Bailed-Out GM Wants To Help Bailed-Out Ally With Some Of Its Bail-Out Money. Investors Not Amused

Bertel Schmitt
by Bertel Schmitt
bailed out gm wants to help bailed out ally with some of its bail out money

Bailed-out GM might sink $2 to $4 billion into likewise bailed-out Ally Financial to buy some of the lender’s international operations. Ally “ironically wants to use the proceeds to help repay its own federal bailout aid,” says Reuters. That plan does not sit too well with some observers. Says the wire: “Analysts and investors disagree on whether that would be the best use of cash, with some preferring a stock buyback or dividend payment.”

Large banks have paid back the Treasury the bailout funds they received, with GM and Ally the holdouts. GM can always take the position (popular with its apologists) that it does not owe anything to the taxpayers. Treasury took stock instead of an I.O.U. but “critics of GM’s $50 billion federal bailout in 2009 say the Obama administration stuck taxpayers with a bill that will never be paid in full as Treasury’s 27 percent stake in GM remains underwater,” Reuters says.

To get its money back, Treasury would need to sell its remaining 500 million shares of GM for more than $52 each. The stock is at $21. However, if GM would use its $33 billion cash pile (also a favorite talking point amongst the company’s fans) to declare a dividend or to buy back shares, the stock could reverse its downward course. Which would look a little better, especially three months before the elections.

Remember: If you pay U.S. taxes, you are a GM investor, like it or not.

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5 of 9 comments
  • Tuffjuff Tuffjuff on Aug 17, 2012

    I don't know that it's a really good idea to put TOO MUCH of GM's $33B cash reserve into an investment of any kind (liquid assests, namely cash, are important for somebody who can make or lose a few million or BILLION in a given quarter), paying the Gov'mnt or anybody else, as the article suggests. Maybe put a third of it into their debt? I'm just surprised they aren't willing, as a good faith effort, to put a couple Bil aside toward good old Uncle Sam...antha.

  • Pch101 Pch101 on Aug 17, 2012

    Stock valuations are a function of (a) earnings and (b) the multiple that investors will pay for those earnings. The more that a company earns, the more that one would expect the stock to be worth. The higher the company's growth rate in earnings, the more that investors will be willing to pay to have those earnings. If acquiring Ally or any other business can increase GM's earnings, then that might be a good use of GM's money. What Ally does with the money or the fact that the old GM used to own it is irrelevant to the assessment of GM's stock. As a shareholder, it is in Treasury's best interest that GM make money, for the reasons stated above. If acquiring a part of Ally is good for GM's future earnings, then that's good for Treasury, too. The Reuters article is pretty weak. A one-time dividend payout is not going to double the value of the stock, not by a long shot. I don't know whether buying a piece of Ally would be good for earnings, but I do know that dividend payments in lieu of investment definitely won't.

  • Secret Hi5 Secret Hi5 on Aug 17, 2012

    OARN, the price of GM stock has gone up 10% this week. Why? Surely it's not the Spark . . .

  • El scotto El scotto on Aug 17, 2012

    To paraphrase Bill Murray in one of his movies: "It just doesn't matter". GM is very good at making trucks/suvs, Corvettes, and Cadillacs. They are car company that has spent the last 10-20 years forgetting how to make bread and butter sedans. Do I wish GM would succeed? Yes. Will they? Doubtful. Zackman, apologies in advance here.

    • 28-Cars-Later 28-Cars-Later on Aug 17, 2012

      "They are car company that has spent the last 10-20 years forgetting how to make bread and butter sedans." I think some of the mid tier Pontiac/Olds/Buick 'bread and butter' sedans in their time were strong contenders the problem was/is they bleed their resale value much more than your comparable Toyonda in the same time period. This fact coupled with huge Gen X/Y domestic bias (deserved or not) and slowly dwindling Boomer spending sunk them in the mainstream new car market. People voted with their wallets and not their hearts, its just that simple. I think the pendulum is slowly swinging back around though because the Japanese in general are clearly resting on their laurels at this point and you avg Joe consumer just isn't seeing it yet. The future looks bright for Ford and possibly Chrysler, but it remains to be seen in my mind whether GM's foolish decisions of late will energize or sink their brands. Foolish decisions such as: -Chevrolet becoming Daewoo. -Buick becoming Opel. -Cadillac becoming faux BMW. -The existence of the Chevy Spark and the Buick Encore (in North America). -Turning the entire Cadillac brand into Catera variants and re-badged Chevy trucks. -Releasing a Cadillac coupe with had an uglier rear end than most Hippopotamuses. Sometimes ugly for the sake of being different doesn't work. Why is it Infinity can turn our an attractive RWD coupe and you fail big time? -The naming/pricing of the current CTS Coupe. CTS is already a stupid name but adding the Coupe on the end is even worse. The CTS acronym has the word 'touring sedan' in it somewhere, sedans are not coupes. Does anyone think in RenCen before they make a decision? I have a friend who recently purchased one of these monstrosities pretty much because he gets GM discounts through family. Fifty one thousand for AWD and a V6. I can buy real cars for fifty grand... you really must believe you are BMW to ask fifty grand for that POS. I know for a fact I can spec an Benz E-class V6 coupe for about 46K (AWD may have taken it to 49-50, I didn't select AWD as an option) because I priced one a few months ago for s**ts and giggles. Sure Mercedes craps on their customers as much as you do, but people either just lease or dump their cars before they start blowing up. If I'm a yupster and cross shopping your Catera coupe and the E-class coupe on the same price point, no way Mercedes loses. Fail. -Dropping a V6 out of mid tier Buick sport sedan (Regal) and replacing it a Turbo'd pos. I [did] buy Pontiac/Buicks, I don't want a 4 banger, neither do your other customers; we want decent power and reasonable reliability. People buy Toyonda when they want a weak 4 banger in a small mid-size. Idiots. -Putting a 180ish hp 4-cyl faux hybrid as standard in your 'big' cars Lacrosee and Impala. Really? You hate your customers that much? Does Lexus do this with the ES series? Isn't Buick supposed to be the new faux Lexus? Man up and defy CAFE, or get dot gov to count the diesel Buicks you sell in China as part of Buick NA for CAFE, or something. GM's future (in North America) looks hazy to say the least.