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Will General Motors Ever Pay Us Back?
The Motley Fool

By John Rosevear
September 17, 2010


Unless you've been living under a rock, you've probably heard by now that General Motors is going public (again) -- or more specifically, that the U.S. government and other GM stakeholders are preparing to sell some of their holdings in the open market.

Some of their holdings.

Speaking to reporters on Thursday, General Motors CEO Dan Akerson confirmed what many had suspected: It'll be a couple of years -- at least -- before the government sells all of its 60.8% stake in the automaker it spent $50 billion bailing out last year.

In other words, American citizens, don't expect to get paid back anytime soon.

Is this an outrage?
It's certainly easy to get mad at GM -- the company, once one of America's industrial crown jewels, was (in retrospect) shockingly mismanaged for decades before skidding into bankruptcy court as a pile of smoldering wreckage last year. While GM is hardly the only old-line U.S. company to face a hard reckoning -- big names from Delta Air Lines to Pacific Gas & Electric have had their own trips through bankruptcy courts in recent years -- it is unique in that it received a very big, and very unpopular, government bailout.

That bailout, of course, was part of an unprecedented high-speed restructuring process that saw labor unions favored over bondholders, leading some (OK, lots) of people to accuse the Obama administration of discarding hundreds of years of legal precedent to reward a favored political constituency.

So yeah, you might say there are some hard feelings here. And those feelings were stoked in April when then-CEO Ed Whitacre made a big show of having "paid the government back" -- after returning a mere $6.7 billion of the $50 billion bailout.

That was certainly a lousy PR move, in retrospect. But here's the thing: Technically speaking, Whitacre was right. The GM stock held by the government, plus that $6.7 billion, technically constitutes full repayment of the bailout money.

But technicalities won't let GM off the hook. And unlike certain past executives, GM's current leaders aren't fools. They know that.

The IPO won't pay us back
Every auto analyst on Wall Street has run the numbers, and while the specifics of their results differ, it's pretty clear that the government's 60.8% stake in GM isn't going to be worth the $43.3 billion GM has to pay back.

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There is simply no way that we will ever get our total Unconstitutional "investment" in Government Motors Company back in full.

First, servicing this deficit spending is costing the American taxpayer about $1.5 billion in interest charges which has to be considered as part of the cost of the bailout.

Second, stock sales impact the overall price of the outstanding shares of stocks. The more that is sold, the more it impacts the price of the other shares - and if those shares being sold can't find buyers, the price has to go even lower to entice buyers - thus simply destroying outstanding share equity and overall value.

Third, this ASSUMES there is even a market for Government Motors Company - the company has continued to demonstrate horrific advertising campaigns, underwhelming products with significant flaws (Malibu has rear passenger space issues, Camaro has industry worst interior, Snuze has 1990's styling, and weird package option groupings, LaCrosse has trunk space consuming hinges of significant impact, etc). Management is in continual flux, there is no apparent leader, and there is not one plan for the company that demonstrates any management skill or foresight.

Fourth, even assuming Government Motors has SIGNIFICANT PROFITS, there is no compelling case to increase the price per share for the stock. The company has Opel liabilities and a European operation that is a joke. Right now Government Motors is relying on Chinese sales to a degree that leverages the entire company's future on them. So much of Government Motors resources are going into China and to Buick that it is starving overall product development for the rest of the company.

Fifth, there are other "partners" in this bailout which will likely sell their shares and do so without particular planning - UAW has shown a propensity to sell early when they have automotive shares and this will destroy the first and possibly second year of the offering value further eroding the ability of the Federal Government to get its money back.

Sixth, the holders of this massive allocation of shares also could be irrational in their sales - bailing out to rescue political backsides which alone precludes us from ever getting our money back. And with no logical plan to sell shares, the exercising of the sales will cause more fluctuation in the price of stock than would otherwise happen with someone planning share sales on market conditions.

In short, for the Federal Government to break even we will need our $50 billion back, the interest we are paying on this debt back, and a well-planned exit strategy from all parties. The fact that there isn't even a plan automatically means we'll never see that money again. We'll be lucky to see 50 cent on the dollar on this pathetic investment. That begs the question - was the $25 billion wasted on this bailout worth it? Only if you were a union worker would this have been worth it - they'll likely get their share first. Saving GM has not stabilized the economy and the impact on sales for other companies was artificially depressed by retaining Government Motors. There is a reason GM wasn't viable and that reason hasn't gone away - remarkably unimpressive management and business planning.
 
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