On Thursday, November 21, the U.S. Department of the Treasury (“Treasury”) announced its third major sale of General Motors (“GM”) common stock since the 2009 bailout, this time unloading 70.2 million shares. The sale, part of Treasury’s pre-defined written trading plan, further reduced Treasury’s GM holdings to 31.1 million shares, or approximately 2.2 percent of GM’s outstanding shares.
Treasury further announced that it anticipates selling off its remaining shares by year-end, subject to continuing market conditions. The government will have realized a more than $10 billion loss on its $51 billion bailout of GM by the time the remaining shares are sold. Though the $10 billion loss is substantially lower than initial expectations, it is difficult to view a cost to taxpayers of such magnitude as a success.
If the goal of the bailout was return on investment for taxpayers, then the GM bailout was a clear failure. Even the overall Troubled Asset Relief Program (“TARP”), which includes the GM bailout, returned less than the rate of inflation on disbursements amounting to over $421.6 billion. Moreover, the lingering economy-wide problems from TARP’s moral hazard injection are still not fully understood.
On the other hand, GM has invested $8.8 billion in U.S. infrastructure and created more than 25 thousand jobs since 2009. A potentially deeper plummet could have created even greater costs for U.S. taxpayers. GM is back on its feet, and its shares have risen 30 percent since January.
Treasury’s exit also comes at an opportune time for GM, which has nearly $27 billion in cash on its balance sheet. As long as the government is a shareholder, TARP’s executive compensation restrictions apply. These restrictions have been hindering the company’s C-level recruiting efforts. Removing these and other restrictions, such as those on dividend payments, may enable GM to scale up.
Since Thursday’s news release, GM stock declined approximately 3 percent through the week’s end, until closing on Friday at $37.63 per share. During the same period, the Dow climbed more than 100 points.