Government Motors

GM recorded a 1.1 billion dollar profit last year and reduced losses in Europe despite a continued European recession. Car sales in Europe have sunk to their lowest levels since the 1990s so a reduced loss in Europe is a significant positive for GM. However, GM has still not lost the stigma of being “Government Motors” after receiving a 49.5 billion dollar bailout in 2009. For the last few years GM has earned billion dollar profits and much of the debt owed to the government has been paid back. However, because GM has paid back the government through a combination of cash and stock options the government has not collected the full $49.5 billion and is unlikely to unless GM stock increases its value substantially over the next few months. In fact analysts believe that tax payers may not even see $40 billion from GM since the stock value is much lower than expected. If GM fails to pay back all the money owed to the government can it escape the stigma of being “Government Motors”?

http://www.fool.com/investing/general/2013/05/11/when-will-gm-stop-being-government-motors.aspx

3 comments to Government Motors

  • asher

    GM has a lot to live up to considering how quickly Chrysler paid back its loans. Though the stigma may remain forever, I think that it is likely GM will eventually pay back the loans in full.

  • gjeong

    Here is an interesting article that is related to this post. It asks us a question, “Does GM still owe taxpayers?” What do you think? Its answer is “No and Yes.” Because GM has already satisfied the terms of the $49.5 billion bailout (with a mix of cash and stock,) it seems like GM paid off everything. However, the problem is that even all the stock is sold GM’s repayment will be short of that $49.5 billion due to its stock price. It depends on the price of GM’s stock. Unless it goes way up, it is likely to fall short of $49.5 billion. This is why GM still owes the taxpayers.
    http://www.fool.com/investing/general/2013/03/23/why-government-motors-still-owes-you.aspx

  • GM has paid back its loans. However, the government sold Chrysler to Fiat so did not maintain an equity stake; they found noone willing to purchase GM.

    Ironically, those on the right who complain loudest about “govt motors” are putting pressure on the administration to sell now rather than wait for GM to launch a slew of post-bankruptcy vehicles and (hopefully) see greater profits and a greater stock price. I’ve not checked the P/E ratio for GM shares to see whether they look like a reasonable buy.

    Second, these claims of $40 billion are not done on an opportunity cost basis. Had GM simply shut its doors, the government would have faced greater unemployment outlays and (particularly as multiple suppliers would also have closed their doors) lots of pensions for which we taxpayers would owe because they were insured by the Pension Benefit Guarantee Corporation. Then there are the property and income taxes paid by these firms and their employees. All that would pale beside the total collapse of domestic auto manufacturing, which would have added another 2 million in job losses (and lots of financial losses, car loans and dealer floorplans and supplier bonds and equities) at the depth of our economic collapse in 2009. Try to imagine the Detroit area if all of the headquarters closed, and not just the factories. Ditto Ohio, and Kentucky, and other states where car production is a major employer and source of tax revenues. Try to imagine fire sales of real estate and cars across the US with GM and Ford and Chrysler all gone, and Toyota and Honda dealers unable to get cars to sell and unable to match fire sale prices.

    So as (micro)economists would calculate things, we as taxpayers are already in the black.

Leave a Reply