The US seems likely to take a $10 billion hit on its GM bailout

December 19, 2012
December 19, 2012

General Motors announced Wednesday that it would buy back 200 million shares of common stock from the US Treasury for $5.5 billion, bringing it closer to getting off the government assistance it has needed since 2009. The US government gave the large automaker a total of $49.5 billion in 2009 to stave off its collapse and save jobs while it filed for Chapter 11 bankruptcy. In return, the US received a 60.4% stake in the company. The government has already sold off some of its GM stock, and—before the buyback—held about 500 million shares in the company.

It’s no surprise that GM would like to shake off the stigma of government ownership. Today, however, the taxpayer stands to take a hit for the GM bailout: the government is currently selling back stock at a price that indicates it’s willing never to be made whole.

ProPublica data indicate that approximately $23 billion of the initial funds that made up the bailout have been returned to the government. Adding today’s buyback to that account brings that number up to $28.5 billion. That still leaves $20.9 billion to refund.

If the government sold back its remaining 300 shares at $27.50, the price it sold them at today, then it would make just $8.3 billion, stomaching a more than $11 billion charge on its initial investment in the company. In fact, to truly be made whole after today, the Treasury would have to sell those remaining 300 shares back to GM at a price of $69.67.

Given the government’s stated intention of selling off the remainder of its holdings in GE within the next 12 to 15 months, that share price doesn’t look likely. At the end of the day, taxpayers are likely to take a $10 billion or more hit on the GM bailout.

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