM stake, investors will wonder whether it was worth the money. Unfortunately for the government, it needed to make the best of a very bad economic situation -- and that won't be good enough for a lot of people.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.


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Tags: AutosFGM
91Comments
May 20, 2013 5:25PM
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Screwed by the federal government and by GM. Why do you keep voting for the two majorly inept political parties? Guess you are getting what you deserve. Buy more Vaseline  ... 
May 20, 2013 3:37PM
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but, hey at least we sold 5 or 6 volts lol
May 20, 2013 5:22PM
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Government motors should pay back the tax payers the difference between what the shares sell for and what we bailed them out on. They are doing better, pay us back. What about Chrysler, Dodge or fiat for short.
May 20, 2013 4:52PM
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It was the right thing to do at the time - the industry stayed solvent, people retained their pay (and pay taxes) and many many vendors who provided parts stayed in business.  

But, HEY, who ever said the Government needs to sell the stock at the prevailing Market rate.  I think it is time for the Government to take GM to the woodshed and 'make them an offer they won't refuse' - that is, buy back at at price that recovers the loan amount plus a small interest (say 1%).  It is only fair.  If GM refuses, then advise them of the consequences.  

There is NO reason why the taxpayer should pay a cent for this loan and if we do, then my elected officials should beware that their job will be at risk since they did not take care of their constituents by allowing this to happen!!!! 
May 20, 2013 4:47PM
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Its funny Toyota is in bad shape with being the most recalled car company in the world and GM is leaner and making a lot of money but yet the TURDS on wall street does not want the US tax payer to profit at all ! Fords GM and Chrysler are leaner and building more cars and trucks with less employees and no UAW healthcare costs on their backs since 08 for retirees .. They are making money hand over fist and look at Toyotas stock price and look at GM and Fords! The bias on wall street is a joke ! But then when the FEDs pull back the QE# B.S> the DOW will drop like a rock.... All wall street wants is free money ! SCREW that raise int rates to 1.5% at the FED window for banks ! And give Americans money on their savings !
May 20, 2013 6:52PM
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Toyotas, Nissans, Volkswagons, Subarus, BMWs and Hondas are all made in the US, only GM and Chrysler got a bailout. Chrysler was owned by a private equity company and is now owned in part by Fiat and is an Italian company. 

So exactly how did obama "save" the auto industry again? Oh, I know, the other car companies are not union shops and so don't count.
May 20, 2013 7:25PM
May 20, 2013 7:22PM
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Well, at least the UAW was saved and Obama received huge political contributions.
May 20, 2013 7:53PM
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The taxpayers getting screwed by Uh-Oh-Bama isn't the end of the bad news.  The GM shareholders got stiffed with worthless stock and then the assets they had invested in went over to the "New GM" where they sold that stock for $33, leaving the original investors with nada.  Uh-oh forced GM into bankruptcy when they were on the verge of restructuring their debt, thereby destroying all shareholder equity.  
May 20, 2013 6:35PM
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No more GM's for me. Hello Ford & Lincoln!!!
May 20, 2013 8:00PM
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GM should have been allowed to go thru the bankruptcy procedure......end of story.
May 20, 2013 7:40PM
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i wiil never buy any GM product of any kind as long as the auto workers union or any other unoin has any ownership stake as it does now...nor will i buy any stock of any company in the same position .
May 20, 2013 7:47PM
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When have taxpayers ever won?  Those 53% not paying taxes are the only ones who win.  The 47% working and paying taxes never do.  It has been said "take all men for SOB's and you won't miss many."  My wife's aunt said that.  I want to use her wording for the most part to say "Take all government programs for a pile of $hit and you wont' miss many."  I have heard more talk lately of a revolution.  I don't want to see it, but it may be necessary if we ever get things as they should be in this country.  It would have to be massive.  The FEMA camps are already staffed in some areas.  I think that shows unspoken fear of the government.  I also believe the government desire to take the guns of the people is not for the protection of the people but of elected officials.
May 20, 2013 7:48PM
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Blankfine was ceo of goldman and was bill fords room mate at college.  He told ford that the economy was going to collapse and ford hired mulally to get the loan so there would be no "insider trading" scandal.  goldman got them the cash and made a quick 2.5 billion off of it.

this is scandalous and shows how stupid the sec is.  It is also very indicative as to how corrupt our entire financial system and government is.
May 20, 2013 4:33PM
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Some of the value taxpayers received was that there are thousands of employees who still have jobs and pay taxes.  Also, America preserved important manufacturing capacity which in the past proved vital for national defense.  Still, I have no desire to own shares of the auto makers because it is obvious to me that they are run for the benefit of the government and overpaid union employees, not for shareholders.

May 20, 2013 5:21PM
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Shocking news... NOT!!!!

This is why I buy VW. Screw Government Motors.

May 20, 2013 8:05PM
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Now, I'm not a Ford fan by any stretch of the imagination, and given that brief thought for the moment, I can't understand why GM chose to discontinue two of their more popular brands (Oldsmobile and Pontiac) and keep the Cadillac brand (which is nothing more than an ugly, unattractive, overpriced, glorified Chevrolet,) and Buick, (an "old geezers car," which just doesn't have the good looks and style that Pontiac and Oldsmobile were famous for) and which didn't sell as well as the Pontiac brand alone. Customer and brand loyalty are what keeps a business (such as GM) alive and thriving. Back to my original thought, and I hope that at least some of the GM board of directors are reading this. IF there were only TWO AMERICAN CAR BRANDS left in the USA to choose from, one being FORD and the other CADILLAC, and my having been a GM man all of my life, I would definitely CHOOSE THE FORD OVER THE CADILLAC!
May 20, 2013 8:12PM
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Just a brief afterthought. With the questionable business decisions that were made by GM in dropping two of their more popular brands, it's no wonder that had to go begging to the Government to bail them out. Shame on you GM! You should know better than to lose, and drive customers to another auto manufacturer because you chose to stop making cars that they loved, believed in, and were brand loyal to!
May 20, 2013 7:44PM
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Duh? Nothing can profit once government gets its wasteful hands involved.
May 21, 2013 6:46AM
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 Like it matter???  It was nothing more than a Union buyout program. People quickly forget that GM was also giving out bonuses not long after restructuring and still owing money. My next vehicle will be Ford. Rewarding mismanaged companies is wrong regardless what political affiliation.
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