Taxpayers lose billions on GM bailout

 Fri, 11/01/2013

President Barack Obama staked his re-election bid partly on the notion that he rescued struggling automakers through expensive bailouts and, thus, saved Detroit. But what was one of America’s great cities has plunged into bankruptcy and taxpayers have been left on the hook for billions of dollars as the federal government seeks to unload its stake in General Motors (GM).

The Treasury Department has quietly revealed this week that taxpayers lost $9.7 billion in the Obama Administration’s bailout of GM, which was more of a bailout for the auto manufacturer’s labor unions that support President Obama than anything else:

The U.S. Treasury has booked a $9.7 billion loss on its $49.5 billion bailout of General Motors Co. on the sale of nearly all of its shares it received as part of its $49.5 billion bailout.

In a quarterly report to Congress Tuesday, the Special Inspector General overseeing the $700 billion Troubled Asset Relief Program bailout fund disclosed that the Treasury had realized a significant loss on its sale of most of its 60.8 percent stake in GM. Through Sept. 30, Treasury sold 811 million shares of the 912 million shares it received in the automaker as part of its 2009 bankruptcy restructuring.

The taxpayers’ ownership stake in the Detroit-based automaker — swapped for more than $40 billion in loans, was initially 60.8 percent, but is now down to about 7 percent, the Treasury said. “Because the common stock sales have all taken place below Treasury’s break even price, Treasury has so far booked a loss of $9.7 billion on the sales,” the report said.

Treasury would need to get $147.95 on its remaining shares to break even. That’s not going to happen: GM’s stock closed Wednesday at $35.80, up $0.21, or 1 percent. At current trading prices, the government’s remaining stake is worth about $3.6 billion. At current stock prices, taxpayers would lose about $10 billion on the bailout when all the stock is unloaded.

Taxpayers also took a $1.9 billion loss on the Chrysler bailout, which was orchestrated by both the Bush and Obama administrations, despite the latter’s claims that that particular automaker paid its debt back in full.

What’s more, the bailouts of these two automakers — GM and Chrysler — ignored some of the fundamental problems with their business models. Had the companies been forced to file for bankruptcy, it wouldn’t have been the nightmarish scenario that President Obama predicted. They would have been forced to restructure, and unions would have had to renegotiate their costly contracts, as Randal O’Toole explained last year. That wasn’t an outcome President Obama or labor unions desired.

The long-term problems with the automakers’ bailout, much like the Wall Street bailout, is that these companies now know that they all they need to do is go back to Washington for more money when they are faced with financial turmoil.

Mitt Romney wasn’t the best candidate in the world and he held many disagreeable positions, but he was right. Automakers should have gone through bankruptcy. Taxpayers would have come out in a much better position, rather than being on the hook for constituency heavily favored by President Obama.

http://www.unitedliberty.org/articles/15481-taxpayers-lose-billions-on-gm-bailout