Dec 9, 2013 6:31 PM
The U.S. government ended up losing $10.5 billion on the General Motors (GM) bailout, but it says the alternative would have been far worse.
The Treasury Department sold its final shares of the Detroit auto giant on Monday, recovering $39 billion of the $49.5 billion it spent to save the dying automaker at the height of the financial crisis five years ago.
"In 2011, we marked the end of an important chapter as Chrysler repaid every dime and more of what it owed the American taxpayers from the investment we made under my Administration’s watch," President Obama said in a statement. "Today, we’re closing the book by selling the remaining shares of the federal government’s investment in General Motors."
Without the bailout, the country would have lost more than 1 million jobs, and the economy could have slipped from recession into a depression, Treasury Secretary Jacob Lew said on a conference call with reporters.
"With the final sale of GM stock, this important chapter in our nation's history is now closed," Treasury he said in a statement. "The president understood that inaction could have cost the broader economy more than 1 million jobs, billions in lost personal savings, and significantly reduced economic production.”
The government received 912 million GM shares, or a 60.8 percent stake, in exchange for the bailout in 2008 and 2009. It began selling shares once GM went public again in November of 2010, and the pace picked up this year as the stock rose more than 40 percent. Last month, the government said it expected to sell its remaining 2 percent stake by the end of the year.
Despite exiting its stake in GM, the federal government will remain in the car business through its holdings in banking holding company Ally Financial (GKM), which until the financial crisis was the auto giant's financing unit. In 2008 and 2009, the Treasury Department provided billions in loans to Ally, then called GMAC, under the agency's Troubled Asset Relief Program.
Earlier Monday, Mark Reuss, GM's North American president, told reporters in Warren, Mich., that a government exit would boost sales, especially among pickup truck buyers. GM has said repeatedly that some potential customers have stayed away from its brands because they object to the government intervening in a private company's finances. Because of the bailout, GM had been tagged with the derisive nickname "Government Motors."
"We will always be grateful for the second chance extended to us, and we are doing our best to make the most of it," GM Chairman and CEO Dan Akerson said in a statement.
During the conference call, Treasury officials shrugged off a question about whether GM should have been required to pay more because it has a large cash stockpile, saying that the bulk of the bailout money was converted to GM stock. Not doing the bailout would have cost the government more than it lost in missed tax revenue and payments for unemployment benefits and pensions, the officials said.
The company now is sitting on $26.8 billion in cash and is considering restoration of a dividend.
GM went through bankruptcy protection in 2009 and was cleansed of most of its huge debt, while stockholders lost their investments. Since leaving bankruptcy, GM has been profitable for 15 straight quarters, racking up almost $20 billion in net income on strong new products and rising sales in North America and China. It also has invested $8.8 billion in U.S. facilities and has added about 3,000 workers, bringing U.S. employment to 80,000.
GM shares rose 44 cents, or 1.1 percent, to $41.34 in after-hours trading following the announcement. They rose 1.8 percent in regular trading, at one point reaching $41.17, the highest level since GM's 2010 initial public offering.
The auto bailout was part of the Troubled Asset Relief Program, with the bulk of the money going to financial institutions. Treasury said it spent $421.8 billion on bailouts and so far has recovered $432.7 billion, including the loss on GM.
The Center for Automotive Research, an Ann Arbor, Mich., think tank, issued an updated report on Monday saying that if the government hadn't intervened and GM went out of business, nearly 1.9 million jobs would have been lost in 2009 and 2010. Federal and state governments also would have lost $39.4 billion in tax revenue and payments made for unemployment benefits and food stamps, the study said.
But critics say the bailout put the government in a position to choose winners and losers when it should have stayed out of private business.
"The American people are tired of Washington politicians taking their hard-earned money, using it to make risky bets and pick winners and losers, and coming up short," U.S. Rep. Jeb Hensarling, R-Texas, said in a statement.