Barack Obama reportedly plans to spend perhaps $1 billion of his supporters’ money to run for re-election next year. What are his ambitions going to cost taxpayers? Some $11 billion on GM stock alone, the way things look right now.
From The Wall Street Journal:
The U.S. government plans to sell a significant share of its remaining stake in General Motors Co. this summer despite the disappointing performance of the auto maker’s stock, people familiar with the matter said.
A sale within the next several months would almost certainly mean U.S. taxpayers will take a loss on their $50 billion rescue of the Detroit auto maker in 2009.
To break even, the U.S. Treasury would need to sell its remaining stake — about 500 million shares — at $53 apiece. GM closed off 27 cents a share at $29.97 in 4 p.m. trading Monday on the New York Stock Exchange, hitting a new low since its $33-a-share November initial public offering.
Shares have been hurt by rising fuel prices, industry production disruptions and management turnover. At Monday’s price, and taking into account shares sold during the IPO, taxpayers would lose more than $11 billion on the rescue if the government dumped the rest of its stake now.
Government officials are willing to take the loss because the Obama administration would like to sever its last ties to the auto maker, the people familiar with the matter said. A summer sale makes it more likely Treasury could sell all of its stake in GM by year’s end, avoiding a potentially controversial sale in the 2012 presidential election year. (emphasis added)
Our $49.5 billion bailout of GM, in exchange for a 61 percent stake in the company, implied a market capitalization for the company of about $81 billion. Right now, the market has GM valued at about $47 billion — less than three-fifths of the higher figure. Heck, its market cap today is less than what the U.S. spent to bail out the company. (Canada spent billions more on GM.)
No way the taxpayers get their money back at this rate — for that to happen shares need to climb to around $50. And that’s under a conservative estimate of the government’s investment, one that ignores the tax … “spending.” …Sorry, Steve! …Underlying the decline: GM’s market share is not looking good. (italics and links original)
The company’s market share, should you choose not to click through that last link, fell about three percentage points last month, below 16 percent. Here’s a chart showing the share price since the IPO.
While it’s understandable that Obama wouldn’t want the “Government Motors” line hanging around for next year’s campaign, is rushing into an $11 billion loss really any better politically? Not to mention, you know, the best interests of the country.
How quaint of me, I know.
– By Kyle Wingfield