General Motors Burning Oil

Includes: F, HMC, NSANY, TM
by: Wall Street Strategies

By David Silver

So in an interesting turn of events, General Motor's CEO Ed Whitacre said that the U.S. taxpayer is going to make money off its General Motors investment. Oh yeah, but a Congressional Oversight Panel said that U.S. taxpayer could lose $6.3 billion from its investment in GMAC (and that is assuming we don't dump any more money into GMAC, which is far from on solid footing).

Let's discuss GM first. Mr. Whitacre indicated that GM will repay the direct loans given to it (which totaled more than $9 billion) by the U.S. and Canadian governments by June. He also said that in the subsequent IPO, taxpayers would be paid back in full (and even make money) on selling its 60% stake in Government Motors. The company got rid of half its brands and closed more than a handful of plants, and the market value of the company is going to be larger than it has ever been? I find that hard to believe.

There are rumors about an IPO as early as July of 2010. I had expected an IPO to happen in the second quarter of 2011, however, I am moving up my expectations to the end of 2010. Auto sales have been progressing better than expected for General Motors.

Now back to GMAC. The auto and home loan company has received more than $17.2 billion from the government but the conditions (after becoming a bank holding company) were far less stringent than it was for just about every company that took TARP money. The government is saying that the bailout of GMAC was necessary to save GM and Chrysler, but didn't GM and Chrysler go bankrupt? How did this investment save these two companies? The government held GM's hand through the process and now Chrysler is owned by an Italian automaker. Interesting how things work out…

Disclosure: None