DETROIT (AP) — The U.S. government's foray into the car business is slowly coming to an end.
The Treasury Department said Wednesday that it will sell its remaining stake in General Motors in the next year or so, winding down a $50 billion bailout that saved the iconic American car giant but also set off a heated debate about government intervention in private business that even influenced this year's presidential election.
Taxpayers will lose money on the deal, but it gets the government out of the car business. GM has done well over the past three years, piling up $16 billion in profits as car sales bounced back. Now it looks forward to losing the stigma of government ownership — including the derisive moniker "Government Motors" — that it claims cost it sales since it left bankruptcy protection in 2009.
As part of a deal announced Wednesday, GM will spend $5.5 billion to buy back 200 million shares from the Treasury from now through the end of the year. That will leave the government with 300 million shares, or a 19 percent stake, which it plans to sell during the next 12 to 15 months.
The government bailed out GM with $49.5 billion during the financial crisis in 2008 and 2009. Otherwise the struggling automaker would likely have been auctioned off in pieces. The Treasury Department says it will have recouped about $28.7 billion after GM completes its buyback. So, breaking even would require selling the remaining 300 million shares for an average of about $70 each.
That's more than double the current trading price. GM will buy the 200 million shares at $27.50 each, about an 8 percent premium over Tuesday's closing price of $25.49. The shares shot up more than 8 percent to $27.60 in midday trading Wednesday.
At a more realistic price of $30 apiece, the government gets back $9 billion for its remaining shares. That means taxpayers would recoup around $38 billion, or about 77 percent, of the initial investment, resulting in a loss of about $12 billion.
GM says having the government as an owner kept customers away from dealerships. Chief Financial Officer Dan Ammann told reporters Wednesday that GM has "market research that we've done over time that has suggested that the government involvement in the business has had some impact on sales." He added that GM should benefit when the government is completely out.
As part of the stock buyback deal, GM almost immediately will be allowed to own a corporate jet or be required to manufacture a certain percentage of cars and trucks in the U.S. GM says it already has exceeded the manufacturing requirements and will continue to do so for the foreseeable future. It has no immediate plans to buy or lease corporate jets, but it has chartered jets for executive travel at times.
However, government-ordered pay restrictions will remain in effect until the Treasury completes the sale of its remaining 19 percent stake. CEO Dan Akerson has said the pay limits have hurt the company as it tries to recruit top talent.
The bailouts of GM and rival Chrysler were part of the Trouble Asset Relief Program created by Congress during the financial crisis in the fall of 2008. Last week, Treasury sold its final shares of stock in insurance giant American International Group, which had received the largest amount of government support during the financial crisis. With Wednesday's GM stock buyback, the government has recovered $386.5 billion — 92 percent — of the $418 billion in funds disbursed through the TARP program.
The GM bailout played a role in this year's presidential election, helping President Barack Obama capture the key state of Ohio, as well as Michigan. Ohio is second only to Michigan in auto-related employment. Obama's opponent, Mitt Romney, opposed the federal bailout, instead favoring private funding to get GM through bankruptcy. But private loans weren't available early in the financial crisis.
Treasury said Wednesday that the investment in GM was worth it.
"The auto industry rescue helped save more than a million jobs during a severe economic crisis," said Timothy Massad, Treasury's assistant secretary for financial stability. "The government should not be in the business of owning stakes in private companies for an indefinite period of time."
Massad said that exiting the GM investment "is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests."
Initially the government got 912 million shares in exchange for the money it loaned to GM. It sold 412 million shares for $33 apiece in GM's initial public stock offering in November of 2010.
GM shares rose shortly after the IPO, but then slid as the U.S. economic recovery slowed and Europe's economy took a turn for the worse. As the shares fell, the government balked at further sales.
Although GM is paying a premium for the government shares, Ammann GM's other shareholders benefit because the number of shares on the market will be reduced about 11 percent. That should increase the value of the remaining shares.
The move was approved by the GM board on Tuesday evening after the company got opinions from its management and financial advisers, GM said.
GM will fund the deal out of its cash balance, which at the end of September was close to $32 billion.
GM is losing the stigma of Government Motors
DETROIT (AP) — The U.S. government's foray into the car business is slowly coming to an end.
Film Festival adds screenings to schedule
The Traverse City Film Festival has added screenings of in-demand movies including Woody Allen's "Fading Gigolo" and director Richard Linklater's "Boyhood" to its schedule for next week.Continued ...
Editorial: Exchange students offer a look at wider horizons
The issue: Traverse City schools still looking for families to host Chinese exchange students. Our view: While not for everyone, the exchange experience can be rewarding for students and families alike.Continued ...
Arts & Entertainment in Brief: 07/25/2014
Jacoby exhibit; Too Much Light; Leelanau artists' exhibit. (Plus more)Continued ...
Editorial: Division Street strikes again
By pure luck, the debate over what to do about Division Street doesn’t today include a double pedestrian fatality.Continued ...
Night Life Calendar: 07/25/2014
What's happening after dark:Continued ...
Movie Capsules: 07/25/2014
New this week — And So It Goes: A self-centered realtor enlists the help of his neighbor when he's suddenly left in charge of the granddaughter he never knew existed until his estranged son drops her off at his home. Rated PG-13 for some sexual references and drug elements. (GT9)Continued ...
Letters to the Editor: 07/25/2014
Vote for what matters; No benefit to residents.Continued ...
Community helps Cousins repay TCAPS
Community members and a handful of Traverse City Area Public Schools employees and board members helped former TCAPS superintendent Stephen Cousins repay the district, according to TCAPS records.Continued ...
TCAPS reimbursed ahead of schedule
Community members showed their support for Traverse City Area Public Schools’ former superintendent Stephen Cousins by way of their pocketbooks.Continued ...
They're going to Lovett
Six acres of horse park, horse-drawn hayrides and Lyle Lovett, it sounds like a country music match made in heaven.Continued ...
2014 All-Region Baseball teams
The Traverse City Record-Eagle's picks for the 2014 All-Region Baseball teams:Continued ...
Craigslist car sale leads to weapons assault charge
Leelanau County Sheriff's deputies arrested a Cedar man who tried to strike another man with a crowbar after a Craigslist car sale sputtered and stalled, authorities said.Continued ...
Lake Leelanau man arrested after domestic disturbance
A Lake Leelanau man was arrested on two counts of felonious assault after Leelanau County sheriff's deputies responded to a report of a man making threats with a knife.Continued ...
United Way donors can help with grant process
United Way of Northwest Michigan is looking for volunteers to sift through grant applications and decide how to divvy up the available funds of this year's grant cycle.Continued ...
The Record: 07/25/2014
Assumed names filed in Grand Traverse County:Continued ...
Building Permits: 07/25/2014
Building permits issued in Grand Traverse County:Continued ...
Bensley backs off on visitation denial
Grand Traverse County's sheriff backed off his efforts to bar potential media access to a jailed high-profile criminal defendant, but it took a conversation with the county's prosecutor to change his mind.Continued ...
Gomery hearing delayed
Court officials agreed to push back the next court appearance for a local attorney accused of trying to orchestrate a murder-for-hire plot.Continued ...
Swimmers warned against four beaches
Officials issued bacteria warnings for four Grand Traverse Bay beaches after rain and high winds.Continued ...
Film producer pleads guilty
The ex-wife of filmmaker Michael Moore pleaded guilty to a misdemeanor impaired driving charge in 86th District Court.Continued ...
Ceremony will honor 2 Civil War soldiers buried in Kalkaska
Two Civil War soldiers, both Congressional Medal of Honor recipients buried in Kalkaska’s Evergreen Cemetery, will be honored once again for their bravery in a special military ceremony on Saturday.Continued ...
A new place for art
Visitors approaching the Dentolutions offices might mistake the sculpture outside for a giant red, avant garde toothbrush.Continued ...
TCFF's latest free venue is all 'The Buzz'
Harold “Buzz” Wilson was adamant that film should be enjoyed by all and not just those who can afford tickets.Continued ...
Bums win in extras again
The Traverse City Beach Bums have found their comfort zone in extra innings the past two nights.Continued ...
Calling all cowboys and cowgirls
The search is on for a few good cowboys and cowgirls. The Manistee County Fair, which also serves Benzie County, announced it will host a rodeo that’s open to any cowpokes interested in participating in bareback riding, tie down roping, steer wrestling, saddle bronc riding, cowgirl’s barrel racing, team roping and bull riding.Continued ...
- Film Festival adds screenings to schedule