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U.S. Treasury Turns Down GMs Offer to Buy Back Shares

In this June 12 file photo, General Motors Chairman and CEO Daniel Akerson addresses shareholders at the company's annual shareholder meeting in Detroit (AP)

General Motors Co. executives want the Treasury Department to sell its almost 27 percent stake in the company because, they say, the feds are hurting their image and government pay restrictions are chasing away top talent.

But Treasury officials aren't interested in selling because it would mean posting a multibillion dollar loss during an election year, the Wall Street Journal reports.

GM officials offered to repurchase 200 million of the 500 million shares the feds hold with "the balance being sold via a public offering," MarketWatch notes.

Government officials weren't interested in the deal.

"At GM's Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake," the Journal notes. "While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s."

But look at it from Treasury's point of view: What would it look like if they agreed to the deal and posted a multibillion dollar loss while the president was going around repeating the "Osama‘s dead and GM's alive" mantra?

"GM shares have been trading well below the $33 initial public offering price of 2010, when the government sold a major chunk of its stake in the auto maker. Many on Wall Street thought GM shares could top $50 within a year, but few expect the stock to reach that level in the near future now," the Journal notes.

Still, despite the decline in share price and Treasury's refusal to sell, GM officials say they're determined to break away from the feds. They claim the "Government Motors" reputation is killing them.

"Some GM officials acknowledge the uphill battle in persuading the government to sell," the Journal adds. "But they have no plans to abandon the effort."

by on Sep. 17, 2012 at 12:41 PM
Replies (11-11):
by on Sep. 19, 2012 at 1:46 PM
1 mom liked this

People that don't live and breathe the auto industry don't understand what the loss of manufacturing capacity means economically or socially. There is that old saying, "The further you are from a problem the easier it is to solve" totally applies here.

Quoting GrossePointeMom:

Credit from who?  China?  India?  That's exactly what this country doesn't needs, more dependency on Asia.  America could not afford to lose another industry if we want to remain a global competitor.  Sometimes (not almost always) it is possible to secure financing before a bankruptcy, but not with guaranteed loans. Without guaranteed loans the stock prices would have plummeted causing investors to run.  GM has streamlined their business plan, cut manufacturing costs, invested in more fuel efficient vehicles, and cut union health care and retirement costs. 

I worked as a paralegal when I was going through college 20 years ago and back then it was difficult to secure financing when a bankruptcy was imminent, unless the condition of the company was kept quiet.  Bankruptcy laws have been tightened since then and the condition of the auto industry was hardly a secret.  Private investors would have had to charged so much on the loans that the companies wouldn't have been able to extend credit to consumers.

Furthermore, when millions of jobs are on the line "almost always" doesn't cut it.  The ramifications for the US if the auto industry had gone under go far beyond the actual auto industry.  People who are out of work don't have any money to put into the economy.  No spending, no eating out, no preventative health care.  All of this impacts retailers, the restaurant industry, and the health care industry.  I live in MI and can tell you that about 60% of the people I know have jobs that would have been impacted had the auto industry not been saved with guaranteed loans.  I know that conservatives like to put the blame for everything on the unions and I won't say that there hasn't been abuse by the unions in the past, but no more abuse than is present in any other area of business. 


Quotiging Jesi_79:

Of course they would have gotten lines of credit, bankrupt companies almost alwasy line up investors prior to the filing.  This brokered bankruptcy is what detered investors which is why the government had to give them billions to stay in business.   Had they gone through a standard reorganization the receivers would have had a say in the "new" company and cutting the built in and unsustainable union overhead would have been the first step, fundamentally changing the business model would have been next.  The Obama brokered bankruptcy had one goal, to protect the union, not save the company.

They needed a George Romney or Lee Iacocca... instead they got a government appointed stooge who let the company continue to operate as before and yet somehow expects different results this time.  That is the reason the stock is selling 50% below the offering price.

Quoting GrossePointeMom:

 Had GM gone through the normal steps of bankruptcy no one would have been willing to extend them credit, which would have made a rebound impossible.  Not to mention the amount of jobs that would have been lost.  Furthermore, GM is making money in the U.S, but because of the economy in Europe they are losing market share there which decreases the profit margin overall.  Nothing the U.S. can do about that.

Quoting Jesi_79:

Had GM gone through a normal bankruptcy reorganization they would have been forced to make changes necessary to rebound and be profitable.  All the bailout did was steal the company from it's shareholders, give it to others, and rename it "New General Motors". Other than the name and ownership changes it remains business as usual, losing money and marketshare.




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