“Government” Motors No More, but Taxpayers See a Loss

GMLast week, General Motors announced its intention to buy back 200 million shares from the Department of the Treasury, beginning the process of reemergence onto the market. The nickname Government Motors now stands to be retired following its use after GM received $51 billion under the TARP Recovery Act of 2009.

GM bought back its shares for $27.50 each for a grand total of $5 billion, which is an almost 8% premium on Tuesday the 18th’s closing price. Investors clearly see this as a positive move as trading jumped on GM shares by more than 7% on the announcement date.

The Treasury has plans to sell the remaining 300.1 million shares, equivalent to 19% of the company, starting as early as January to finalize its run as the controlling stakeholder. Currently, the Treasury has recovered $28.6 billion, over half of the original bailout from the once private company. However, the tax-payer may lose out in the end; in order to recover the remaining bailout amount- $21.6 billion- the remaining shares must sell for more than three times what they sold for today, about $72 each.

GM was not the only recipient of aid: its fellow Big Three automobile manufacturer Chrysler received a bailout and the government projected that between the two companies over 1 million jobs were maintained. Taxpayers must weigh the costs and benefits of the bailout between jobs supposedly saved and billions of dollars potentially unrecovered. Was there a net benefit or net cost to creating Government Motors? Due to unseen effects, the calculation may be nearly impossible.

Regardless, GM now stands for General Motors once again.

Posted by: Sophia Higgins

Sources: CNN Money, Reuters

Photo Credit: government motors @ photostream courtesy of Flickr user Fresh C


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