Government sells remaining shares of GM stock - Taxpayers out $10.5 billion
That $10.5 billion includes the difference between the loans and bailout cash totaling $50 billion and what the government got for its 66% stake in the company, around $39.5 billion.
The Treasury Department sold its final shares of the Detroit auto giant Monday, recovering $39 billion of the $49.5 billion it spent to save the dying automaker at the height of the financial crisis five years ago.
Without the bailout, the country would have lost more than 1 million jobs, and the economy could have slipped from recession into a depression, Treasury Secretary Jacob Lew said on a conference call with reporters.
"The economic stakes were high, and President Obama understood that inaction was not an option," Lew said. "His decision to commit additional support to GM while requiring them to fundamentally restructure their business was tough but it was right."
The government received 912 million GM shares, or a 60.8 percent stake, in exchange for the bailout in 2008 and 2009. It began selling shares once GM went public again in November 2010, and the pace picked up this year as the stock rose more than 40 percent. Last month, the government said it expected to sell the remaining 2 percent stake by the end of the year.
GM shares rose 73 cents, or 1.8 percent in after-hours trading following the announcement. They rose 1.8 percent in regular trading, at one point reaching $41.17, the highest level since GM's 2010 initial public offering.
Earlier Monday, Mark Reuss, GM's North American president, told reporters in Warren, Mich., that a government exit would boost sales, especially among pickup truck buyers. GM has said repeatedly that some potential customers have stayed away from its brands because they object to the government intervening in a private company's finances. Because of the bailout, GM had been tagged with the derisive nickname "Government Motors."
Reuss acknowledged some critics would highlight the money lost in the bailout, but pointed to the jobs, plants, towns, suppliers and related service industry jobs saved by the bailout under the Troubled Asset Relief Program, known as TARP.
"How do you put numbers on that?" he said. "I feel good about that and I'm not sure it was the same with the other industries that were granted TARP funds."
What really needs to be addressed is the unprecedented manner in which senior bondholders were left hanging high and dry as a result of the government feathering the nest of the UAW, making them a major player in the new GM while assuring the union their generous pensions would be fully funded. This was done at the expense of the senior debt holders:
"They are rewriting law, and certainly bond markets never priced in an interpretation that you can rewrite things because it's in the best interest" of unintentional stakeholders -- taxpayers, the company's employees, and municipalities that will be affected, Kingman Penniman, president of KDP, told MarketWatch.
If, as now expected, GM's path to bankruptcy follows that of Chrysler's, bondholders will likely end up with a smaller stake in the reorganized business even though they are senior creditors. This trade off ensures employees will have a bigger stake in the new company.
Now that the bankruptcy has been filed, the trustee for the bondholders will contact each bondholder, probably in the next two weeks, and ask if they approve of the latest deal to restructure the company and sell its good assets to the government. If GM can follow the same quick path as Chrysler, it could be out of bankruptcy in 45 to 60 days, rather than the usual 12 to 18 months.
GM will not go through the traditional bankruptcy. The role of the U.S. government is a wildcard that has upended traditional bankruptcy procedures. Expediency will be king and seniority will take a back seat. "Based on what we saw from Chrysler, we have no idea what the bonds are worth, seniority being thrown out the window. The political and economic pressure is going to be there to get it done quickly," Michael Kalscheur, a financial consultant at Castle Wealth Advisors, told MarketWatch
It's disingenuous to say that the bailout prevented a depression. GM had a lot of valuable assets and if it had been a normal bankruptcy, those assets would have been sold to satisfy creditors while the physical plants would have been bought by other car companies. The unions would have taken a hit on their pensions and probably their health insurance package as well, but most of them would have gone to work for another company. Some plants would have closed, but the vast majority of suppliers would have been fine.
Instead, the judge stiffed the bondholders and out of the bankruptcy was created an entirely new GM with the UAW more powerful than ever. This new GM has given us the gift of the Volt - which, beside supplying writers with an endless stream of jokes, is one turkey of an automobile.
What the Obama administration "saved" was a lot of votes. It's open for debate just how much they saved the economy.