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Taxpayers Lose Billions on GM Bailout

Thursday December 20th, 2012   •   Posted by Craig Eyermann at 5:15am PST   •  

The U.S. Treasury just concluded the sale of 200 million shares of GM stock back to the company for $27.50 per share. The federal government had acquired the stock for roughly $54 per share back in 2009 when it intervened in GM’s impending bankruptcy. The federal government then has just lost 5.3 billion dollars on just that portion of its “investment”. Greg Edwards of the St. Louis Business Journal reports:

Saving the auto industry sure comes at a steep price — to you.

The Obama administration announced today that the U.S. is preparing to sell its remaining stake in General Motors Co. by March 2014 at a likely cost to taxpayers of billions of dollars.

“If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion,” The Detroit News reported.

ZeroHedge provides more insight:

A few days after divesting its stake in the firm that started it all, AIG, and at a profit at that (ignoring that the risk has merely been onboarded by the Fed whose DV01 is now $2+ billion as a result), the US Treasury continues to divest of all its bailout stake, this time proceeding to GM, where the channel stuffing firm just announced it would buyback 200MM shares from the US government at a price of $27.50. More importantly, the “Treasury said it intends to sell its other remaining 300.1 million shares through various means in an orderly fashion within the next 12-15 months, subject to market conditions. Treasury intends to begin its disposition of those 300.1 million common shares as soon as January 2013 pursuant to a pre-arranged written trading plan. The manner, amount, and timing of the sales under the plan are dependent upon a number of factors.” Assuming a price in the $27.50 range, this implies a nearly 50% loss on the government’s breakeven price of $54. So much for the “profit” spin. One hopes all those Union votes were well worth the now booked $40+ billion cost to all taxpayers.

One wonders why the US government did not open up this particular buyback to a public tender: after all some taxpayers may still care about the financial mismanagement of Uncle Sam. Then again, perhaps not.

The “channel stuffing” to which ZeroHedge refers is the government-controlled company’s practice of producing far more vehicles than consumers are demanding. As a result, the lots of GM dealers are currently packed full of cars that really aren’t as popular with the public as the company’s production levels would suggest. Be sure to see the chart at the end of the article, which shows the growing level of unsold inventory sitting on GM dealer lots at the end of each month since November 2009.

In fact, if the company had been allowed to better manage its production levels, its stock price would be higher and the federal government wouldn’t be having to write off the billions of dollars it lost on the money it borrowed to “invest” in bailing out a failing company.

But then, that excessive production kept the Obama administration-favored UAW workers at the company fully employed through the just-completed election season. If only the administration cared about delivering value to U.S. taxpayers more….

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December 2012