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GM set to buy back bailout stock
Question of the Day
General Motors moved Wednesday to shed its "Government Motors" nickname, buying back a chunk of its stock from the federal government as the Treasury Department announced plans to eliminate its losses in the company's stock by early 2014.
The Treasury Department, which owns 500 million shares in the wake of the 2008-09 auto bailout, announced plans to sell its stake in the company over the next 15 months. GM officials said in Detroit they will buy back 200 million shares for $5.5 billion, or $27.50 per share, by the end of the year. That will bring Treasury's ownership stake down to 19 percent from the current 26.5 percent.
After that, Treasury will sell the remaining 300 million shares on the open market, starting in January.
"This announcement is an important step in bringing closure to the successful auto industry rescue," GM CEO Daniel Akerson said in a statement. "It further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future."
GM shares closed Wednesday at $25.49, which means the automaker is paying an 8 percent premium on the current value of its stock. But Treasury needed $52.39 per share to recoup taxpayers' total investment in the company. Nevertheless, the Obama administration sees the auto bailout as a success because of the jobs saved as the company avoided dissolution. But U.S. officials say they have long wanted to sell their stake, built up with funds from the Troubled Asset Relief Program (TARP).
"The auto industry rescue helped save more than a million jobs during a severe economic crisis, but [the bailout] was always meant to be a temporary, emergency program," said Timothy G. Massad, Treasury assistant secretary for financial stability, in a statement. "The government should not be in the business of owning stakes in private companies for an indefinite period of time. Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests."
By the end of the year, Treasury will have gotten back more than $28.7 billion from the GM sale, loan repayments, dividends and interest, but that's a far cry from the $49.5 billion bailout package invested to save GM and Chrysler in 2008 and 2009. It will need to sell the remaining 300 shares at a price of $69.72 each to break even on its GM stake, which is unlikely.
When it emerged from bankruptcy, GM priced the stock at $33 per share during its initial public offering in November 2010. It spiked to $38.98 two months later but never went higher. Since August 2011, it has traded at roughly $20 to $25.
That could change.
To this point, investors have been wary of the government ownership in GM, but now that it is ending, GM thinks business will improve. "It's obviously good for the business in terms of continuing to remove the perception of government involvement in the company, which is going to be good for sales," GM Chief Financial Officer Dan Ammann told reporters in Detroit, according to the Reuters news agency.
Treasury exited Chrysler in June 2011 at a $1.3 billion loss to taxpayers.
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About the Author
Tim Devaney is a national reporter who covers business and international trade for The Washington Times. Previously, he worked for the Detroit News, Grand Rapids Press, Portland Press Herald and Bangor Daily News. Tim can be reached at email@example.com.
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