Free Minds & Free Markets

Have Your Cereal with Red Ink, Courtesy GM's Share Buyback, Taxpayers

This just off the presses: Government Motors is buying 200 million of the 500 million shares currently held by the Treasury as a first step to complete freedom from the government. Reports The Wall Street Journal:

The auto maker will pay $5.5 billion for the shares in a deal that is expected to close by the end of the year. The repurchase price of $27.50 a share represents a 7.9% premium over the closing price on Dec. 18.

"We felt this transaction is attractive to the company, good for business and good for selling more cars," GM Chief Financial Officer Dan Amman said Wednesday. "It moves us forward and eliminates a significant overhang on the stock that has weighed down the shares."

That’s great for the company. But before the administration starts spinning tales about how its wise bailout set the stage for GM’s stunning comeback, taxpayers should bear the following facts in mind:

In order for them to recover their entire $30 billion still in the company, GM’s share price should be exactly double of what it is paying Treasury today. This means that if taxpayers sell the remaining 300 million (19 percent of the outstanding shares) at $27.50, they will be in the red by about $15 billion – give or take a few. And this of course does not count the $15 billion or so in illicit tax write offs that the administration handed GM during bankruptcy.

Also, although the $27.50 share price represents a nearly 8 percent markup over the closing price yesterday, it is $5.50 below GM’s IPO price – and at least $13 to $17.50 below what many analysts two years ago had hoped it would stabilize at.

So, if anything, GM’s performance thus far has been disappointing, something that you won’t hear at Jay Carney’s press briefing today. And the fact that the company waited till the month after the elections to make its move tells you all you need to know about which end of the stick taxpayers are holding in this deal.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Doctor Whom||

    Obama made a needed investment of public funds to create JERBS!!! for politically important states the downtrodden 99%.

  • Auric Demonocles||

    Just use the same logic they did with unemployment and the stimulus. The fact that we are failing miserable compared to our predictions just means it would have been even worse than we thought if we'd done nothing!

  • The Late P Brooks||

    "It moves us forward and eliminates a significant overhang on the stock that has weighed down the shares."


    You mean the fact that a large number of investors think being co-owners with the government of a failed auto company might be a bad idea?

  • Palin's Buttplug||

    Geithner managed to make a $22.7 billion profit from AIG.

    The 2008 crash is becoming legend in MBA classes - as it should.

  • Libertymike||

    What type of a legend?

  • Palin's Buttplug||

    see below.

  • Invisible Finger||

    All thanks to Bernanke buying AIG's toxic waste at a 100,000% premium. As long as Geithener looks like a hero, who really gives a shit that the poor got poorer.

  • wareagle||

    who is Jim Carney?

  • kinnath||

    Borked again.

  • Mr Whipple||

    They'll make up for it in volume, one company at a time.

  • Palin's Buttplug||

    The 2007-2008 Financial Crisis: Causes, Impacts and the Need for New Regulations

    by David W. Conklin, Danielle Cadieux
    Source: Richard Ivey School of Business Foundation
    13 pages. Publication date: Jun 09, 2008. Prod. #: 908N14-PDF-ENG

    The financial system is the heart of free market economies. The 2007-2008 financial crisis raised concerns that the global financial and economic system might experience a truly substantial collapse. New financial instruments had proliferated to the degree that it had become impossible to calculate the market value of many of them, and so it had become impossible to know the market value of institutions that held them or that guaranteed them. The initial disaster occurred with the U.S. subprime ... Read More »

  • Invisible Finger||

    When the first sentence is wrong, the rest of the thing is meaningless.

  • Ken Shultz||

    "In order for them to recover their entire $30 billion still in the company, GM’s share price should be exactly double of what it is paying Treasury today."

    The taxpayers are not losing money now that GM is buying itself back at share prices below what the taxpayer paid for them when we nationalized GM.

    Understand, there is no such thing as a "paper" loss. The taxpayers lost that money the day we nationalized GM, not the day the taxpayers realized their losses.

    In other words, if you buy a stock, and you subsequently sell the stock after the price goes down, you didn't lose your money the day you sold the stock. You lost your money the day you bought the stock!

    In GM's case, it's even worse because when Barack Obama bought the stock, he knew he was paying more than the market price for it!

    Why is this a problem when discussing public policy? Because if voters think the only time the taxpayers will take a loss on GM is when we sell shares below what we paid for them, then we may never get GM privatized again.

    Will we take a loss on GM when we sell? No! Because we already took the loss, and if journalists keep incorrectly pounding Obama for divesting the rest of GM, then the UAW may never stop drawing their salaries out of my paycheck.

  • fried wylie||

    then the UAW may never stop drawing their salaries out of my paycheck.

    "All is proceeding as I have forseen."
    -Emperor of the UAW

  • Ken Shultz||

    When we sell GM stock, we are realizing losses that happened years ago--and the more losses we realize, in this case, the better off we'll be.

    In investing, sometimes selling a loser at a loss is the smartest thing you can do. And if voters and taxpayers can't get their heads around doing the smart thing with their investment dollars if it's taking a loss, then that's an excellent reason why the government shouldn't invest in companies at all.

  • fried wylie||

    then that's an excellent reason why the government shouldn't invest in companies at all.

    For anyone who needed a reason beyond "not a legitimate function of government."

  • Ken Shultz||

    God forbid, but can you imagine how bad it would be if the government had managed to sell GM stock at a profit?

    All my arguments would still stand; it's just that a lot of voters would take having won once at the roulette wheel as evidence that we should bet more of our revenue next time and put it all on black.

  • Auric Demonocles||

    Who needs to cut spending when we can just cover the deficit by great investing?

  • fried wylie||

    Right?! Now, I've picked another round of six potential investments and put them on this wheel, who want's to put us all at risk of financial ruin by giving it a spin...oh, nevermind, Obama just took it. And it be spinnin and spinnin, DAMN, even when the car stops, it just keeps spinnin!

  • Sheldon Richman||

    Great to see Shikha on top of this -- her -- story! The government assumes we're morons who will accept whatever it serves us. Don't let them get away with it, Shikha!

  • .Rob||


  • Ken Shultz||

    Seriously, for the billions we spent to save those jobs?

    If we had cut a giant check for each UAW worker's job we supposedly saved, we could have saved the taxpayers a bundle.

  • Ken Shultz||

    I'd love to see somebody run that number, but we'll never know for sure until we sell the last government owned share.

  • Ken Shultz||

    ...which is to say, we've already sustained those losses, they're just hard to quantify until we realize them through sales.

  • fit2post||

    Where's my government Twinkies!?

  • Ken Shultz||

    I bet those guys are still waiting for the callbacks.

    I noticed a big empty shelf space next to the Little Debbie stuff last time I was at the grocery store.

    I'm sorry they're unemployed, but I'm glad I'm not the one funding their paycheck either, and I thought for sure Obama was gonna bail them out.


Get Reason's print or digital edition before it’s posted online