Why GM Still Owes Taxpayers

GM headquarters in Detroit. Photo credit: General Motors.

"When will GM finally pay us back?"

It's a question I hear a lot from readers who are concerned about the effects of GM's 2009 bailout.

Many are surprised to hear that General Motors (NYSE: GM  ) already has paid back its bailout loans from the U.S. government.

GM has completely satisfied the terms of the deals it made with the U.S. Treasury back in 2009. There's nothing left for GM to do. But that doesn't mean that taxpayers have been paid back.

In fact, they haven't -- and they might not ever be paid in full. Here's why.

GM has done its share, but taxpayers are still in the hole
GM received a total of $49.5 billion from the U.S. government as part of its "bailout." That money funded GM's high-speed bankruptcy proceeding and allowed the company to get back on its feet once it had exited bankruptcy in mid-2009.

That $49.5 billion was a loan, and under the terms of that loan, GM agreed to pay it back with a mix of cash and stock – stock in the "new GM" that was created during the bankruptcy proceeding and given to the government at that time.

GM has complied with those terms. In fact, the company repaid its debt years ahead of schedule. But as you'll see in a minute, there's a problem: GM's stock price isn't high enough to repay the full $49.5 billion.

That means that the U.S. Treasury, which is in the process of selling off its remaining GM stock holdings, is going to come up short once all of those sales are completed. How short? Read on.

A breakdown of GM's repayment to date
Of that $49.5 billion that was lent to GM, the U.S. Treasury has so far recovered about $35.4 billion. Here's how it breaks down:

  • GM paid back $6.7 billion in cash, the last of which was paid in April 2010. That was when then-CEO Ed Whitacre declared in TV ads that GM's debt had been "paid in full." (I bet he wishes now that he hadn't said that.)
  • $13 billion via GM's IPO, back in 2010. GM didn't actually get any money from its own IPO – it was done primarily in order to let the government sell off part of its holdings. The Treasury Department sold about 45% of its total GM stock holdings in the IPO.
  • The U.S. received another $2.1 billion when GM bought back some preferred stock from the Treasury in late 2010.
  • The U.S. got another $5.5 billion when GM bought back 200 million shares of its stock from the Treasury last December. At the time, GM and the Treasury agreed that Treasury would sell its remaining holdings gradually, on the open market.
  • Treasury has received about $8.1 billion from its sales of GM stock on the open market since the beginning of 2013.

That leaves about $14.1 billion of the $49.5 billion loan still unpaid, and the Treasury Department with about 113 million shares of GM stock left to sell.

To break even, Treasury would have to get about $125 per share for its remaining shares. But GM's stock is currently trading around $36. At current prices, the Treasury's remaining stock is worth a little over $4 billion.

You see the problem.

When all is said and done, we'll be out about $10 billion
Unless GM's share price suddenly takes off in a big way, Treasury is likely to come up about $10 billion short once it sells off its remaining GM stock.

What happens then?

Legally speaking, nothing has to happen. As I said, GM already satisfied the terms of the deal.

Now, we could argue that GM might have a moral obligation to make taxpayers whole. GM does have a lot of cash on hand, as a reserve against the next big recession.

Of course, as an investor, I need to point out that holding a big cash hoard is a smart move by GM's new management. Handing a big chunk of it over to the government isn't really a prudent idea from the perspective of keeping GM's finances strong.

On the other hand, we could argue that a deal is a deal, and GM lived up to its end. We might also argue that the $10 billion "investment" by the U.S. government got a good return in other ways, by saving tens of thousands of American jobs, and the American economy is better off when GM and its Detroit rivals are healthy and profitable.

What do you think? Is GM obliged to do something here? Scroll down to leave a comment and let me know.


Read/Post Comments (16) | Recommend This Article (6)

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 September 15, 2013, at 6:15 PM, reality150 wrote:

    which is the govt fault for trying to play stocks? lol

  • Report this Comment On September 15, 2013, at 6:32 PM, rpb1234 wrote:

    " We might also argue that the $10 billion "investment" by the U.S. government got a good return in other ways, by saving tens of thousands of American jobs, and the American economy is better off when GM and its Detroit rivals are healthy and profitable."

    We don't need to argue this fact we merely need to reference the excellent economic study done by the Center for Automotive Research almost 3 years ago. (here is the link - http://www.cargroup.org/?module=Publications&event=View&... They look at the cost and return of the entire bailout (GM, Chrysler, GMAC, Chrysler Financial) and the total cost to the government of the Chapter 7 liquidations many believe should have taken place. In the 2010 study they updated the findings from an earlier Nov. 2008 study. The government avoided a $28.6B loss over 2009 and 2010. This loss stems from the fact the shutdown of GM and Chrysler would have taken down the entire North American auto supply chain for 12-18 months. All suppliers of any significant size supply all automakers with GM & Chrysler business typically at least 25%. These suppliers are also paid 60-90 days after delivery. Nobody could survive not getting paid on 25% of your business in any given month. CAR estimated it would taken 2 years for the industry to re-establish a functioning supply base and the remaining automakers to begin to reliably produce vehicles (always remember you need all 10,000 parts installed to ship a car, you can't ship one with most of the parts). Additionally, all GM & Chrysler dealers would have closed. This would result in dramatically higher transfer payments (unemployment, etc.) along with a decrease in Social Security and Personal Income Tax payments. This is where the $28.6B figure comes from.

    In summary, accounting for the $26.8B in net public benefit from the bailout the return required to breakeven on the entire $80B initial investment is $51.4B. Treasury's Daily Tarp Report for 9/13/13 shows the total repayments to date at $45.62B which leaves $5.78 remaining. If Treasury gets $4B for their GM stock that puts the outstanding balance at $1.78B. GMAC, now known as Ally Bank, owes $13.75B which puts the program in the black when they either payoff the debt or go public.

    Lastly, the government's actions avoided personal income losses totaling over $96B, 1.1MM net job losses in 2009, and another 314,400 in 2010.

  • Report this Comment On September 15, 2013, at 6:36 PM, biff1966 wrote:

    This is Obamas fault, the Government could have simply loaned the money to GM like it did with Chrysler at the end of the 70's and GM would have been obligated to pay it back as Chrysler did back then. However Obama insisted that the the Government be shareholders in the company and that his auto czar have a say in how the company was run. Nobody could forsee what the new GM stock would be worth after the IPO, leaving the Government open to losses. This is what happens when you play the market, you can get rich or you can get screwed.

  • Report this Comment On September 15, 2013, at 7:22 PM, NoGovtMotors wrote:

    Don't forget the $45.4 billion that taxpayers are out due to a special TARP provision.

    Ref. http://online.wsj.com/article/SB1000142405274870446270457559...

  • Report this Comment On September 15, 2013, at 7:43 PM, bcweir wrote:

    @Biff1966: You're forgetting an important fact:

    Some partisans on the right might forget that the TARP program was born under President George W. Bush and signed into law on Oct. 3, 2008 — a month before voters even went to the ballot box and more than two months before Barack Obama’s inauguration.

    How can Obama sign something into law when he hasn't even been ELECTED president, let alone inaugurated.

    Stop letting Fox News and the GOP do your thinking for you.

  • Report this Comment On September 15, 2013, at 8:06 PM, lem2004 wrote:

    It is time to let all of this go.What did happen and what could have happened is not known. what is known is we have US auto makers in business making money putting US people to work ,paying taxes,and keeping our economy going.

  • Report this Comment On September 15, 2013, at 8:18 PM, Mega wrote:

    Finance is already confusing for people who don't understand the difference between debt and equity. And click bait articles like this certainly don't make it easier for them.

  • Report this Comment On September 15, 2013, at 10:28 PM, FREDMACK99 wrote:

    rpb1234::The only thing the taxpayer bailed out was union pensions.GM got another gift ,under the table from Govt from QE1,and used that money to pay back the first loan.That's why they said they paid back their TARP loan. Its pure fraud,and GM will be in the same situation down the road.GM should have been able to go bankrupt,and get out from under it's insane pensions.

  • Report this Comment On September 15, 2013, at 10:30 PM, sciencedave wrote:

    The reality is that the government stepped into the private sector to make adjustments. This is not good for the future of the country and made this all too expected to occur again. "Too big to fail" cannot apply to every industry in the country or we will have a broken dictatorship eventually bailing out only the politically favorable industries.

  • Report this Comment On September 15, 2013, at 11:44 PM, SkepikI wrote:

    <What did happen and what could have happened is not known. what is known is we have US auto makers in business making money putting US people to work ,paying taxes,and keeping our economy going.>

    No doubt. And the rest of us serfs can keep working for the UAW and Government Motors so the next time we can be equally well screwed in the second act. Just like Chrysler.

    Like many of the rest of you who are NOT UAW or GM cronies, I will hold a grudge against GM for the remainder of my life. It will take a FULL payback plus some interest before GM gets back to an even keel in my book.

    AND JR- this has to be one of your best articles in months. real facts, little glitz, let the chips fall where they may, plus an invite to offer up opinions freely. This is a great way to gauge sentiment on GM grudges. Something I am quite sure GM and Treasury management ought to follow, but wont.

  • Report this Comment On September 15, 2013, at 11:46 PM, quasimodo007 wrote:

    these are the anti Unions Evil GOP Congress well Protected mafia style Privilege Crooks of wall street.

  • Report this Comment On September 16, 2013, at 12:27 PM, tonyag wrote:

    Typical of the Obama smoke and mirror . . . economy . . . which I could run my bank account this way.

  • Report this Comment On September 16, 2013, at 12:59 PM, damilkman wrote:

    I was pissed because I had invested in Ford thinking that GM was going to go down. Instead my Ford stock is depressed because the Federal Governement decided to invervene and not let bad companies go under.

    Short term big buisness failures cause chaos. But they work themselves out and the survivors thrive. When the government intervenes that is when you have problems.

  • Report this Comment On September 16, 2013, at 1:21 PM, yesiamunion wrote:

    I know there are a lot of hard feelings towards the government, both in actions instituted by George Bush and Barack Obama, Girsky, Rattner, et al. I know there are hard feelings towards GM, and I know there is the never-ending hatred towards the UAW, which has provided advocacy for a better life for hundreds of thousands of production workers and retirees. I see the comments above and I do take them to heart. Yes, as a GM/ UAW retiree, in a GM town in the Midwest, I am prejudiced and certainly benefitted from all of the machinations of the bailout/ bankruptcy proceedings. But one thing everyone should know, no matter how much they despise my company and my union, and me by implication, is that I played by the rules for over thirty years, and so did many members of my family, both on the union side and on the management side. We went to work, produced the best products we could given the tools and technology we had at the time. We made a lot of money, and unlike the businessmen of today who are sitting on a cash hoard of over $2 trillion dollars on Wall Street and overseas accounts, we re-invested, i.e. spent, the wages and benefits we made, and that made life better for everyone in our communities. As a retiree, I still spend my pension money in my community. So for all of the GM/ UAW/ bailout haters above, please consider your thoughts; if you would have wiped us out back in 2009/ 2010, please again consider that we autoworkers were not just numbers on a balance sheet, but living, breathing human beings with families that had to be supported, one way or the other. We were the reasons that thousands of small businesspersons were able to thrive in our communities, that the United Way prospered, that education was well-financed in our communities, and that good healthcare was available and affordable. You'll note that a lot of the issues that are so on-the-radar now, such as education and healthcare, were certainly less of an issue when average middle-class people had good pay and benefits, and when investing in 401k accounts was a luxury and not mandatory. Perhaps, just perhaps, those of you that hate the auto companies so, should look at that historical fact, and direct some of your bile towards those corporations that are sitting on massive piles of money right now, not re-investing in Main Street, not investing in human capital, but rather hoarding their riches and only investing in the financial world represented by Wall Street's investment banks. If the average CEO indeed makes 270 times what his highest paid production employee makes, then why all of the concern for wages on the low end of the scale, and why the concern should the Treasury indeed end up losing $10 billion on the GM deal? Indeed, $10 billion, if you figure there are about 170 million taxpayers, figures out to about $60 for every taxpayer, which, I'm sure, is not entirely accurate, and certainly fault can be found with, but still, the idea is there that saving GM, suppliers, small businesses associated, and cities of GM, was not the bad deal that so many seem to think it was.

  • Report this Comment On September 16, 2013, at 3:12 PM, AmericanFirst wrote:

    Many of you should be embarrassed of your lack of knowledge of how GM has been incredibly advantaged by the gov........the facts:

    GM has received at a minimum of $100B, consisting of bailout funding ($50B), tax benefits ($45B), future interest expense due to the bondholders ($B's), plus the bond principle of $30B of which bondholders were fleeced.

    All of the above for approx. $6.7B "out of pocket" (GM repurchase of C/S, T/S). Even the $6.7B, Whitaker claimed GM paid back, came from another TARP Escrow Fund.

    It's laughable how many of you have attempted to defend the GM Bailout with speculation and ridiculous assumptions............you simply don't have the facts. Many of you must be GM employees, investors, liberal Democrats, UAW members trying to defend the undefensible. See the below link.

    http://gaanderson.hubpages.com/hub/Obama-General-Motors-GM-T...

  • Report this Comment On September 17, 2013, at 11:54 AM, TMFMarlowe wrote:

    @damilkman: I invested in Ford in March of 2009 and have made a rather large profit, enough to fund a few years of my retirement. The stock is up over 31% this year alone. I'm not sure why you think "Ford stock is depressed" because GM was saved... if GM had gone bust, it could have taken a lot of the Tier 1 suppliers with it, and Ford North America (and Ford stock) would have been in deep, deep trouble. That's why Alan Mulally went to Congress and argued in favor of the bailout for his company's archrivals.

    To the extent that Ford stock is "depressed", it's because Europe and Asia are still works in progress. Give 'em a couple of years.

    John Rosevear

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2638189, ~/Articles/ArticleHandler.aspx, 10/22/2014 5:45:44 AM

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