Auto bailout:

Fi­nal sales in next year or so will wind down $50 bil­lion bailout that saved iconic car gi­ant.

Austin American-Statesman - - FRONT PAGE -

The Trea­sury De­part­ment said that it will sell its re­main­ing stake in Gen­eral Mo­tors in the next year or so, wind­ing down a $50 bil­lion bailout.

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 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, gov­ern­men­tordered 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.

The 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, the 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.”

Ini­tially the government got 912 mil­lion shares for the money it loaned 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 down­ward turn. As shares fell, the U.S. balked at fur­ther sales.

GM CEO Dan Ak­er­son has said he would also like to see pay re­stric­tions lifted.

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