US Treasury Prepares GM Share Sale, Locking in Billions in Losses
The US government will sell its remaining General Motors shares after a $49.5bn bailout, with taxpayers facing an estimated $12bn loss as GM buys back 200 million shares.
General Motors will buy back 200 million shares from the US Treasury for $5.5bn, as the federal government moves to exit its post-bailout stake in the carmaker. The Treasury is expected to begin selling its remaining 300 million shares on the open market in early 2013, a process likely to take up to 15 months. The combined transactions will leave US taxpayers with a loss of nearly $12bn from the original $49.5bn bailout, based on current share prices.
Buyback Deal Values Shares Below Bailout Cost
The buyback, announced in December 2012, will see GM pay $27.50 per share for the 200 million shares. This is well below the $53 per share average required for taxpayers to break even on the full $49.5bn bailout. The Treasury's remaining 300 million shares would need to be sold at a similar price to avoid further losses, but GM shares closed at $25.49 before the announcement and rose to $27.18 afterwards. Even at this higher price, the government will recoup only about $8.1bn from the remaining shares, far short of the $16bn needed to cover the original outlay for those shares.
Treasury to Sell Remaining Shares in 2013
After the buyback, the Treasury will still hold 300 million GM shares. The government plans to sell these gradually on the open market, aiming for an "orderly" exit over the next year to 15 months. The timing means the final loss to taxpayers will depend on GM's share price over that period, but unless prices rise significantly, the government will not recover the full bailout amount.
- GM's share price would need to double to recoup the entire bailout.
- The buyback and sale will end direct government ownership of GM.
- The move follows political pressure to unwind the bailout-era stake.
Context: GM’s Bailout and Repayment
The US government stepped in with $49.5bn to rescue GM from collapse in 2009, acquiring a majority stake in the process. GM repaid $23.1bn before the 2012 buyback announcement. The remainder was held as equity, with the government seeking to recover its investment through share sales. The buyback and planned exit will leave the Treasury with a final return of about $36.7bn, according to calculations based on current prices, crystallising a loss of roughly $12.8bn for taxpayers.
For further details on GM’s stock and government involvement, seeGeneral Motors Stock Symbol.
