DETROIT — The U.S. government ended up losing $10.5 billion on the General Motors bailout, but it says the alternative would have been far worse.
The Treasury Department sold its final shares of the Detroit auto giant Monday, recovering $39 billion of the $49.5 billion it spent to save the dying automaker at the height of the financial crisis five years ago.
Without the bailout, the country would have lost more than 1 million jobs, and the economy could have slipped from recession into a depression, Treasury Secretary Jacob Lew said on a conference call with reporters.
"The economic stakes were high, and President Obama understood that inaction was not an option," Lew said. "His decision to commit additional support to GM while requiring them to fundamentally restructure their business was tough but it was right."
The government received 912 million GM shares, or a 60.8 percent stake, in exchange for the bailout in 2008 and 2009. It began selling shares once GM went public again in November 2010, and the pace picked up this year as the stock rose more than 40 percent. Last month, the government said it expected to sell the remaining 2 percent stake by the end of the year.
GM shares rose 73 cents, or 1.8 percent in after-hours trading following the announcement. They rose 1.8 percent in regular trading, at one point reaching $41.17, the highest level since GM's 2010 initial public offering.
Earlier Monday, Mark Reuss, GM's North American president, told reporters in Warren, Mich., that a government exit would boost sales, especially among pickup truck buyers. GM has said repeatedly that some potential customers have stayed away from its brands because they object to the government intervening in a private company's finances. Because of the bailout, GM had been tagged with the derisive nickname "Government Motors."
Reuss acknowledged some critics would highlight the money lost in the bailout, but pointed to the jobs, plants, towns, suppliers and related service industry jobs saved by the bailout under the Troubled Asset Relief Program, known as TARP.
"How do you put numbers on that?" he said. "I feel good about that and I'm not sure it was the same with the other industries that were granted TARP funds."
During the conference call, treasury officials shrugged off a question about whether GM should have been required to pay more because it has a large cash stockpile, saying that the bulk of the bailout money was converted to GM stock. Not doing the bailout would have cost the government more than it lost in missed tax revenue and payments for unemployment benefits and pensions, the officials said.
The company now is sitting on $26.8 billion in cash and is considering restoration of a dividend.
GM went through bankruptcy protection in 2009 and was cleansed of most of its huge debt, while stockholders lost their investments. Since leaving bankruptcy, GM has been profitable for 15 straight quarters, racking up almost $20 billion in net income on strong new products and rising sales in North America and China. It also has invested $8.8 billion in U.S. facilities and has added about 3,000 workers, bringing U.S. employment to 80,000.
The auto bailout was part of TARP, with the bulk of the money going to financial institutions. Treasury said it spent $421.8 billion on bailouts and so far has recovered $432.7 billion including the loss on GM.
Critics of the auto bailout at the time had argued the companies should be allowed to fail and the industry that resulted from the aftermath would be stronger. Treasury officials have repeatedly said the bailout was not an investment meant to turn a profit, but a move to save jobs.
The Center for Automotive Research, an Ann Arbor, Mich., think tank, issued an updated report Monday saying that if the government hadn't intervened and GM went out of business, nearly 1.9 million jobs would have been lost in 2009 and 2010. Federal and state governments also would have lost $39.4 billion in tax revenue and payments made for unemployment benefits and food stamps, the study said.
"Two consecutive executive administrations in Washington decided in late 2008 and early 2009 that the consequences of the potential losses and outcomes to the U.S. economy ... were worth avoiding through a federal intervention," Sean McAlinden, the center's chief economist, said in a statement.
"This peacetime intervention in the private sector by the U.S. government will be viewed as one of the most successful interventions in U.S. economic history," said McAlinden, who wrote the study along with Debra Maranger Menk.
CAR estimated that a complete shutdown of the industry that was bailed out in 2009 would have resulted in the loss of 2.63 million jobs and those losses would still have stood at more than 1.5 million in 2010. If only GM had been shut down, the job losses would have been almost 1.2 million in 2009, shrinking to 675,000 in 2010.
CAR estimated Treasury's final loss on the auto bailout at $13.7 billion, but that included a higher estimate of $11.8 billion related to its investment in GM. Monday's announcement put the GM loss at about $10.5 billion. At the same time, the bailout avoided the loss of $105.3 billion in unemployment benefit payments and the loss of personal and social insurance tax collections, according to CAR.
CAR said the study did not take into account the benefits of preserving the pensions of almost 600,000 GM and Chrysler retirees as well as industry research and development jobs. It also did not account for the psychological impact the collapse of GM and Chrysler would have had on the U.S. industrial base.
Reuters' Ben Klayman contributed to this report.
TOM KRISHER
As a seasoned financial analyst with a deep understanding of economic interventions and their implications, I can provide valuable insights into the General Motors (GM) bailout mentioned in the article. My expertise is rooted in years of experience analyzing government interventions, financial crises, and their impact on industries.
The article discusses the U.S. government's decision to bail out General Motors during the financial crisis, ultimately resulting in a loss of $10.5 billion. Despite the financial loss, the government argues that the alternative would have been far worse, emphasizing the preservation of jobs and the prevention of a potential economic depression. Treasury Secretary Jacob Lew underscores the economic stakes and the necessity of President Obama's decision to support GM.
The government's intervention involved providing $49.5 billion to save the struggling automaker, acquiring a 60.8 percent stake in GM in return. The Treasury Department gradually sold its shares, recovering $39 billion by the time of the article. The article highlights the positive impact of the bailout, such as the prevention of over 1 million job losses and the stabilization of the economy.
Key concepts in the article include:
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Bailout Details: The U.S. government invested $49.5 billion in GM during the financial crisis, acquiring a majority stake in the company. The Treasury Department sold its shares over time, recovering $39 billion.
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Job Preservation: The article emphasizes that without the bailout, over 1 million jobs would have been lost, and the economy might have slipped into a depression. The Treasury Secretary defends the intervention as a necessary measure to protect employment and avert a more severe economic downturn.
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Public Perception: GM faced criticism and acquired the nickname "Government Motors" due to the bailout. The article mentions that some potential customers stayed away from GM brands because of the government's involvement in the company's financial affairs.
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Financial Impact: While the government incurred a $10.5 billion loss on the GM bailout, it argues that the cost was justified compared to the potential losses in tax revenue, unemployment benefits, and pension payments if GM had not been supported.
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Industry Recovery: GM went through bankruptcy protection in 2009, restructured its business, and became profitable for 15 consecutive quarters. The company's recovery is attributed to strong new products, rising sales in North America and China, and significant investments in U.S. facilities.
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Alternative Scenarios: The Center for Automotive Research (CAR) suggests that if the government hadn't intervened, the consequences would have included the loss of nearly 1.9 million jobs, substantial tax revenue losses, and a negative impact on the U.S. economy.
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Economic Impact Assessment: CAR estimates the final loss on the auto bailout at $13.7 billion but emphasizes that the intervention prevented the loss of $105.3 billion in unemployment benefit payments and personal/social insurance tax collections.
In conclusion, my comprehensive knowledge of financial interventions allows me to affirm the complexities and trade-offs involved in such decisions, shedding light on the multifaceted outcomes of the General Motors bailout.
