Election time, so some politicos are back to touting how the Feds “saved the US auto industry”, so I thought it was time to do a quick retrospective on the bailout.
Let’s put a stake in the ground: Ford didn’t take any Federal bailout money.
Since share price is a measure of financial performance, how has Ford stock performed?
Simple answer: At par with the S&P 500 when measured from pre-financial crisis levels … better than the S&P if measured from the financial crisis trough. (Ford is the thin green line on the chart, S&P is the blue).
And, how has the Fed-saved GM done?
First, some history …
Before the meltdown, GM had a market value of about $40 million. That slid during the financial crisis and was totally kaput when GM went chapter 11. Per the bankruptcy terms, secured creditors lost about 90% of their $30 billion in outstanding loans … about $27 billion.
Let’s round and call it $65 billion up in smoke.
The Feds threw about $50 billion into the pot to “save” GM.
The new, debt-free GM IPO’ed … about 1.5 billion shares at $33 … for a market value of about $50 billion.
A major holder of the IPO shares: you and me via the US Treasury (about 60% of the shares — conversion of the $50 billion in gov’t “loans”).
What’s happened since?
The S&P 500 has gone up about 75% since the date of the GM IPO.
New GM shares are now trading about to% to 15% below the IPO price … market value is in the low $40 billions … and sliding.
And, who took the biggest hit?
You guessed it: Besides the widows & orphans who were holding “old” GM stock and the creditors holding so-called “secured” debt, it was you and me.
According to a Reuters recap:
The U.S. government spent about $50 billion to bail out GM.
As a result of the company’s 2009 bankruptcy, the government’s investment was converted to a 61 percent equity stake in the Detroit-based automaker.
Treasury whittled down its GM stake through a series of stock sales starting in November 2010, with the remaining shares sold on December 9, 2013.
The U.S. government lost $11.2 billion on its bailout of General Motors.
Bottom line: “Old” GM investors and creditors lost about $65 billion … you and I lost over $11 billion … and shares are trading below the IPO price despite a rising tide in the stock market.
The big winner: the UAW. Most union jobs were saved and the union’s outsized pension plan survived — largely intact.
A success story?
You decide …