Treasury: Loss On GM Bailout Rises To $23.6B

Edward Niedermeyer
by Edward Niedermeyer

One of the great mysteries to many inside the auto industry is why is GM’s stock price so low? Though the company had a weak third quarter, its stock price has been stuck well below its IPO price for much of the last year, despite a return to profitability. Though GM faces challenges, few inside the auto industry understand why its stock price remains so low. One theory: the government’s mere continued presence as a major stockholder creates uncertainty around the company. If this is the case, it creates something of a vicious cycle: the lower the stock price, the less likely the government is to sell its shares, leaving it lingering with no exit strategy, in turn driving the stock lower. Though that’s not likely to be the whole story, one thing is certain: the government has been forced to increase its loss estimate for the GM bailout. The Detroit News reports that the Treasury’s losses on GM are now estimated at $23.6b, up from $14.4b. And with an election looming, it seems likely that the White House will sell within the next six months. But will the government’s desire to protect itself politically trade off with GM’s PR? After all, whatever the Treasury’s final loss is, that number will be pinned to GM as a symbol of what it owes the American people. On the other hand, with most analysts insisting that GM stock is undervalued, another year of government ownership could convince investors to bid up the price, greatly reducing GM’s public debt. Too bad electoral politics will probably prevent that from happening….

Edward Niedermeyer
Edward Niedermeyer

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  • Dumdonn Dumdonn on Nov 17, 2011

    Stock is low because stockholders are selling. Inside info. and pass it on. We repeat customers(45 years)GM is loosing. Case in point. I bought a new 09 chev. found out it was wrecked and repainted at factory. After 3 months of phone calls and faxes to customer service, including finally,up to CEO and VPs, I received my answer: "We (GM), BY LAW, do not have to tell you about hidden(undisclosed) damage and repaints. District mgr. denied repair/repaint although four pros in paint and body and two dealers agree it was damaged and not disclosed. Top mgt. stands by the dishonest "look", not inspection of the new car (still under bumper to bumper warranty), that there is nothing wrong with the car. GM knows I am going oline and seeking a lawyer. GM's insurance co. will be out the money not GM. SELL your stock and then pass on this info. FRAUD? Collusion? Cupable? or u decide "there ought to be a law." product laibility laws require refunds/repurchase, replacement, or financial settlement. why not auto manufactirers?

    • Wsn Wsn on Nov 17, 2011

      Why would they care if they can earn your future business, when they can reach to your pocket anyway? Bail out yourself.

  • Jkross22 Jkross22 on Nov 17, 2011

    The culture of GM has appeared to have had nearly imperceptible change, if any, from the prior regime. Interestingly, they are behaving much like the other group of companies that received bailouts. B of A attempting to bump Debit card fees to $5/month to offset revenue they were squeezing from their customers sounds awfully similar to how GM has treated many of its customers both pre and post "bankruptcy" for warranty service or general treatment at the dealer level. It took an absolute shitstorm of negative press for them to relent. This is what happens to the "Too big to fail" companies. They are now trained to behave like spoiled heirs or welfare queens, thinking their next payday is around the corner regardless if they hit the jackpot or screw the pooch. To those that supported the bailout, you seemed to have ignored the law of unintended consequences. Or maybe you didn't ignore them, but chose to minimize them as you felt we had no other choice.

  • Obruni Obruni on Nov 18, 2011

    for those against the bailouts of GM and Chrysler, what was the alternative? a Chapter 11 bankruptcy was not possible, as little funding was available from the private markets for DIP financing. Liquidations would have ruined the network of suppliers. why did Ford, Toyota, and Honda, support the bailout of GM and Chrysler? Remember kids, Mr. Mullaly went to DC to personally lobby Congress to get the bailouts passed.

    • Pch101 Pch101 on Nov 18, 2011
      a Chapter 11 bankruptcy was not possible, as little funding was available from the private markets for DIP financing. The GM and Chrysler bankruptcies were under Chapter 11. But the intention of your comment is correct. As of 2009, there was no money in the private sector to fund their DIP financing. Government wasn't just the lender of last resort, it was the lender of only resort.
  • Geeber Geeber on Nov 18, 2011

    Here are some posts on on a thread dealing with GM's stock price, which I find interesting, and perhaps posters with a more solid background in finance can judge their validity. For the record, these posters do not have an axe to grind with the bailout itself: Keep an eye on GM's inventory. DOS levels went into the low 80's in October, a significant increase from the high 60's. If GM continues to overbuild, they will be compounding their problems going forward. They already have problems with truck inventories, so if this problem becomes more systemic, not good. GM also must deal with its unfunded pension liability, which gives it almost as much debt as Ford. This goes underreported, but will be a significant drag on cash balances. Europe is an open sore for GM, despite Akerson's pronouncements earlier this year. They might be headed into some rough waters as they take needed steps to reduce the bleeding of that division. And this: Hold on, with a scholastic background in finance you should see one other problem that this old economics/business guy can see. ROI is off the curve here as well. GM is a couple of points behind Ford and VW in terms of earnings, and that in spite of the fact that GM hasn't been servicing any significant debt load. A lot of this is due to management/structural issues, but specifically as it relates to this problem I wouldn't call that an unknown right now since we know, to a lage degree, what is causing this. Until GM actually does address this, assuming that they address this at all, it will remain a sticking point for investors. Particularly so since, if they don't address this, as VW grows and Ford finishes paying off their debt they will fall even further behind in this regard. (emphasis added) And this: But he is right with regard to something that I already touched upon above. GM very obviously has too many brands going forward, at least they do as it relates to their ability to manage that many brands. Given the right management team and corporate structure that lineup might work out just fine, but as of right now GM is not demonstrating an ability to handle all four in a manner that is beneficial to the company. (emphasis added) And this: GM is absolutely larger, and that provides them with several inherent advantages all else being equal. That said, huge operations and revenue won't be enough long term and at some point they have to get competitive when it comes to profit/earnings. They have the tools to get that done, I think the question here is whether Ackerson is up to the task. Ironically for a car company, the cars aren't the problem here as the product looks great overall, which you already know. The problem is management and corporate structure, (and citing corporate structure issues is really just another way of saying that management is broken) something which several of us have been stating for some time but which this particular issues really brings to light, and to fix it GM has to get the RenCen in order. If we start seeing press releases talking about lowering supplier costs, etc. as many fear, all while avoiding the issue mentioned above, we'll know Ackerson isn't the CEO that GM needs for him to be. GM and Ford should easily be two of the three strongest automotive companies in the world right now, I would hate to see something as mundane as this prevent that from coming to pass. Maybe these people are wrong, but they seem to be pointing out serious internal issues that GM must address, and they aren't just saying, "The bailout was bad, everyone knows this, so investors won't buy Government Motors stock, as it's now a socialistic entity."

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    • Geeber Geeber on Nov 19, 2011

      @Pch101 Thank you. I'm not much of an expert at interpreting financial statements, so I appreciate your feedback.