Wednesday, December 19, 2012

Uncle Sam Cuts, Runs from GM

Taking the government out of Government Motors.

The U.S. Treasury has announced this morning that it will sell 200 million shares of its stake in General Motors back to the company for $27.50 a share, or $5.5 billion.  Sounds like a lot of money.  Trouble is, the cost basis was roughly $53 a share, which was a lot MORE money.  My calculator shows a loss of $5.1 billion, how about yours?

That still leaves Uncle Sam with 300 million shares to be sold on the open market over the next 12-15 months into the teeth of a recession.  Now he needs $72 a share on the remainder to break even.  Not likely.  More likely (for reasons mentioned previously) is an average share price of less than, maybe even far less than, today's $27-fifty.  Last year Treasury booked a $1.3 billion loss when it sold its "investment" in Chrysler.  Once the GM stake is fully liquidated, the total loss to the government for its capital injection into the auto industry in 2009 is expected to hit $24.3 billion.  The Obama Administration has avoided use of the word "bailout," but that is exactly what the intervention has turned out to be.

Credit Treasury for at least cutting its loss....

[update, 12-20-12--]

...and doing it before today's announcement that GM is recalling 145,628 pick-up trucks to install a secondary hood latch.  Quality control? 

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