It’s Almost Over, Though It’s Never Really Over, as GM Buys Treasury Shares

To free-marketers and Republicans, it will be $12 billion forever lost to a failed American automaker. To Democrats and President Obama, it was a necessary move, a last-ditch attempt not just to save the American auto industry, but perhaps to save American industry, and what’s left of the labor movement, in general.

I have been in favor of the federal government’s bailout of General Motors and Chrysler since it was a straight bailout, since President Bush gave the two automakers Troubled Asset Relief Program (TARP) money to keep them alive. In the interest of full disclosure, let me admit I have skin in the game.

I’ve never liked the idea of “corporate welfare,” despite what readers of my old op/ed/blog might think. But when the private sector can’t, or won’t, spend money on anything, including debtor-in-possession (DIP) financing to big, old iconic companies that actually make useful things, the Keynesian in me wants government to step in.

There should be no doubt that if GM and Chrysler had been allowed to go bankrupt with no DIP, the two would have brought down the U.S. tier one supply chain with it, followed closely by Ford Motor Company (which took about $8 billion in Energy department low emissions powertrain development loans instead), and then very likely foreign-owned car factories dependent on the suppliers.

If car magazines, websites and other associated media had survived past these, they would be next. There would be no reason to stay in Detroit, but no way to leave.

Three-and-a-half years later, Obama has won re-election on the strength of “Bin Laden is dead and GM is alive.” Chrysler has paid off its 2009 loans – there was no obligation to pay back the TARP money that came from the Bush administration.

The Feds will lose an estimated $12 billion out of the $49.5 billion that it gave to rescue GM, though. On Wednesday, GM announced it would buy back 200 million shares of the 500 million shares the Treasury – we – own.

GM will pay a premium to buy back, and hold the Treasury’s first 200 million, at $27.50 per share. The federal divestiture of GM stock was long expected, and by the New York Stock Exchange’s close Wednesday night, the automaker’s common stock was trading at $27.18 per share, up from $25.08 last Friday morning. GM’s 2010 Initial Public Offering listed common stock at $35 per share, and by the end of 2011, it was trading for less than $20.

Meanwhile, Wall Street is getting pretty bullish on GM. The deal with Treasury came about after a few weeks of quick discussions following the November presidential election. Treasury rejected GM’s first offer, to buy back the 200 million shares at face value.

“GM is paying $400-million more than they have to,” one source told me. The automaker’s liquidity, thanks to that quick and orderly bankruptcy the Obama administration forced in exchange for the bailout, is good enough to make the buyback without hurting the company’s credit rating.

Over the next 15 months, Treasury will slowly sell off its remaining 300 million shares, probably at a higher price than $27.50 per share. My source says GM has a pretty good chance to get re-listed on Standard & Poor’s 500 Index, which means it would be open to investors who trade the index. Even then, Treasury will be lucky to sell the remaining 300 million shares at half the $70 per share price it would take to recoup all our taxpayer money.

The Treasury sale will happen slowly so there’s no dump of GM common that could dilute its value.

With the 200-million share buyback, which GM will complete by the end of 2012, the automaker will be able to buy or lease its own corporate jets again, though it won’t have unlimited salaries, which CEO Dan Akerson says is necessary to attract the talent it needs.

Akerson says GM’s financial results “show that we are changing the company so we never go down that path again.”

Has GM, really? The company’s long, slow decline began with Roger Smith’s mismanagement and culminated in Rick Wagoner’s. I can only hope GM’s corporate culture would replace a future Smith or Wagoner before finances slide that much, again.

Hint: Let some car guys and women take over.

Now, well into the third year of New GM going public, the last of the delayed products are getting ready to launch. So far, it has been a mixed bag, with the Cadillac ATS proving to be a valid competitor for the BMW 3 Series, but with the 2013 Chevy Malibu falling short in a cutthroat segment.

I count the Chevrolet Volt as a success because it encompasses useful advanced technology that will only improve and get less costly to produce over time. I’ll say this one more time for those who refuse to believe that it’s anything beside a government-mandated result of the Obama administration bailout: the Volt concept first appeared at the Detroit auto show in January 2007. It was Bob Lutz’s follow-up to the GM EV-1 that itself was the result of a California electric car mandate.

GM brass will tell journalists quietly, privately, that it’s the next round of products that count. They always say that. Wall Street has never been taken with the cost structures of any automakers, and Akerson certainly will keep a lid on development costs over the next 15 months. But the car guys (and women) at GM know what they need, including two-door and wagon versions of the ATS for Cadillac’s European initiative, a better and more competitive Malibu, a new and fully redesigned four-cylinder line, some truly premium Opel/Vauxhalls and a rear-wheel-drive Buick flagship. If you really want to make us feel better about our money-losing investment, Mr. Akerson, you can start with these demands.

Mark Abramovich 1 Like
So after stakeholders like myself where dismissed without any compensation for our investment in the OLD GM (and yes I know it was risk taking on my part, and done with my eyes wide open)...the UAW was made whole with the structured/controlled 313 bankruptcy.....taxpayers took a 12 BILLION dollar haircut on our investment in DIP funding.....now we can all relax and celebrate because the NEW GM can but corporate aircraft again!Sounds like GM is more focused on the trappings on being a big company that cares first for it's executives and not as focused on building class leading vehicles until the next round....sounds like they are putting their cart before our horse!
Let the flaming begin!

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