General Motors has announced plans to buy back some of its stock from the U.S. Department of the Treasury, reducing the federal government's stake in the automaker by 40%.
In a press release, GM says that it will purchase 200 million shares of common stock from the Treasury -- a significant chunk of the 500 million shares that the feds currently own. GM will pay a total of $5.5 billion for the stock, which works out to $27.50 per share, or nearly 8% more than yesterday's closing price of $25.49. The purchase is expected to be finalized by December 31.
GM's chairman and CEO, Dan Akerson, says that "This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM’s progress and our future”.
As for the Treasury Department's remaining 300 million shares of common stock in GM, the federal government plans to sell those on the open market. The Treasury hopes to sell all 300 million shares within the next 12 to 15 months, though the exact timetable will depend on market conditions.
Beginning in 2008, GM received roughly $52 billion in bailout support from the U.S. government, courtesy of Presidents George W. Bush and Barack Obama. Just under $7 billion of that came in the form of a low-interest loan, which GM repaid ahead of schedule (and with $615 million in interest) in April of 2010.
The remaining sum -- around $45 billion -- was converted to equity. Most of that came in the form of common stock, though $2.1 billion was in preferred stock. If the feds divest the remaining 300 million shares of common stock at a sale price of roughly $25, that would generate an additional $7.5 billion. Combined with the sum GM is paying this month, that would bring the fed's total recouped from common stock to $13 billion.
So, by our rough calculations, the feds stand to lose about $30 billion on the sale of GM's common stock. (Though please remember, we're neither accountants nor stockbrokers. A few of us aren't even very good at math.)
Some of that loss is countered by GM's contribution to the U.S. economy. According to the GM press release, GM has invested over $7.3 billion in the U.S. since the conclusion of the bankruptcy, and it has "created or retained more than 20,000 jobs". And the Center for Automotive Research says that the GM bailout saved approximately 1.5 million jobs.
Is that enough? Should consumers demand that the U.S. Treasury recoup every last penny it used to support GM? Or is there some value in preventing the automaker from collapsing? The federal government provides all sorts of subsidies to individuals and corporations in the form of tax deductions, credits, and scores of other incentives: is this any different? And if it is, where do we draw the line?
We don't spend a lot of time debating economic policy on this website, and we know that policy is never black and white, but we'd love to hear your thoughts on how the federal government can encourage growth and investment without stepping too far into the gray area.