Treasury Admits What Everybody Already Knew: Taxpayer Losses On GM Bailout Are Going to be Massive

Am I allowed to say, I told you so?

The Treasury Department yesterday revised its loss estimate for the Government Motors bailout from $14.33 billion to $23.6 billion, thanks to the company’s sinking stock price. GM’s Sept. 30 closing price, on which the new estimate is based, was $20.18, about $13 less than its December IPO price and $35 less than what is needed for taxpayers to break even.

The $23.6 billion represents a 25 percent loss on the feds $60 billion direct “investment” in GM. But that’s not all that taxpayers are on the hook for. As I explained previously, Uncle Sam’s special GM bankruptcy package allowed the company to write off $45 billion in previous losses going forward. This could work out to as much as $15 billion in tax savings that GM wouldn’t have had had it gone through a normal bankruptcy. Why? Because after bankruptcy, the tax liabilities of companies increase since they have no more losses to write off.

This means that the total hit to taxpayers, who still own about a quarter of the company, could add up to $38.6 billion. That’s even more that the $34 billion on the outside I had predicted in May.

Although GM will never, ever make taxpayers whole, taxpayer losses could be mitigated if GM’s stock price rises before the Treasury sells its remaining equity, something it was supposed to do by year-end but has postponed under the circumstances. But right now at least the prospects of a serious upward move in GM’s stock don’t look too good for reasons at least partly beyond GM’s control.

GM actually has been doing quite well in North America and China with profit margins of 10 percent, among the best in the industry. How long that will last is an open question. That’s because GM’s new competitors are not Toyota and Honda that share its cost structure but Hyndai and Kia that have a far leaner one. These companies concentrate on the small car market and don’t offer a full product line so GM and Ford’s most profitable vehicles—those evil, gas-guzzling, greenhouse-gas emitting SUV’s and pickup trucks—are somewhat insulated from the downward price pressure. But the greens and Obama administration want GM to reorient its product mix away from big cars and toward money-losing hybrids and electrics, something that could well put GM back in a hole.

But that’s part of the administration’s long-term strategy for ruining GM. The company’s big weak spot right now is Europe for two reasons: One, thanks to political pressure and labor resistance, it hasn’t been able to address its bloated cost structure there. Two, Europe’s economy is imploding, weakening car sales.

All of this shows why forcing taxpayers to wager their hard-earned dollars on a risky venture was exactly the wrong thing to do. But the Ostrich-in-Chief Barack Obama, who had assured taxpayers that their GM "investment" would cost them "not a dime," is drawing the opposite lesson, obviously. He has been trumpeting the success of the bailout—repeatedly. He was in Michigan recently claiming that the “investment had paid off.” What’s more, he declared, that now that GM is back, it is just a matter of time before Detroit is too:

“[D]espite all the work that lies ahead, this is a city where a great American industry is coming back to life and the industries of tomorrow are taking root, and a city where people are dreaming up ways to prove all the skeptics wrong and write the next proud chapter in the Motor City's history."

But the “next, proud chapter in Motor City’s history” actually is likely to be bankruptcy. That’s because Detroit is facing a $209 million budget deficit and is going to be completely out of operating cash by April.

Here is a very helpful piece by Detroit Free Press’ editorial page editor, Stephen Henderson, explaining in gory but accurate detail just what a mess the city is in. Perhaps President Obama can glance at it before he returns here and spins some more fairytales?

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  • ||

    Shocked, I am.

    But you can't put a dollar value on those MILLIONS of jobs which would have been destroyed by the complete and utter destruction of the automobile manufacturing industry in America!

  • ||

    Billions of jobs.

  • Carl Sagan's ghost||

    Billions and billions of jobs.

  • ||

    Dumb conservatives and libertarians - always underplaying the accomplishments of the Democrats... probably due to racism.

    It was easily into the TRILLIONS of jobs saved. ;o)

  • Private Idaho||

    This can't be right. I heard on NPR this morning that both GM and Chrysler are "thriving."

  • ||

    Trillions of jobs, green jobs at that. GM and Chrysler "thriving" doesn't support their share price.

  • ||

    For the record, if y'all will go ahead and send me a check for billions (and I wouldn't even need as many B's as GM), and I, too, will "thrive" for a period of time.

  • Joe M||

    Am I allowed to say, I told you so?

    Only if you tell us who you are.

  • ||

    a city where people are dreaming up ways to prove all the skeptics wrong

    Are there actually people out there who are skeptical about Detroit burning to the ground by 2020?

  • ||

    I would ask if there is anyone who would care?

  • teh rael o3||

    "But the “next, proud chapter in Motor City’s history” actually is likely to be bankruptcy."
    _

    this should please romney...mitt not george.

  • Doctor Whom||

    1. Watch the big three make stupid mistakes.

    2. Use the power of government to insulate the big three from the consequences of said mistakes, at the expense of taxpayers, car buyers, or ideally both.

    3. Lather, rinse, repeat.

    4. Wonder why nothing changes.

  • Concerned Citizen||

    The correct term is the Last Three, not the Big Three.

    Sincerely, Studebaker, Nash, AMC, and the hundreds of others who were allowed to fail.

  • ||

    Ford didn't take any bailout money.

  • ||

    They took over 23 billion.

  • ||

    Hey Pips, get it right.

    Ford asked for a credit line of $9 billion in case the economy got worse, but they never drew down on it.
    Ford accepted $5.9 billion in loans to re-tool it's lines to make more fuel efficient cars - money also offered to all the other car makers. Ford took $0 in bailout money.
    factcheck.org - try it Pips

  • Almanian||

    What Keith said

  • Guy Montag||

    Did Weigel, Klein and Krugman know this? Noooo!

  • joe||

    You really hate anybody smarter than you.

  • Almanian||

    What does that have to do with Weigel, Klein and Krugnuts?

  • ChrisO||

    It's always about the product. Prior to the recession and bailout, the only competitive products GM made were trucks. And nothing has changed since then. Their passenger cars are still crap.

    Ford has come back by building a number of vehicles that are competitive with Toyota and Honda. And by not sinking billions into a worthless electric car no one wants.

  • ChrisO||

    I should add that one lesson is that the bailout allowed GM to continue its failed practices. Ford chose to confront its problems head-on.

    I'm sure this same lesson applies to the banking business. Rewarding failure produces only more failure.

  • Welfare mother||

    "Rewarding failure produces only more failure."

    You should see the size of my new flat screen! It might be hot, but it's mines.

  • Welfare mother's son||

    But Ma, the other kids have a bigger screen!!

  • ||

    My wife had a GM minivan until recently. Utter pile of junk. Was in for warranty repairs all the time. We dumped it before it got worse.

  • ||

    I'm surprised that GM hasn't joined the Stupefy movement yet.

  • ||

    The other day, the CFO of GM was being interviewed; he was asked if the government stake was a drag on the share value. He claimed to believe such a thing was preposterous.

  • ||

    Right, because investors really, really want to have Uncle Sam as a business partner. I tell ya, the people who bought GM stock at $30/share are complete idiots. The company is not investable, period.

  • mad libertarian guy||

    This is likely seen as a positive result by many.

  • mustard||

    You don't own stock just for the selling price, you own it for the dividends too. Investing 101, duh.

  • ||

    Does GM stock pay a dividend?

  • ||

    GM pays no dividend.

  • mustard||

    Well that's something we have to change. Corporations shouldn't be allowed to hoard their profits.

  • ||

    GM's management and the unions will soon take care of that problem by eliminating the profits altogether.

  • ||

    Uncle Sugar knows what's best for your profits anyway: investment in new bridges, electric cars, and edumacation.

  • ||

    You pay taxes on Evil Profits either way. If you pay out dividends, those monies are taxed twice. It is expensive to pay dividends, and that is a shame.

    Seriously, why own a share of, say, Google? It doesn't pay me anything. If I wander on Google's campus with my share they still kick me out. Don't get an edge applying for a job there with my share, don't get an insider track on Google products. They didn't ask me anything at the last board meeting.

    Matter of fact, I get nothing for my 'share' of Google other than hope some sucker will give me more money for the useless asswipe later, because Google itself will never pay me a dime. Does anyone ever wonder if people are going to wake up tomorrow and go 'Hey, this is STUPID!'

  • Gov't||

    But do you really need the money?

  • ||

    Is that a joke? A corporation should not be allowed to hoard their profits? It's THEIR profits! Alright, with GM it was OUR money but that isn't the case with every corporation out there? Let me guess, the government should take their profits and share it with the rest of the country who in no way deserve any of it?

  • sevo||

    "Is that a joke?"
    Hard tellin'. There are some real ignoramuses who post here, and that might be one.

  • JohnD||

    So much for Libertarian beliefs....

  • ||

    GM:

    "we're in ur treasury, occupyin ur loot"

  • ||

    +100 for the lolcat reference

  • voters||

    Central Planning Has Failed.

    "Long Live Central Planning!"

  • ||

    Down with compassionate conservatism!

    Up with compassionate fascism!

  • Brett L||

    I think we should definitely expand the US government investment program. They pick losers, so their choosing to invest in something is information useful to people who want to avoid losers.

  • ||

    audible snigger

  • ||

    Any word on if Ford has paid back any of its 23 billion in bail out loans? I know Chrysler has paid off their 9 billion in bailouts, but haven't heard about the others.

  • PR||

    wake me up when you learn the difference between a bank loan to a creditworthy borrower and a taxpayer funded bailout to companies that defaulted on their debts.

  • ||

    You're in for a long nap.

  • ||

    if they did like GM they to taxpayer money moved it around and gave it back. So did they pay the loan back NO

  • ||

    Isn't it even higher because all of the bondholders who had to write off their bonds now had that amount deducted from their taxes? So it's not just GM taxes lost, but taxes on all the bonds that were owed.

  • ||

    Also I find this hilarious, it's exactly what humans do with their personal money: sell their winners and hold onto their losers:
    before the Treasury sells its remaining equity, something it was supposed to do by year-end but has postponed under the circumstances.

  • Paul||

    The Treasury Department yesterday revised its loss estimate for the Government Motors bailout from $14.33 billion to $23.6 billion, thanks to the company’s sinking stock price. GM’s Sept. 30 closing price, on which the new estimate is based, was $20.18, about $13 less than its December IPO price and $35 less than what is needed for taxpayers to break even.

    See? Capitalism doesn't work!

  • Paul||

    But the greens and Obama administration want GM to reorient its product mix away from big cars and toward money-losing hybrids and electrics, something that could well put GM back in a hole.

    This is the one policy of the Obama administration that I hope gets rammed through with zero opposition. I want Obama to micromanage this company, pick its product line and stay on top of every corporate decision made. Because I know what the outcome will be, and I'm praying for massive failure.

  • ||

    since Owe-bama took the assets and illegally gave them to the UNION THUGS, instead of allowing a re-structure of the auto industry (which would have limited the unions involvement)hardly any big business has invested in anything in this country since. Blame Owe-bamas policies.

  • ||

    Snarky article, Shikha. "The administration’s long-term strategy for ruining GM"? "Ostrich-in-Chief"?

    I like facts and I like analysis, but when the piece is littered with snarky comments, the facts and analysis seem less credible. Too bad, I used to like Shikha's writing, but lately I've found her articles more annoying than illuminating.

  • Gov't||

    I agree! We actually have a short-term strategy for ruining GM. Obama might not get reelected in 2012!

  • ||

    Detroit may be the only city in the United States that might be better off if "occupy" movement showed up. I seriously doubt that the GM bailout had any significant benefit for the citizens of Michigan.

  • ||

    Wow...SUPERLATIVE piece!

  • Mark West||

    Figures... Buy Ford for not taking money... Like GE's $0 American tax bill http://occupyamericamovement.c.....s-tax-bill

  • ||

    Gee, more tax payer money down the drain and more social security and other programs that have to be cut. Look like Obama is the entitlements programs worst enemy!

  • Tom Johnson||

    The Band of Thieves
    17 Nov 2011
    Folks,
    It is now clear to the American Right and to the American Independents that the Obama Administration is “The Band of Thieves”.
    The Band of Thieves is attempting to loot (redistribute) as much of the US Treasury as they can before these Marxists are voted out of office in the 2012 US General Election.
    The list of Left-wing thievery (redistribution/payoff/”investment”) is becoming quite large: Obama-Stimulus, Obama-Care, Obama-Solyndra, Obama-FannieMae/FreddieMac, Obama-Government Motors and even includes support groups and individuals: ACORN, Corzine/MF-Global, and Bernie Madoff.
    The US Debt just passed $15,000,000,000.
    Which will come first: US Debt of $16,000,000,000 or the 2012 US General Election?
    Respectfully,
    Tom Johnson
    opinionscribe.blogspot.com

  • ||

    "Which will come first: US Debt of $16,000,000,000 or the 2012 US General Election?"

    Sad to say, sir, the former will come first.

  • ||

    Everything the gov does costs a LOT, even when it sorta works as promised - which itself is rare! But when gov. fails - which is pretty common - it really costs a lot.

    "Saving" GM was only meant to save the UAW and the politicians they fund. Sad thing is they kept the same mindset in place at the top and the same stupid labor contracts in place at the bottom; in other words, nothing that put them in the red to start with has changed and that means a straight line back to the 'hands out' line.

    What SHOULD have happened was to let 'em go belly up. Then the contacts would have been irrelivant and the management would have been replaced so they could re-start with a viable business plan. But BO wanted to maintain the status quo AND have them focus on a 'green' car - which they did of course, and it's a bomb in the market. Practical green/electric auto technology is still decades in the future, if ever, no matter how much of our money dreamy eyed 'innerlecshul libbrul' politicians pour into that bottomless pit.

  • ||

    If you're going to criticize the administration for its failure with GM, you should at least mention their trying to sabotage Toyota with their fake scandal about "unintended acceleration". The administration and a complicit media tried to take down Toyota or diminish their sales (presumably to help GM) despite the fact that no defect existed and there was no evidence of a problem with Toyota. This failed, but it showed the lengths to which they're willing to go, and that these are certainly people who believe that the ends justify the means.

  • sevo||

    Nope.
    Presumption of conspiracy over idiocy. Audi 5000 got the same treatment for no other reason than MSM ignorance.

  • ||

    You'll have to wait awhile for your Volt. It ran out of juice being driven from the service area.....Uh...Check that....It's on fire.....

  • ||

    damn thing doesn't even suffer from INTENDED acceleration

  • occam||

    The Obama economic recover program simply stated was nothing less than transfer of hundreds of billions, maybe trillions, of borrowed tax payer dollars to political supporters(unions, public and private, corporate cronies, BS green companies, and big donors).

    This was a thinly veiled massive plundering of America.

  • ||

    Chicago....

  • mineral process equipment||

    "Saving" GM was only meant to save the UAW and the politicians they fund. Sad thing is they kept the same mindset in place at the top and the same stupid labor contracts in place at the bottom; in other words, nothing that put them in the red to start with has changed and that means a straight line back to the 'hands out' line.

  • ||

    The UAW better be paying attention because the American public will never stand for another bailout of an automaker. GM could be profitable for 1,000 years and still not recoup the money spent to "save" it.

  • ||

    you got that right!

  • ||

    Haven't seen those Ally Bank commercials in a while.

  • ||

    my best friend's mother-in-law makes $77 every hour on the computer. She has been without a job for 6 months but last month her check was $8815 just working on the computer for a few hours. Go to this web site clockurl.com/kG

  • ||

    Ford avoided the calamity that GM found itself in but looking at their "short term" agreement with the UAW it's only a matter of time before they fall as well...at least until Joe taxpayer foots the bill. Also, how does it make any sense that the union is now a majority stakeholder at GM. They are management AND labor. Must be nice at contract negotiation time.

  • ||

    How many more economy-wrecking examples do we need to keep government out of business affairs? Because of the incestuous relationship Government has cultivated with industry (GE, GM, Solendra, Goldman-Sachs) it has proven itself incapable of unbiasedly picking a winner. Too big to fail, translates to: too big to be allowed to exist, at least not to be put on life-support. As the dinosaurs eventually went extinct, so should over-blown institutions.

  • ||

    So when do I get my Volt? As I've already paid for it.

    -A. Taxpayer

  • sevo||

    Uh, after we put the fire out....

  • ||

    Not to get nit-picky but Hyundai does offer a line of SUV's. The Tucson,Santa Fe and the Vera Cruz. They call them cross-overs but look like SUV's to me. I have a Sonata and love it. Daughter has a Santa Fe and loves it. No gargantuan pickups though.

  • Just me||

    Your math is wrong - "The $23.6 billion represents a 25 percent loss on the feds $60 billion direct “investment” in GM".
    It's not a 25% loss, it's more than a 39% loss.

  • ||

    There are 209,000 GM employees. Thus, we are spending $110,000 per employee. Now if GM wasn't bailed out, would all the employees have been looking for a job? Hardly. If it had gone through normal bankruptcy procedures, one can imagine that a 25% reduction in work force. Thus, if this ballpark figure is on the right order of magnitude, we are talking about $450,000 per "job saved".

    And of course, these are all...union jobs saved.

  • sevo||

    ".union jobs saved."
    All else is commentary.

  • Rodger Malcolm Mitchell||

    Why GM's stock losses are the economy's gains:
    http://rodgermmitchell.wordpre.....economics/

    Rodger Malcolm Mitchell

  • ||

    Profit level of ten percent? This is a myth. When one OWES so many billions, and forestalls paying to speak of profit, it is a redefinition of the word. Profit means AFTER costs, and those costs include borrowing. GM is making no profit, merely pretending too. One should not accept "governmentspeak" or the language is lost.

  • Dan||

    ...plus the fact that the stock market will finally crash again as central banks are out of bullets. Print more you say? Then say hello to hyper-inflation baby!!!

  • mineral process equipment||

    The Obama economic recover program simply stated was nothing less than transfer of hundreds of billions, maybe trillions, of borrowed tax payer dollars to political supporters(unions, public and private, corporate cronies, BS green companies, and big donors).

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