Joeb427

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Taxpayers Still on the Hook for General Motors' Bailout
By Daniel Miller | More Articles
October 29, 2013 | Comments (0)


General Motors HQ in Detroit. Photo Credit: General Motors.

Domestic automakers, the U.S. Treasury, and the American taxpayers continue to put distance between themselves and the darkest chapter in our automotive industry's history. The U.S. treasury reported a loss of $9.7 billion on General Motors (NYSE: GM ) shares it's sold through Sept. 30, but there's two sides to the story.

Both sides of the story tend to get overlooked in articles that merely report the updated amount of Treasury losses from its investment in General Motors.

Ford (NYSE: F) managed to escape bankruptcy during the 2008 financial crisis, and ensuing crash of vehicle sales, by leveraging its namesake Blue Oval logo as collateral for more than $26 billion in private loans, which it has since paid back. But thanks to its deal with the government, General Motors was allowed to wipe tens of billions of debt off its balance sheet -- a significant competitive advantage.

In addition to removing debt from its books, the overall repayment situation is often misunderstood. Because General Motors only received a true loan worth $6.7 billion from the U.S. Treasury, that's all General Motors is obligated to pay back. The other portion of the $49.5 billion lifeline was traded for the Treasury's 61% stake in General Motors; as the Treasury sells its shares at a loss, the taxpayers are left on the hook.

"Because the common stock sales have all taken place below the Treasury's break-even price, Treasury has so far booked a loss of $9.7 billion on the sales," a recent report to Congress noted.

It doesn't end there, however. Consider that the new General Motors corporation was "gifted" tax-loss carryforwards from the "Old GM." Those carry forwards essentially mean that it has been able to write off current profits and not pay the amount of taxes it should, until recently.

For the taxpayers and the Treasury to break even, it would need shares of General Motors to skyrocket from $35 to roughly $148 -- which isn't going to happen. On the other side of the coin, there is a valid argument regarding the damage our economy might have suffered if General Motors and Chrysler were allowed to collapse.

While we're on track to lose over $10 billion on the investment in General Motors, that money helped save an estimated 1.4 million plant and supplier jobs in the automotive industry. To put that in perspective, that's roughly 16 times the number of employees that GM has in the United States.

I refuse to defend how GM handled its bankruptcy to shareholders, taxpayers, and pension collectors. But the lifeline tossed by the government did more than save GM; it helped our nation as a whole during a dire time.

I8ABMR

This has been a mess from day 1

Hoovey689

iTrader: (16)

That I agree too. Detroit/Michigan really might have imploded

bitkahuna

iTrader: (20)

in case you hadn't noticed, beirut is prettier than detroit now and the latter is filing for bankruptcy.

the bailout only delayed the inevitable, and it's not obvious that a gm bankruptcy would have been the end for the company. what really is irritating is how much the uaw got out of it.

mmarshall

As far as I'm concerned, with the number of excellent new vehicles GM has rolled out since the bailout........that alone justified the money, even if it is tax money out of my pocket. The newest Silverado/Sierra, Impala, Malibu, Cruze, Sonic, Verano, Regal, CTS....all of these vehicles, IMO, have been impressive, though, to be honest, I'm not thrilled at all with a few others.....Encore, Spark, or XTS. Still, GM has introduced enough new impressive vehicles that, IMO, the bailout was worth it. Those vehicles probably would not have been possible otherwise.

GM is not the only company that benefitted from a government bailout, either. Compared to what was in production before the Chrysler bailout / Fiat takeover, today, we see a VASTLY improved Chrysler 300, Dodge Charger, Jeep Grand Cherokee, Dodge Durango, Ram pickup, and the all-new Dodge Dart, with signs of improvement in several other models as well.

4TehNguyen

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detroit declared bankruptcy despite an auto bailout. They have way more problems than what a bailout can fix.

GMs financials are ticking time bomb just like the housing bubble, its been padding its sales with a huge amount of subprime borrowers. No doubt encouraged by the govt bailout moral hazard. Yea guess whos on the hook when it goes belly up again?

http://freebeacon.com/general-motors...g-auto-bubble/

http://freebeacon.com/fannie-motors/

mmarshall

Some of you guys, instead of tossing stones at the bailouts, just need to go to some dealerships and take a few test-drives. Your hard-core stances will probably be softened up a little.

Hoovey689

iTrader: (16)

I was serious @bitkahuna @4TehNguyen. We already know about the city itself declaring bankruptcy. Take out the HQ and factories of 2/3 and that place would be tumbleweed central hah

Vh_Supra26

iTrader: (1)

http://www.worldcarfans.com/11412308...r--gm-bailouts

gengar

Good to finally put this awful chapter of history behind us and good to turn a profit off of Ally Financial - I was long convinced taxpayers would be in the bath on that one too.

Ironic that the bank bailouts, however much demonized (including by myself), actually turned profits for the taxpayer.

Ironic that the only part of the auto bailout that turned a profit was the financing arm. (Probably says a lot about whether consumers should finance cars.)

Terrifying that people are still cheerleading the auto bailout.

mmarshall

I can't agree with this view. The proof is in the pudding. For the first time in decades, we have new GM and Chrysler products that are actually worth buying.....sometimes more so than some of their competitors. This would probably not have been possible without the buyout.

However, I agree that the buyout was not all good news. It cost four entire divisions.....Saturn, Pontiac, Hummer, and Saab. of those four, only Saab has any hope of survival under other ownership....and even that is low. But, at the same time, it is reenergized and rejuvenated both Chevy and Buick, who are both picking up many new customers every year now.

gengar

The proof is in the pudding - these products weren't and aren't great enough that GM didn't nevertheless lose 9.7 billion dollars that the taxpayers put in.

As I said, it is absolutely terrifying that anyone believes losing 9.7 billion dollars is worth a couple car models "worth buying".

mmarshall

Well, in that case, I'd (respectfully) suggest that you get used to seeing something you consider terrifying.....because a lot of new GM and Chrysler vehicles are on the roads, with more being sold each day. You're going to be sharing the roads with them, like it or not. That is simply a fact, not an opinion.

4TehNguyen

iTrader: (1)

proof is in the pudding all right. Think the $9B was the end of it? This isnt over

Subprime Loans Are Back Thanks to GM

spwolf

3-4 years from now, another economic hiccup and we will have same situation all over again.