The stock buyback by GM will cost the taxpayers billions.
The Obama administration said Wednesday it will sell 200 million shares - or 40 percent of its remaining stake in General Motors Co. - back to the automaker and announced plans to completely exit the Detroit automaker by March 2014.
The Detroit automaker said it will purchase 200 million shares of GM stock held by Treasury for $5.5 billion - or $27.50 per share - nearly $2 above the stock's closing price on Tuesday. GM shares jumped sharply on the news and were up 7.5 percent to $27.36, or $1.90, early afternoon in very heavy trading.
The U.S. Treasury, after more than a year of refusing to say when it might start selling its remaining stake in GM, said it willannounce a written plan in January to shed its remaining 300 million shares over the next 12 to 15 months, likely in a series of small stock sales.
The Treasury's move is intended to minimize the impact of the stock sale on the share price - and the government's state will shrink from 26.5 percent to less than 19 percent - but the exit could be completed far more quickly.
The exit plan may prove to be a boost to GM's lagging stock price and to some car buyers, who have avoided GM because of the "Government Motors" label.
The exit timetable signals the end of one of the most extraordinary government interventions in the U.S. economy in history - the rescue and partial nationalization of two U.S. automakers and their finance arms supported by two U.S. presidents.
Still, taxpayers will almost certainly lose billions of dollars in the $49.5 billion GM bailout - and the government would need to sell its remaining shares for about $70 each to break even. If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion. But profits from the bank and AIG bailouts will largely offset the auto bailout losses.
It doesn't matter how much taxpayers are going to have to eat. The precedent has been set. The government will be able to swoop in and resuce any private company it deems "too big to fail," stiff bond holders, coddle unions, dictate personnel decisions and compensation packages, and hold on to their stake for as long as they wish.
So much for the "free" market.