Why "Government Motors" Still Owes You

Does General Motors (NYSE: GM  ) still owe taxpayers?

Officially speaking, the answer is a pretty clear "no." GM has satisfied the terms of the $49.5 billion bailout that gave the giant automaker a new lease on life in 2009, paying back the debt as agreed -- with a mix of cash and stock.

The U.S. Treasury Department is in the process of selling off the last of its GM stock holdings. Once that's completed -- early next year, most likely -- GM's bailout repayment will be a done deal.

Officially speaking.

But the truth is, even once all that stock is sold, GM's "repayment" will be well short of that $49.5 billion. And that could turn out to be a big problem for General Motors.

Why does GM still owe us?
Here's the problem in a nutshell: Unless GM's stock price goes way up, and soon, the amount of money ultimately recouped by the Treasury is likely to fall short of that $49.5 billion -- probably about $12 billion short.

How is that possible? Let's take a look.

As of the end of February, GM had "repaid" a little less than $30 billion:

  • $6.7 billion in cash, per the terms of the original bailout. The last of it was paid in April 2010, when then-CEO Ed Whitacre famously declared that GM's debt had been "paid in full" -- and promptly heard about it from angry taxpayers.
  • $13 billion to the Treasury in GM's IPO, in which the government sold about 45% of the GM stock it had received after the bailout.
  • $2.1 billion when GM bought back some preferred stock from the Treasury in late 2010.
  • $5.5 billion directly from GM, when the company bought back 200 million of the feds' remaining 500 million shares last December.
  • $646.3 million in sales of GM stock on the open market by the Treasury in January and February of this year, part of Treasury's plan to slowly sell down its remaining shares over the next year or so.
  • The remainder in interest and dividends on loans and preferred stock.

Plain and simple, that leaves about $20 billion outstanding. As of the end of February, Treasury still had roughly 277 million shares of GM to sell. To make that math work -- to make taxpayers whole -- Treasury needs to get roughly $72 a share for its remaining GM stock.

As I write this, GM stock is trading for a little over $28. If it sold all of its remaining stock at that price, the Treasury would still be about $12 billion short.

And while GM has done everything it was required to do to pay back the bailout, that shortfall is likely to be a big PR problem.

Value received for the government's investment
Of course, GM would probably argue that it has already made good on the government's "investment" in a number of different ways. Speaking to dozens of lawmakers on Capitol Hill Thursday, GM CEO Dan Akerson pointed out that, since 2009, GM has created or retained more than 23,000 U.S. jobs and has invested $8.1 billion in 34 U.S. factories.

That's all true. While GM's turnaround is arguably still a work in progress, the company is in pretty good shape today. It is solidly profitable, has plenty of cash, and carries minimal debt, and its recent products have been good ones -- in some cases, very good.

GM isn't the world's greatest automaker, at least not yet. Its profits still trail those of its two biggest rivals, Volkswagen (NASDAQOTH: VLKAY  ) and Toyota (NYSE: TM  ) , by a wide margin. But it is doing well, thanks to much-improved products, management that is working to resolve the company's remaining issues -- and the new lease on life it received from American taxpayers in 2009.

So will GM pay us back?
GM, like rival Ford (NYSE: F  ) , holds a big cash reserve as a sort of insurance policy -- $26.1 billion as of the end of last quarter. The cash allows the company to continue funding product development in the event of a tough recession that crushes profits. The hope is to emerge -- as Ford did from the economic crisis, thanks to cash it had borrowed beforehand -- with strong new products to drive sales as the economy recovers.

Right now, the U.S. economy is in decent shape -- at least decent enough that GM is making money. GM can probably afford to spend some of that cash to make taxpayers whole. Will it? We'll find out.

Worried about GM?
Few companies generate such strong feelings as General Motors. But ignoring emotions to make good investing decisions is hard. The Fool's premium GM research service can help, by telling you the truth about GM's growth potential in coming years. (Hint: It's bigger than you think. But it's not a sure thing, and we'll help you understand why.) It might help give you the courage to be greedy while others are still fearful, as well as a better understanding of the real risks facing General Motors. Just click here to get started now.


Read/Post Comments (21) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2013, at 10:51 AM, hroark314 wrote:

    GM actually owes tax payers even more for two reasons:

    1. Normally during bankruptcy, companies net operating losses (NOLs) are expunged. In GM's bankruptcy, the federal government made an exception and allowed GM to retain about $50 billion in NOLs. Over years following the bankruptcy, that will reduce GM's tax bill by about $17 billion relative to what a normal company emerging from bankruptcy would pay. In other words, this was a hidden bailout to GM in the nominal amount of $17 billion.

    2. This analysis doesn't account for the time value of money, but it should. If I put $10,000 into an investment in 2009 and, by 2013, found that my investment was worth $10,000 I wouldn't consider it a success. At the very least I'd need to recoup my cost of capital (which, for the government is very low), but I'd also want to recoup an additional amount reflecting the risk of the investment. Realistically, unless the government's bailout has at least an 8% IRR then, from an investing standpoint, the GM bailout was a bust.

    Taking these two points into account, and adding them to the $12 billion loss the Fool is predicting, the GM bankruptcy actually cost tax payers something in the range of $35-$50 billion dollars (in real 2013$). What amazes me is that the administration has touted the bailout as an example of how government can successfully invest in the economy.

  • Report this Comment On March 23, 2013, at 11:07 AM, rdmcdonald48 wrote:

    Had GM been put through a structured bankruptcy, as it should have been, the US Taxpayer would not have been on the "hook" so to speak. Bond holders would not have lost it all as the courts would have protected their interests. The union would not have gained the control over the manufacturer as they did in getting their handout from President Obama, and GM would NOT have been permitted to go back to its old ways of financing cars to people who cannot afford them, which their dealer network is still doing today. Indeed, it would have been painful for GM, but not the nation as a whole. This iceberg is still afloat and its just a matter of time before we see a complete meltdown.

  • Report this Comment On March 23, 2013, at 12:09 PM, yrag01 wrote:

    When Barack Obama was elected to the Presidency to replace the disastrous Bush (MIS) Administration (which had taken the nation from a surplus—and dragged the USA into the WORST DEFICITS in American history at the time) the Stock Market had COLLAPSED down to 6000 points (it's now at 12,862 btw), the nation was on the verge of a DEPRESSION and General Motors and Chrysler entered into BANKRUPTCY.

    President Obama—seeing how government could lend a helping hand WON for America, by BETTING ON American workers and American ingenuity and resilience.

    RESULTS: Chrysler has totally paid back their loan, and GM has roared back to the #1 AUTOMAKER IN THE WORLD (with most of the loan repaid) and HUNDREDS OF THOUSANDS of workers were SAVED from unemployment lines.

    —ON THE OTHER HAND—

    Republicans have publicly declared themselves against the auto bailout but had NO problem with the Banking bailouts! Republican Leaders by holding to a rigid ideology SAID—let GM and Chrysler FAIL—and would have LOST for America by BETTING AGAINST American workers and American ingenuity and resilience.

    RESULTS: would have been the catastrophic LOSE of over TWO THIRDS of the American Auto industry and HUNDREDS OF THOUSANDS of workers would have been THROWN OUT onto unemployment lines precisely because of Repub's flawed 'vision'.

  • Report this Comment On March 23, 2013, at 12:39 PM, greyhound44 wrote:

    The UNION THUGS sure got a great deal from you Foolish US taxpayers!

    FD: I have not paid FICA (since 2003); Property taxes (in the US) since 2004, and NO US income taxes since 2007.

    ret expat MD

  • Report this Comment On March 23, 2013, at 12:57 PM, bugmenot wrote:

    Obama has invested taxpayer dollars - your personal income - in GM and Solar Firms. The solar firms are all going bankrupt and the money went to executives as their payoff! If Obama were a CEO he would be fired by the Board of Directors within a month. He cannot lead. He doesn't understand technology, He doesn't understand business. Obama is a talking entertainer supported by a corrupt China like news media. The money Obama has wasted in his four years could have put 1000s to work in the private sector with intelligent investment.

  • Report this Comment On March 23, 2013, at 1:39 PM, Ronmc2 wrote:

    @ yraq01-It must be comforting to only look at the world thru Liberal-colored glasses.

    If you read the article, GM is NOT "the #1 AUTOMAKER IN THE WORLD". They have NOT 'repaid most of the loan', but rather gave the Taxpayer 500 Million shares of Magic Beans at $80 per share(currently at $23-That equals $12 Billion, NOT $40 Billion).

    Did you forget who holds the Pursestrings of the Gov't? It is the Congress, that the Dems, including SENATOR Obama, ENTIRELY controlled from Jan. 2007-18 Months BEFORE the Meltdown. Bush was an idiot for allowing the Dems to hold the Iraq troops hostage to get THEIR programs passed, while ignoring the oncoming Economic Collapse(Barney Frank, July 2008-'Fannie & Freddie are sound investments').

    What else do you Spin, as you talk amongst your Kool-Aid Drinkin' friends?

  • Report this Comment On March 23, 2013, at 1:57 PM, nunyabizznuss wrote:

    @Ronmc2 ~ "Kool-Aid Drinkin' friends?"

    Don't you have more than sound bits to make your point?

    We are all in this together; attacking one another solves nothing.

  • Report this Comment On March 23, 2013, at 3:13 PM, luckyagain wrote:

    If GM and Chrysler had gone into liquidation, what automobile industry would still exist in the US? The idea that somehow GM and Chrysler would have be able to reorganize without government assistance is crazy. No one else would have financed the bankruptcy and thus only liquidation would have happened. Many hundred of second and third tier auto parts suppliers would have gone bankrupt too. Without these second and third tier auto parts manufacturers, Toyota, Honda and all of the other foreign auto manufacturers would have stopped production too. So almost every car would have to be produced in a foreign country and sent to the US. There would be NO AUTO Industry in the US.

  • Report this Comment On March 23, 2013, at 3:47 PM, Almaty123 wrote:

    Luckyagain- I guess you don't understand how bankruptcy works. Why would GM or Chrysler need financing if they went bankrupt. All of their debts and liabilities go away. This includes non-competitive union contracts (with associated liabilities), debt, etc. Once all that baggage is extinguished, these business would have been very profitable and able access capital markets. A perfect example is the airline industry. AA, UA, Delta, etc never go away, they just restructure and cost the government nothing. With GM and Chrysler, Obama decided this wasn't a viable alternative because he owed the UAW.

    You are also wrong about your view on the rest of the auto industry. Even if GM and Chrlyser had been liquidated and closed, the manufacturing plants in right to work states would have been doing just fine.

    This was a terrible deal for the US tax payer.

  • Report this Comment On March 23, 2013, at 4:20 PM, LafluerL wrote:

    It is nice to hear GM executives brag to their communist chinese puppet masters about ripping U.S. tax payers off and boasting only 3 in 10 of their workers are from the U.S. I wonder how much of our advance vehicle technology they have turned over to their communist masters. I hope the communist treat them just like they treated those who sold out Chiang Kai-shek in the late 1940s; the communist like many others, don't like traitors knowing that if they will sell out their own country what will stop them from doing it again if it is profitable

  • Report this Comment On March 23, 2013, at 4:28 PM, MotleyIBT wrote:

    It's simple. GM gave out $500 Million in cash bonuses. What should happen is that GM should use the bonus money to buy shares back from the taxpayers at $72 per share. They can then distribute those shares to the employees as bonuses. That way the taxpayers break even and the employees still get a bonus. Everybody wins. What could be more fair than that?

  • Report this Comment On March 23, 2013, at 7:00 PM, Dissatisfied wrote:

    I have bought Chevrolet for many years and I am now kissing $1800.00 goodbye on GMcard and will buy a ford product that is how dissatisfied I am.

  • Report this Comment On March 23, 2013, at 11:33 PM, bugmenot wrote:

    Fix the headline! HOW OBAMA SCREWED THE TAXPAYER - AGAIN1

  • Report this Comment On March 24, 2013, at 1:12 PM, sparticus99 wrote:

    @hroark314

    What in your OWN analysis leads you to believe that GM, and not the Obama administration, is responsible for the way GM went through bankruptcy? Who made the decision to fire the CEO of a publicly held company? The decision to do a "surgical" bankruptcy? The decision for the government to take a huge ownership stake? The decision for the way bondholders were treated vs the way the UAW VEBA fund was treated?

    GM paid everything back they were obligated to pay, as the article said. There is nothing else GM COULD pay back to ANYONE. If there's any "owing" to be done, it's those who made those decisions, not the companies that were manhandled in the process.

  • Report this Comment On March 24, 2013, at 7:54 PM, Jason87467 wrote:

    ONly morons think that GM owes them more money. Expert financial people will tell you that if GM had not gotten help from the Government, it would have cost us dearly through lost of jobs, unemployment and the list goes on and on. I suggest to the writer to get a life. This is old news and we are tired of hearing this BS.

  • Report this Comment On March 26, 2013, at 3:01 PM, Hueyones wrote:

    Jason, Only financial illiterates like yourself believe the Obama spin that the only choice was between government help in the manner that Obama deliverd it, meaning raping bondholders and taxpayers to reward UAW workers, or going bankrupt and the auto industry subsequently disappearing.

    For example, GM could have gone through a managed bankruptcy that shed excess labor, pension and real estate costs, and then the federal government could have provided guarantees for post-bankruptcy financing and assured car buyers that their warranties were not at risk. This plan would not have raped taxpayers to the tune of $30 billion dollars --- the loss on GM equity plus the loss from Obama inexpliclably giving GM a 48 billion carryforward tax loss. In addition, GM would have emerged stronger in the long run to battle against other car companies.

  • Report this Comment On May 01, 2013, at 5:49 AM, TMFCop wrote:

    I'd also add that the only way GM was able to "repay" the loan to the government only if you use fuzzy math.

    The $50 billion given to Gov't Motors wasn't all loan, actually only about $7 billion was actually considered a loan, and that's what GM paid back when it was running all those ads touting it having done so.

    But part of the government's aid to GM was in the form of a "working capital" escrow account while it went through bankruptcy. The account had about $14 billion put into it. <i>That's</i> the money GM used to pay back the loan. It was paying back government loans with money provided by the government itself.

    It then turned around and applied for a <i>new</i> $10 billion loan from the Dept. of Energy to meet the new CAFE standards EPA was imposing. So in essence all GM did really was refinance its debt (the DOE loan was at a cheaper interest rate than the original bailout loan) but it got to call its shenanigans a repayment of its debt. Woohoo! Modern government finance!

    Of course, as John has pointed out, when the government finally unloads the rest of its equity stake in GM it's going to do so at a massive loss to the taxpayer.

    Government bailouts are awesome!

    Rich

  • Report this Comment On May 01, 2013, at 5:57 AM, dbtheonly wrote:

    Just a quick question.

    Is there any requirement that the Govt. sell it's GM shares? Could the shares just be held (& voted 'no" on the Executive Compensation) for the foreseeable future?

  • Report this Comment On August 19, 2013, at 9:58 AM, retroarama wrote:

    Once upon a time when it came to cars, GM was king of the road and the American Dream was paved with Chevys. And when it came time for fighting for the American Dream no one contributed more to the war effort in WWII than general Motors, even producing a patriotic motivational film about its workers contributions.

    Although they had no new cars to sell, General Motors continued to publish a profusion of full color ads to let the public know how busy they were supplying essential war materials. To learn more and view this short film along with some of these vintage ads and visit

    http://envisioningtheamericandream.com/2013/08/19/gm-and-wwi...

  • Report this Comment On January 15, 2014, at 2:16 PM, runnemrand wrote:

    Forget GM. The entire bailout package (including banks etc.) has netted about 12 billion dollars. Treasury opted to take the loss with GM but overall realized a sizable profit. The entire process was a win-win for the American people and the economy.

  • Report this Comment On May 23, 2014, at 8:43 AM, pipeman wrote:

    going down again because they have BAD management and piss away money like OVOMIT and MOOOOO

Add your comment.

DocumentId: 2328621, ~/Articles/ArticleHandler.aspx, 7/25/2014 11:07:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement