DETROIT — The U.S. Treasury Department expects to sell all its General Motors Co. shares by the end of the year, leaving taxpayers with a $10 billion loss but also tens of thousands of saved auto-related jobs and a leaner, stronger GM that makes more appealing, profitable vehicles.
The earlier-than-expected exit — the government previously predicted April 2014 — frees GM next year from compensation limits on its top executives, a Treasury-imposed condition that CEO Dan Akerson has said makes it harder to recruit new executives and to retain others. How this might affect current salaries, the make-up of the executive ranks or CEO succession planning remains to be seen.
In all, taxpayers lent $49.5 billion to GM and as of Thursday had recouped $38.4 billion. If GM’s stock stayed at its Thursday close of $38.12 for the rest of the year, the Treasury would recoup another $1.2 billion.
The Treasury’s sell-off would also close out one of the most divisive acts of federal budget power; one that even proved a key issue three years later in the 2012 presidential campaign.
Bailout opponents slapped the “Government Motors” tag on GM, a rhetorical insult that may live on after the sell-off makes it untrue. The opponents dispute the value of saving GM, Chrysler and GM’s lending arm (now Ally Financial).
Although there is no exact way to calculate the economic cost of letting two of the three domestic automakers die, there’s evidence that the worst economic crisis since the Great Depression would have been much worse had the companies been allowed to fail.
“It was absolutely necessary that it happened,” said David Cole, chairman emeritus of the Ann Arbor, Mich.-based Center for Automotive Research. “The cost of it — some complain about the cost — it was very small compared to the impact had we gone into a national depression.”
A Center for Automotive Research study estimated that saving GM and Chrysler preserved 1.48 million jobs throughout the U.S. in 2009 and 2010. That translated to $96 billion in consumer income and saved all levels of government $28.6 billion in unemployment benefits, food stamps and other social services.
GM said it has invested $8.8 billion in 34 U.S. operations since 2010, collectively creating or saving more than 25,000 positions.
“I think there will always be some consumers who will call it Government Motors because they’re very anti-government or anti-GM, but I look at the data and I don’t see consumers avoiding GM showrooms,” Morningstar analyst David Whiston said. “Even though taxpayers will end up losing billions of dollars, I still think it was money well spent, given the millions of jobs that were saved.”
What’s unclear is how this will affect the timetable for choosing Akerson’s successor, and whether internal leaders who helped turn GM’s fortunes have a stronger chance to get the top job.
Akerson was a former telecommunications and private equity leader from Washington, D.C., who didn’t join the GM board until it emerged from the 2009 bankruptcy. He took over as CEO in September 2010 after his predecessor, Ed Whitacre, retired and led the company through its November 2010 initial public offering at $33 per share.
The government’s exit is expected to make GM more attractive to investors. GM shares rose 1.1 percent to close at $38.12 on Thursday.
The Treasury said it plans sell its GM stock on a gradual basis in the open market, with the final 31.1 million shares sold by Dec. 31.
“Treasury’s investment in the American auto industry was part of President Obama’s broader response to the financial crisis, and it helped save more than 1 million jobs,” Treasury Deputy Assistant Secretary Tim Bowler said in a statement. “Had we not acted to support the automotive industry, the cost to the country would have been substantial — in terms of lost jobs, lost tax revenue, reduced economic production, and other consequences. Our actions have enabled the industry to rebound.”
The bailout gave GM the financial resources for a dramatic restructuring. The automaker shed thousands of jobs, cut hundreds of dealerships, killed four of its eight brands, wiped out stockholders and forced bondholders to take stock in the new company.
But the moves saved the company, which has turned a profit in every quarter for the past three years.
“While the U.S. Treasury’s equity stake draws to a close, our work to transform GM continues,” GM 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.”
The automaker recaptured its investment-grade credit rating earlier this year and returned to the Standard & Poor’s 500 Index, representing key benchmarks in the automaker’s financial revival.
“What most people still don’t understand is what the auto industry went through was a depression. It was not a recession,” Cole said. “Had GM gone down, it would have taken the industry down and very likely the auto depression would have accelerated into a depression for the overall economy — and that would have been a real nightmare.”