Exiting GM

Dec.21.12 | About: General Motors (GM)

So the government has decided to at least partially sell off its interests in GM. It announced it will sell 200 million of the 500 million shares it owns at a price of $27.50 per share. It initially invested $49 billion in the company and with the sale will have recouped about $34 billion. Whether it makes a profit or breaks even will depend on the price it gets for the remaining 300 million shares. It’s unlikely that it will end up in the black but the loss shouldn’t be all that great, at least if you only analyze it from this basis.

Felix Salmon does a good job of pushing the number around. I have a couple of issues with his thoughts but first let me say that I thoroughly agree with the conclusion of his post.

Still, the big news here is the fact that the government is able to exit its stake at all. Would that they could do the same with Fannie and Freddie.

Amen, but why couldn’t they do the same with Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC)?

I do want to take issue with Felix’s statement that “…the purpose of TARP was never to make money, but rather to provide the last-resort liquidity needed for the nation’s banks and automakers to stay functioning.” I would never argue too vociferously if someone told me my memory was faulty but honestly I don’t recall a lot of talk about bailing out Chrysler and GM in the strident debates surrounding the passage of TARP. Hard as it was to pass that particular piece of dross I think it would have been well nigh impossible had bailing out auto companies been advanced as a logical use of the proposed funds. It’s a niggling complaint but I do think that we ought to be a bit careful about rewriting history.

Felix also alludes to the faulty calculation of the profit on the AIG rescue, pointing out properly the favorable tax treatments the company received. Somehow he elides the $45 to $50 billion of loss carryforwards with which GM was improperly (illegally?) allowed to exit its bankruptcy proceeding. Surely the future use of this asset has to count at least on a present value basis as a cost to the taxpayer.

Don’t for a moment assume that I am opposed to the sale of the government’s share of GM. The sooner the better so far as I’m concerned. Having Uncle Sam as a partner has no good long-term implications for GM and the sooner we put this sad sorry episode behind us the better. One has to hope that what happened was a political aberration and set no precedents for future actions. The bankruptcy code was subverted in the case of GM for political ends and the very essence of creditors rights were trampled. It was a sorry exercise.