Government Motors Still Underwater

I opposed bailouts for American automakers, especially when accomplished via diverting TARP funds intended to rescue banks. Yet, GM's CEO predicted taxpayers would profit from the bailout, as did President Obama's former car czar.

GM having completed its IPO last November, the question is: did automaker bailouts make money? For Chrysler, the answer is no. And, according to a bi-partisan Congressional panel, the same is true for the government's investment in GM (at 34, 4):

In total, the sales of GM stock produced $13.5 billion in receipts to the Treasury. Including exercise of the over-allotment option, Treasury sold over 412 million shares of the total 550 million shares sold. Treasury still holds more than 500 million shares, or 33.3 percent ownership of GM. During its first three weeks on the NYSE, GM's stock traded at between $33.17 and $34.89 per share. . . Of the $49.9 billion in government assistance, $27.2 billion currently remains outstanding. . .

This sale represents a major recovery of taxpayer funds, but it is important to note that Treasury received a price of $33.00 per share -- well below the $44.59 needed to be on track to recover fully taxpayers' money. By selling stock for less than this break-even price, Treasury essentially "locked in" a loss of billions of dollars and thus greatly reduced the likelihood that taxpayers will ever be repaid in full.

Treasury has explained its decision to sell at a loss by saying that it wished to unwind government ownership of the automobile industry as quickly as possible. This justification may very well be reasonable, but it is difficult to evaluate. Because Treasury has cited different, conflicting goals for its automotive interventions at different times -- saying, for example, that it wished to save American jobs, to produce the best possible return to taxpayers, or to return the company to private ownership as rapidly as possible -- it is difficult for the Panel or any outside observer to judge whether Treasury's results in fact qualify as successful.

In fact, GM's share price would have to triple for taxpayers to recover their investment. Don't hold your breath.

(via The Corner)