Taxpayers Still on the Hook for General Motors' Bailout


General Motors HQ in Detroit. Photo Credit: General Motors.

Domestic automakers, the U.S. Treasury, and the American taxpayers continue to put distance between themselves and the darkest chapter in our automotive industry's history. The U.S. treasury reported a loss of $9.7 billion on General Motors (NYSE: GM  ) shares it's sold through Sept. 30, but there's two sides to the story.

Both sides of the story tend to get overlooked in articles that merely report the updated amount of Treasury losses from its investment in General Motors.

Ford (NYSE: F) managed to escape bankruptcy during the 2008 financial crisis, and ensuing crash of vehicle sales, by leveraging its namesake Blue Oval logo as collateral for more than $26 billion in private loans, which it has since paid back. But thanks to its deal with the government, General Motors was allowed to wipe tens of billions of debt off its balance sheet -- a significant competitive advantage.

In addition to removing debt from its books, the overall repayment situation is often misunderstood. Because General Motors only received a true loan worth $6.7 billion from the U.S. Treasury, that's all General Motors is obligated to pay back. The other portion of the $49.5 billion lifeline was traded for the Treasury's 61% stake in General Motors; as the Treasury sells its shares at a loss, the taxpayers are left on the hook. 

"Because the common stock sales have all taken place below the Treasury's break-even price, Treasury has so far booked a loss of $9.7 billion on the sales," a recent report to Congress noted.

It doesn't end there, however. Consider that the new General Motors corporation was "gifted" tax-loss carryforwards from the "Old GM." Those carry forwards essentially mean that it has been able to write off current profits and not pay the amount of taxes it should, until recently. 

For the taxpayers and the Treasury to break even, it would need shares of General Motors to skyrocket from $35 to roughly $148 -- which isn't going to happen. On the other side of the coin, there is a valid argument regarding the damage our economy might have suffered if General Motors and Chrysler were allowed to collapse.

While we're on track to lose over $10 billion on the investment in General Motors, that money helped save an estimated 1.4 million plant and supplier jobs in the automotive industry. To put that in perspective, that's roughly 16 times the number of employees that GM has in the United States. 

I refuse to defend how GM handled its bankruptcy to shareholders, taxpayers, and pension collectors. But the lifeline tossed by the government did more than save GM; it helped our nation as a whole during a dire time. 

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On October 29, 2013, at 6:13 PM, 321blastoff wrote:

    Soooooooo if I totally screw up a company then I can get the government to bail me out of difficulty?

    I doubt it. The article misleads by not comparing the cost of the bail out to the cost of a reorganization. If it is a viable business then let it reorganize and share holders take the hit. Crony capitalism at the worst.

  • Report this Comment On October 29, 2013, at 6:41 PM, jamesdan567 wrote:

    Generally Miserable had to run home to daddy in order to survive. Considering the economy in 08 and 09, it was the right move. You can bet that Generally Miserable will be allowed to fail in the next round.

  • Report this Comment On October 29, 2013, at 7:36 PM, pamcopete wrote:

    "While we're on track to lose over $10 billion on the investment in General Motors, that money helped save an estimated 1.4 million plant and supplier jobs in the automotive industry."

    Why is this argument always presented to defend the bailout of the auto industry? If GM and Chrysler had gone belly up, Ford, Toyota, Nissan, VW and the other companies would have simply expanded and hired an equivalent number of workers.

  • Report this Comment On October 30, 2013, at 6:01 AM, Hevrgo2409 wrote:

    FORD also borrowed money from the government under the ALTERNATIVE ENGERY PROGRAM. FORD used the money to endure the 2008 recession and has yet to pay back one dime.As for the buyback, the government does not have to sell its stock. Dividends are paid on GM stock while waiting for the price to rise. Another issue, don't forget all the federal taxes paid by the citizens who jobs were saved.when GM was baid out. And lastly, it was not tax payer money that was loaned, it was goverment tax money which would have never been given back. ENOUGH ALREADY!

  • Report this Comment On October 30, 2013, at 8:03 PM, Jason87467 wrote:
  • Report this Comment On November 01, 2013, at 8:20 AM, Jason87467 wrote:

    Why is the focus from the media always on GM? I don't work for GM, but I am an auto enthusiast. who notice the media bias. Ford got tons of money and has not paid a penny back. In fact Ford owes almost 16 billion dollars to the tax payers. Why not write something about that?

    http://jalopnik.com/5704575/ford-bmw-toyota-took-secret-gove...

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