U.S. to sell GM stake in stages

July 28, 2009

U.S. to sell GM stake in stages

Adviser: Aim is to get taxpayers repaid

BY GREG GARDNER
FREE PRESS BUSINESS WRITER

The government will not sell its entire 61% stake in General Motors Co. all at once next year when it begins to return the company to public investors, the head of President Barack Obama’s auto task force said Monday in Detroit.

"Success" after the government’s intervention "will be measured by whether taxpayers get their money back," said Ron Bloom, senior adviser at the U.S. Treasury Department.

But selling such a large percentage of the company in a short period could push the stock price down and limit the return on taxpayers’ investment, which in GM’s case exceeds $30 billion.

Bloom appeared Monday before the Congressional Oversight Panel on the Automotive Industry Financing Program in a hearing at Wayne State University law school. The panel was led by chairwoman Elizabeth Warren of Harvard Law School and U.S. Rep. Jeb Hensarling, R-Texas.

They wanted to learn more about the task force’s role in managing Chrysler and GM. Both automakers used an accelerated government-backed bankruptcy process to leave behind their unproductive assets and sell their most viable operations to new companies with much lower costs.

According to Bloom, Treasury committed $8.2 billion to Chrysler from the Troubled Assets Relief Program (TARP) to get through bankruptcy. An additional $350 million was lent to GMAC, which is now the primary source of dealer and consumer financing for Chrysler and GM.

Treasury provided about $30.1 billion of TARP funds to GM.

Hensarling opposed Treasury’s rescue of both Chrysler and GM. He read letters and e-mails from several GM bondholders who asked why the auto task force granted them a smaller share of the new company — 10% — than the UAW’s Voluntary Employee Beneficiary Association — which owns 17.5%.

"The bondholders obviously did better than they would have if the government had not stepped in," Bloom said. "But they obviously did worse than if the company had not become insolvent."

Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, testified that doing nothing would have eliminated about 1.8 million jobs this year and next.

Under the current scenario, with both companies out of bankruptcy, McAlinden estimates 63,200 jobs will be lost this year and an additional 179,400 next year from automakers, suppliers and the ripple effect through lower retail and government spending.

CAR also found that the government-backed bankruptcies prevented $114 billion in lost wages and lower tax receipts in 2009 and 2010.

Bloom said both automakers will report financial results every three months beginning later this year, including revenue and profitability. Eventually the reports are to add accounting detail comparable to what the Securities and Exchange Commission requires of publicly traded companies.

Contact GREG GARDNER : 313-222-8762 or ggardner@freepress.com
 














 

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