After five years, four chief executives, and one of the largest
bankruptcies in U.S. history, the government is poised to sell its
remaining stake in General Motors Co.
The move will close the books on--but not the debate over--one
of the largest and most politically contentious interventions by
the government into American corporations.
The Treasury Department on Thursday said it planned to sell its
remaining 31.1 million shares in the Detroit auto maker by
year-end, the final step in winding down the 61% stake it took with
taxpayer money at the height of the global financial crisis.
In the final tally, the deal will have cost taxpayers about
$10.4 billion, based on the company's current $38.12 share price.
The U.S. so far has recouped $38.4 billion of the $50 billion
initially invested and the coming sales would raise another $1.2
billion at the current share price.
Proponents say the benefits of the bailout can't just be
measured in dollars, and should take into account companies and
communities that were saved from possible collapse. The U.S. auto
industry has recovered nearly all of the jobs lost since the
beginning of the financial crisis, is broadly profitable and is
expanding again.
The intervention changed the relationship between government and
American business, upended bankruptcy protections for bondholders
and gave labor a significant stake in the company. Finally, it left
unanswered questions about what could happen the next time a major
U.S. industry nears collapse.
But many analysts believe the intervention helped save 10s of
thousands of jobs at G.M., Chrysler Group LLC, U.S. auto parts
makers, and even Ford Motor Co., which didn't receive bailout
funds.
The rescue was part of a chain of government infusions to arrest
the financial crisis. The government profited from its bailout of
U.S. banks, but won't fully recover its aid to the auto
industry.
Asset sales have helped the U.S. recoup $12.23 billion of the
$16.29 billion it invested in GM's GMAC finance arm, now called
Ally Financial Inc., which is still majority owned by
taxpayers.
For G.M., Treasury's divestment will make it much easier for the
company to reinstate a dividend and select a new chief executive
with greater freedom to pay market compensation, which the
government has restrained for several years. As a condition of the
bailout, Treasury got approval over pay for the five most senior
executives and the 20 next most highly paid employees at the
company.
"GM people can't wait to get government people out of their
knickers," said Gerald Meyers, former chairman of American Motors
and a professor at the University of Michigan. "It has been
demoralizing to management."
Many auto suppliers that rely on the Detroit Three would have
collapsed if the rescue didn't occur, analysts believe.
Detroit's auto makers are now leaner and healthier, but they
face a continual battle with foreign rivals to hold market share in
the U.S., and challenges establishing their brands in fast-growing
economies, especially China, now the world's largest single auto
market.
"While the U.S. Treasury's equity stake draws to a close, our
work to transform GM continues," the company said in a statement.
"We're making great progress in our efforts to make the most of
this second chance by building outstanding cars and trucks,
creating jobs and reinvesting in our country."
According to the Bureau of Labor Statistics, 822 million people
now work in motor vehicle and vehicle parts manufacturing. That is
the same number as in October 2008, and up from a recent low of 624
million people in June 2009, when GM filed for bankruptcy.
GM's descent began in the middle of the last decade. At the
time, it made almost all of its profits on trucks and sport-utility
vehicles and made little or lost money on cars, in part because of
high labor and health care costs for union workers and retirees.
When gasoline prices rose and truck sales slumped, GM racked up
nearly $70 billion in losses between 2005 and 2008. Then the
financial crisis hit and auto sales plunged.
The Bush administration in December 2008 moved to stabilize the
faltering companies with taxpayer money, and the Obama
administration grabbed the wheel in early 2009.
The latter's auto task force, led by top White House and
Treasury economic officials, took steps to wipe out shareholders,
force out then-chief executive Rick Wagoner, and steer the company
through a rapid 40-day bankruptcy.
In addition to overhauling the management team, the task force
under financier Steven Rattner pushed for other changes that led to
2,000 dealers being dropped from G.M.'s sales network and plant
closures across the industrial heartland. The company emerged
leaner, promoting just four brands--Chevrolet, Cadillac, Buick and
GMC--and has posted annual profits since 2010.
"The company was saved, the jobs were saved and the cost of the
taxpayers was very minimal in context of the economic damage that
would have occurred if the company liquidated," Mr. Rattner
said.
The bailout led politicians and consumers to deride the company
as "Government Motors," and in his presidential campaign in 2012,
Republican candidate Mitt Romney criticized Mr. Obama's handling of
the rescue.
The government used the bailout to exert enormous pressure on
how the company was restructured.
Among the winners was the United Auto Workers union and its
members. The bankruptcies created hardship for union workers, but
they were able to salvage pensions and some share of their retiree
health benefits, through the funding provided to the health-care
trusts created for union retirees.
The U.S. pressured the UAW to renegotiate contracts and give up
benefits such as the JOBS Bank, which kept laid off workers on
payroll and encouraged over production. But the UAW on the whole
made out better under the government-run bankruptcies than they
might have otherwise.
"It's the old story: he who pays the piper calls the tune," said
Arthur Wilmarth, executive director of George Washington
University's Center for Law, Economics and Finance. "For GM, the
government was the only one with money, and they were quite precise
about how they would allow their money to be used."
For the administration, the costly gamble paid off. During the
campaign, Mr. Obama took credit for the company's revival and he
won support in manufacturing-heavy states like Michigan, Ohio, and
Pennsylvania, which helped his re-election.
Five years after Congress created the $700 billion Troubled
Asset Relief Program as a sort of financial crisis fire
extinguisher, Treasury is still trying to exit some of its thornier
investments.
In total, the government has received $431.4 billion on the
$421.6 billion it invested in banks and auto companies, a figure
that includes interest payments. The Treasury sold its $12.4
billion stake in Chrysler in 2011, with a $1 billion loss. The
company is now majority owned by Fiat SpA.
Neal E. Boudette and Eric Morath contributed to this
article.
Write to Jeff Bennett at jeff.bennett@wsj.com, Eric Morath at
eric.morath@wsj.com and Neal E. Boudette at
neal.boudette@wsj.com
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