General Motors is planning on buying back two hundred million shares of its stock from the US Treasury, which is going to cost the company over five billion dollars. The US Treasury is planning on selling the remaining three hundred million stocks on the open market over the next twelve to fifteen months, however it is expected that they will make a loss.
In 2008 and 2009 the US Treasury bailed out GM in order to stabilise and restructure the company during a time of financial crises. Timothy Massad, the Treasury’s assistant secretary for financial stability stated “The auto industry rescue helped save more than a million jobs during a severe economic crisis.” However, he goes on to say that “The government should not be in the business of owning stakes in private companies for an indefinite period of time”, which is why the Treasury has decided to sell their shares in the company.
It has been revealed that GM will pay $27.50 for each share, which is about an eight per cent premium over Tuesday’s closing price of $25.49. This means that the deal will certainly lead to the government losing billions on the $49.5bn pay out they gave to GM back in 2008 and 2009, which saved the company from being auctioned off in pieces. However, the Treasury has said that after GM buys back two hundred million shares then it will have received back over $28.7bn of its investment as GM have already given them money from the repayment of loans, sales of stock, dividends, interest, and other income.
Even though this leaves General Motors still owing the Treasury $21bn, it shows the motor manufacturing market is improving as they have managed to pay back more than this in less than a five year period. It will also be interesting to see how the sale of General Motor stocks will impact the car insurance market both in the US and the UK.