GM’s Success and the Taxpayers’ Tab
In this week’s State of the Union address, President Obama lauded the government’s role in bringing the American automobile industry back to greatness. In contrast to the day the president took office, when “our auto industry was on the verge of collapse,” he boasted that “General Motors is back on top as the world's number one automaker.” What the president did not brag about was the price the taxpayer paid for General Motor’s success.
Today, we got a glimpse of what the taxpayers’ tab could be in the latest report by the Special Inspector General for the Troubled Asset Relief Program (TARP). TARP is shorthand for the $700 billion blank check that Treasury was handed to stop the financial crisis, part of which was used to bail out the auto industry. The TARP watchdog’s report reminds us that the government still has a 32 percent stake in GM and that getting rid of those shares won’t be easy.
The report projects that the government will need to sell its approximately 500 million shares in GM at $53.98 per share to break even. Yesterday, GM shares closed at just under $25. In other words, the stock price has to more than double before taxpayers simply break even. Even if the stock price does rise, the government will find it difficult to dump its huge stake in the company without driving the price back down. Facing dim prospects like this, I am not sure that taxpayers share the president’s hope that, “What’s happening in Detroit can happen in other industries.”