The U.S. Treasury Secretary Jacob Lew announced Monday the government had sold the last of its bailout investment in General Motors for a $10.5 billion loss. While many taxpayers might be angry about the deficit, the real cost of allowing the auto industry to fail would have been much higher.
Here’s the Wall Street Journal story:
The U.S. government sold its last shares in General Motors Co. on Monday, booking a $10.5 billion loss but clearing the way for the auto maker to return cash to shareholders and begin wooing consumers alienated by the bailout.
The Treasury Department’s final sale of GM shares came as the auto maker’s stock hit $40.90, a new high, in 4 p.m. trading and gained 30 cents in late trading following the announcement.
Taxpayers recouped $39 billion of the $49.5 billion spent rescuing the Detroit auto maker. That loss is sure to fuel the debate over whether taxpayer money should have been used to put GM and Chrysler Group LLC through government-led bankruptcies in 2009.
Bailout opponents say the government had no right to orchestrate bankruptcies that resulted in losses for bondholders while protecting pensions for union workers and retirees. Proponents say the auto industry and the nation’s Midwest manufacturing heartland would have been devastated by a collapse of auto and auto-parts makers.
The New York Times story talked about the total bailout investment and the gains taxpayers saw when taken all together. They pointed out that the sale helped lift a stigma from GM and that bailing out the two car companies saves money by preserving jobs and corporate taxes:
All in all, taxpayers have ended up in the black on the crisis-related bailouts, Treasury said: It has recovered $433 billion from the Troubled Asset Relief Program after initially investing about $422 billion.
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The Obama administration has argued that it could not have let the Detroit automakers fail during the worst downturn since the Great Depression and that the costs of the public investment outweighed the risks of letting them collapse.
Of the three Detroit automakers, two of them — GM and Chrysler — received federal aid. The Treasury said that all three, which includes Ford, were now “profitable, competitive and growing” and that American carmakers had created 370,000 jobs.
“When I took office, the American auto industry – the heartbeat of American manufacturing – was on the verge of collapse,” President Obama said in a statement. “In exchange for rescuing and retooling GM and Chrysler with taxpayer dollars, we demanded responsibility and results.”
Some economists have argued that the bailouts have saved the taxpayer money by keeping tens of thousands of workers on the job — and thus paying taxes and off of government support. A recent report by the Center for Automotive Research found that the bailouts “saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections.”
The Financial Times added comment from the GM CEO that the company was close to paying dividends:
Dan Ammann, General Motors’ chief financial officer, last week told the Financial Times that the carmaker was “getting closer” to resuming dividend payments.
“I would say we’re certainly getting closer to that point,” Mr Ammann said when asked about dividends. “We’ve had obviously continued good progress in the business.”
Moody’s, the rating agency, had upgraded the company’s credit rating to investment grade in September, Mr Ammann pointed out, while profitability had improved.
The Treasury initially held 60.8 per cent of GM following the company’s exit from bankruptcy. It disposed of more than half its stake during the 2010 IPO.
Steven Rattner, who headed the Treasury auto industry task force that oversaw the restructuring, last week told the FT there was “no question” that GM had performed better than the team had expected.
The Detroit News pointed out that now GM can pay its executives whatever it wants, giving them the ability to attract a new CEO when the time comes:
GM North America President Mark Reuss tweeted after the announcement: “Free at Last, Free at Last — thanks to all of the hard work and those who gave us a chance.”
GM spokesman Selim Bingol declined to comment when asked when GM might increase pay for executives, saying in an email that the automaker would not comment on the government’s stock exit beyond its statement. But an ease in restrictions will give GM’s board more flexibility to attract a new CEO when Akerson, 65, decides to step down.
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The Treasury ended its ownership stake in Chrysler Group LLC in July 2011, incurring a $1.3 billion loss on a $12.5 billion bailout.
After the sale of remaining GM shares, the U.S. government’s only asset remaining from the overall $85 billion auto industry bailout is a 64 percent stake in Ally Financial Inc., the auto lender once known as GMAC. The government has recovered about two-thirds of its $17.2 billion bailout and hopes to close that chapter next year.
The Treasury had said this month that higher-than-expected trading in GM stock was speeding its exit and that it planned to wrap it up by Dec. 31.
While the initial headline of losses doesn’t look good at first, it’s definitely good that the government is out of the auto bailout business. Here’s hoping the car companies continue to improve and add jobs, making the whole experiment worth it.
