We learned last week that “Government Motors” is closer to shedding that moniker as the United States Treasury Department is set to sell its remaining 500 million shares of General Motors stock within the next 12 to 15 months at a price that is likely to result in a $21 billion total loss to taxpayers from the January 2009 auto industry bailout. GM’s share of the $79.1 billion bailout totaled $49.5 billion.
The selloff will begin with GM buying back 200 million shares for $5.5 billion ($27.50 per share) as early as January. For the government to break even on the 26% piece of the company it owns the share price needed to be about $53. The U.S. stake will fall to 19% after the sale and means that to avoid losing as much as $21 billion the remaining 300 shares would have to go for nearly $70 per share- not likely as the $27.50 per share was 7.9% above premium.GM will report a $400 million charge on its balance sheet for the fourth quarter as a result of the buyback.
The deal combined with funds from GM’s IPO and loan repayments means the U.S. has recouped about $28.6 billion of the $49.5 billion GM bailout. By comparison, the Treasury Department reported an estimated $1.3 billion loss on the Chrysler Group bailout. To date the Treasury has recovered a total of $45.6 billion of the $79.1 billion loaned. The government has said it never expected to make a profit, only that they sought to balance the policy goal of exiting the auto business while minimizing taxpayers’ loss.
Those that pushed for the taxpayer bailout at the time argued a number of reasons that they believed supported their belief that was the better route, including that the U.S. Treasury would recoup the funds by 2012 and that the industry was “too-big-to-fail”. They now argue that the more than 1 million jobs saved, as reported by the Center for Automotive Research, offsets the failure of the companies to repay the loans as agreed. Had GM and Chrysler gone under, the Great Recession would have become a depression, supporters say.
They also point out that the domestic automakers are not just buying back stock to repay the loan, but by keeping their companies competitive and profitable are paying it back in ways that can’t be measured the same as a cash repayment.
Timothy Massas, U.S. Assistant Secretary for Financial Stability, said in a statement to reporters that “The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program. The government should not be in the business of owning stakes in private companies for an indefinite period of time.”
Those opposed to the taxpayer funded bailout favored a planned bankruptcy reorganization for a number of reasons, including worry that taxpayers would lose money as well as believing the auto-makers were responsible for much of what caused their competitiveness decline in the global market. They also argued that the action eventually decided on was tilted toward the unions and its workers, while the bonds and share holders were the ones that took the biggest hit.
The reality is that both parties believed action needed to be taken to prevent the collapse of the industry, but differed in what action should be taken. Many forget (or choose not to remember) that TARP began under President Bush in the closing months of his second administration, meaning the auto bailout was supported under both Bush and President Obama.
There is little disagreement that without action the auto industry, along with all those in the supply chain, would have collapsed and very likely led to a depression- the heart of the debate was whether the government should involve itself directly in ownership of private companies. Particularly in the role of savior to companies that have done much to create their situation by years of mismanagement and poor fiscal decision making.
There is little middle ground among defenders of each viewpoint. Those that supported the bailout believe it was a huge success because of the jobs saved, regardless of cost, while those against argue the same results could have been had without burdening the taxpayers with additional debt. Those opposed also worry that the policies that led to the failure of America’s automakers to stay competitive have not been addressed, so the risk remains that this could happen again.
Both labor and management played a role in allowing the industry to reach the point of collapse by their actions over the last few decades, but there is little argument that the union and its workers fared better then ownership/management in the bailout.
From the outside looking in it appears that the unions played a major role in adding to increasing operational costs despite falling product demand for years due to things like guaranteed staffing levels, automatic wage hikes, increased retirement benefits, etc… while the companies share responsibility because they continued to give in to the ever increasing demands over a period of decades without thought to what would happen if a downturn in sales like the one that the recession brought hit.
For those that had nothing to do with either the management of the automakers or those that work for them, it is frustrating that we had little say in bringing the industry to the brink of collapse, but we sure did pay for the failure of the parties directly responsible.
Scarily similar to the ongoing folly displayed in the “fiscal cliff” talks, where again our fates are in the hands of parties that apparently care little about the results of their inability to find solutions, but you can be sure we all will also pay the price for their failure.