Treasury To Sell GM Stake Within Fifteen Months

The Treasury Department said on December 19 that it planned to sell off its entire stake in General Motors within fifteen months, eliminating another reminder of the bailouts precipitated by the financial crash of 2008. The news comes a week after the Obama Administration completely sold off its entire stake in the American International Group, one of the most controversial rescues of the market crisis.

According to plan, the Treasury Department will sell a little less than half of its stake, or 200 million shares, back to General Motors for $5.5 billion by year end. The purchase price of $27.50 is about eight percent higher than the car maker’s closing price on December 18.

The Treasury Department will then sell its remaining 300.1 million shares within the next year to fifteen months, depending on market conditions. Those sales could be through stock offerings or other means.

The Obama Administration has moved quickly in the past few months to unwind some of the most contentious bailouts struck in recent years. It stepped in and helped rescue both GM and Chrysler in the middle of 2009, as the two American car makers struggled to survive amid the economic downturn. Hoping to forestall a liquidation that the government said would affect more than one million jobs, the Treasury Department provided financing to the two car makers and to Ally Financial, GM’s former financing arm. Ultimately, the administration invested about $49.5 billion in GM, helping guide the company through a relatively quick Chapter 11 filing that shed an enormous amount of its debt load. It re-emerged as a public company in late 2010.

The Administration and GM have repeatedly emphasized the need to restoring the company as a fully private enterprise, worried that the taxpayer-financed bailout might hurt its ability to compete in the market place. Indeed, GM initially garnered the nickname "Government Motors" after word of its impending bailout emerged.

The Treasury Department has already divested its stake in Chrysler, selling it in 2011 to Fiat, the Italian car maker that had been a crucial ally during the American company’s bankruptcy.

The government still owns about 74 percent of Ally, though it has recovered about $5.9 billion of its investment in the lender. Unlike the AIG rescue, however, the government’s wind-down of its GM bailout is expected to lose money. The Treasury Department’s break-even pricepoint is generally estimated at about $53 a share, following the car maker’s IPO.

But the Treasury Department has long argued that the auto makers’ bailout was always expected to be unprofitable, offset by both the AIG rescue and the bank recapitalization program.

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