GM wants another bailout

[Turdacious]

The Treasury Department is resisting General Motors' push for the government to sell off its stake in the automobile maker, The Wall Street Journal reports. Following a $50 billion bailout in 2009, the U.S. taxpayers now own almost 27% of the company. But the newspaper said GM executives are now chafing at that, saying it hurts the company's reputation and its ability to attract top talent due to pay restrictions. Earlier this year, GM presented a plan to repurchase 200 million of the 500 million shares the U.S. holds with the balance being sold via a public offering. But officials at the Treasury Department were not interested, as selling now would lead to a multibillion-dollar loss for the government, the newspaper noted.

http://www.marketwatch.com/story/genera ... 2012-09-17

[Fuzzy Dunlop]

I read this as such:
GM presented a plan to the US Treasury for the gov't to exit its ownership of the company. GM's plan would fund 40% of the repurchase in cash and urged the remaining 60% to be sold off via public offering.

Can you please explain how this equates to "GM wants another bailout"?

[Turdacious]

But officials at the Treasury Department were not interested, as selling now would lead to a multibillion-dollar loss for the government, the newspaper noted.

They want to buy out the government stake at a cheaper price than the terms of the bailout call for.

[Fuzzy Dunlop]

What do you mean by "terms of the bailout call for"?

[Turdacious]

The government can sell their stake on the private market whenever they want, or when the price hits a certain level (which it hasn't). If the stock price rises, and the government sells it's stake at that point, they'll make money.

[Fuzzy Dunlop]

So how exactly is the fact that GM wants to repurchase 40% of the government's stake at current market price asking for a bailout?

[Turdacious]

The price is pegged-- when it reaches a certain level, the government has an obligation to sell it. These were the terms of the bailout. It will cost GM more money to buy the government out at that level.

If the government allows GM to buy the government out at this level, not only will taxpayers lose money, but GM will be saving a significant amount.

[Schlegel]

I don't see what's so hard to get, guys. The government doesn't want to sell the shares at a price that would return less money than they gave GM. GM wants to buy them now, at a discount. That's asking for free money from the taxpayers.

[Turdacious]

In addition to the subsidy GM gets from the preferential purchases of their vehicles by the government.

[Fuzzy Dunlop]

The price is pegged-- when it reaches a certain level, the government has an obligation to sell it. These were the terms of the bailout. It will cost GM more money to buy the government out at that level.

If the government allows GM to buy the government out at this level, not only will taxpayers lose money, but GM will be saving a significant amount.

uhhhh I don't think so...
The price isn't pegged to anything, it's plain old equity.
GM has no obligation to buy back and won't "save" any money by making a repurchase at this price.
Also- they've completely funded their obligations to the govt with cash and stock

The only true statement that you've made is that taxpayers would lose money if the govt sold at this level. However, taxpayers have technically already lost this money. Now, the Treasury is banking on GM having about a 110% return in order to break even or they could take the repurchase cash and invest in something else.

That doesn't mean that GM gains anything and is 100% not asking for an additional bailout in the sense of receiving funds or reducing future obligations.

[Turdacious]

The only true statement that you've made is that taxpayers would lose money if the govt sold at this level. However, taxpayers have technically already lost this money.

By your logic I've 'lost' everything in my IRA.

[Fuzzy Dunlop]

I don't see what's so hard to get, guys. The government doesn't want to sell the shares at a price that would return less money than they gave GM. GM wants to buy them now, at a discount. That's asking for free money from the taxpayers.

Can you show me a calculation of how much "free money" GM would get from taxpayers if the government accepted the offer?

[Fuzzy Dunlop]

The only true statement that you've made is that taxpayers would lose money if the govt sold at this level. However, taxpayers have technically already lost this money.

By your logic I've 'lost' everything in my IRA.

Well, if your IRA used to be worth 100 and now it's worth 50, you have lost 50. Yes, that's exactly what I'm saying.

I sincerely hope you don't vote.

[Turdacious]

The only true statement that you've made is that taxpayers would lose money if the govt sold at this level. However, taxpayers have technically already lost this money.

By your logic I've 'lost' everything in my IRA.

Well, if your IRA used to be worth 100 and now it's worth 50, you have lost 50. Yes, that's exactly what I'm saying.

I sincerely hope you don't vote.

In any equity investment you only lose when you sell or the company goes bankrupt. The government either believes that GM's stock price will increase, and it is worth it to them to keep the investment-- or they are holding onto GM until after the election to minimize political fallout.

You may be right about one of your earlier points-- I assumed that their investment was something similar to preferred stock. It might not be.

[Fuzzy Dunlop]

The only true statement that you've made is that taxpayers would lose money if the govt sold at this level. However, taxpayers have technically already lost this money.

By your logic I've 'lost' everything in my IRA.

Well, if your IRA used to be worth 100 and now it's worth 50, you have lost 50. Yes, that's exactly what I'm saying.

I sincerely hope you don't vote.

In any equity investment you only lose when you sell or the company goes bankrupt. The government either believes that GM's stock price will increase, and it is worth it to them to keep the investment-- or they are holding onto GM until after the election to minimize political fallout.

You may be right about one of your earlier points-- I assumed that their investment was something similar to preferred stock. It might not be.

OK, so let's agree that GM is not asking for any additional bailout in the sense that they would gain cash or reduce a future obligation.

Your understanding of equity valuation is just wrong Your portfolio is worth what the market says it is worth. You may or may not choose to "realize" your loss by selling the equity stake but you have in fact lost that money as of right now. It's gone.

For the record, I'm not advocating that the gov't should take the deal. Just that GM isn't asking for another bailout.

[Schlegel]

OK, so let's agree that GM is not asking for any additional bailout in the sense that they would gain cash or reduce a future obligation....



...For the record, I'm not advocating that the gov't should take the deal. Just that GM isn't asking for another bailout.

But since GM intends to buy the stock eventually, asking to buy it now, cheaper, IS asking to reduce a future obligation.

[Turdacious]

I don't see what's so hard to get, guys. The government doesn't want to sell the shares at a price that would return less money than they gave GM. GM wants to buy them now, at a discount. That's asking for free money from the taxpayers.

[Fuzzy Dunlop]

OK, so let's agree that GM is not asking for any additional bailout in the sense that they would gain cash or reduce a future obligation....
...For the record, I'm not advocating that the gov't should take the deal. Just that GM isn't asking for another bailout.

But since GM intends to buy the stock eventually, asking to buy it now, cheaper, IS asking to reduce a future obligation.

Don't think so. They have no future obligation and they're not necessarily buying it "cheaper" now because the future value is unknown. Put another way, they're not getting something for nothing in the repurchase, they're getting $25B worth of equity for $25B.

GM has already received their "free money" by trading $50B in various types of loan obligations for a chunk of their company worth only $25B.

Consider this scenario- If the government was to take the deal, then buy Ford stock they'd be in the exact same boat as they're in now. Holding $25B in equity. No additional taxpayer funding, no additional losses. (Edited for clarity)

[Turdacious]

So GM is doing this for the benefit of the USG? Mighty nice of them.

[Fuzzy Dunlop]

Well of course not...

The article you posted stated that they believed 1) they had lost consumer goodwill by being government owned and 2) that they were having issues retaining top talent due to govt pay restrictions. Whether or not you believe that these reasons are valid or complete BS is up to you. But they're not necessarily trying to bone anyone.

Sometimes a company will buy back shares when they believe the price is artificially low. I'd argue that both the government and the corp both believe that's the case which prompted the offer from GM and is the reasoning behind the government's refusal to sell.

However, it's a free market and clearly some shareholders are willing to sell at the current price, deflated or not, or else it would rise. Therefore, it's not unreasonable for any entity to make a large, structured offer.

[Andy83]

I'm surprised that the govt. isn't accepting the offer. Smart govt. business is to give something away with taxpayers' money and then buy it back at half the price so as to put more taxpayers on food stamps with the lost profits in order to make the debt rise a bunch.

And of course GM ain't trying to bone anybody.

[Yes I Have Balls]

Turd, stop trying so fucking hard. You're getting Andy all riled up for nothing.

[Pinky]

This round goes to Fuzzy Dunlop.

GM's stock is not worth more than the current market price simply because the administration really hopes that the stock will increase in value so they don't look quite as stupid as they are. This is about GM not wanting to be thought of as "Government Motors".

[Turdacious]

http://online.wsj.com/article/SB1000087 ... 10658.html

If analysts are correct, the loss to the government would be less if they waited a year-- and the cost to GM will be higher.

In addition, floating the rest of the government's stake onto the market could have the effect of reducing the share price further.

Keep in mind I am in no way defending the wisdom of the administration's investment track record.

[Pinky]

If analysts are correct, the loss to the government would be less if they waited a year-- and the cost to GM will be higher.

If there were good reasons to believe those analysts were correct, the price of the stock would be higher now.