Failure To Break Even On GM Bailout Seen As A Thorn For Obama

General Motors Co, saved by the Obama administration with a $50 billion bailout, is making more money than it has in its history, adding jobs and gaining market share. It’s still a headache for Barack Obama.

GM closed yesterday at $20.70 a share, less than half the $53 price that the U.S. Treasury Department needs to break even. Since Dec. 19, when the shares closed at their lowest price since an initial public offering last year, the shares have risen for three straight days. The stock still needs to rally almost 50 percent to reach $30 a share, the minimum price the Treasury Department would consider for a secondary offering, said three people familiar with the matter.

That puts Obama in a quandary. When Republicans nominate a candidate in August, the government will probably either still own a substantial portion of GM or will have sold the stock at a loss that could be more than $10 billion. Obama’s opponents can criticize him either way, said Dan Ikenson, an economist at the Cato Institute, a Washington think tank.



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Steve - 12/23/2011 12:04:00 PM

+4 Boost

GM's "profit" is colossally misleading. Let me explain. Say I'm a shoe manufacturer. My company is going bankrupt. I'm in debt $1M. I'm in a sad state. Independent accountants value my company at $200,000. Along comes a government bailout. They say "we'll buy 10% of your company for $2M. Damn! Sign me up!!! Instantly, my company is "profitable" because I've made $2M and erased my $1M debt, so I'm up $1M. But what actually happened?

Well, the guy who bought a 10% stake in my company, which was actually worth only $20,000, paid $2M for it. He overpaid. He'll never get his money back. Never! So in fact, I've merely shifted my loss to the unfortunate share-holder, who is now out of pocket. And guess what? We tax-payers are those share-holders, except the government holds those shares on our behalf, having given our income (in the form of our tax payments) to the failing businesses. We have assumed their losses.

Sucks, doesn't it. Meanwhile, GM is reporting they are "profitable," and the media parrots those statements.

Joe_Limon - 12/23/2011 12:21:00 PM

-2 Boost

Your analysis doesn't hold water very well. GM used that money to pay off all it's debts to its suppliers. They aren't using that money to say they are profitable. The money given to them basically wiped their slate clean so it was far easier to actually be profitable with the product they do sell. If it was the way you described it, GM would have posted a multi billion dollar profit in one quarter, then nothing in the next, this hasn't been the case.

Steve - 12/23/2011 3:51:56 PM

+4 Boost

@Joe_Limon: You hold the opinion that GM's debts disappeared as the multi-billion dollar bail outs "wiped their slate clean".

I hold the opinion that GM was bleeding red ink with no end in sight, and went bankrupt. The bail-out transfered GM's debt, and the cost of that debt, to the tax-payer. For lack of that huge debt on GM's books, "instant profit" follows.

See it however you will. GM is now "profitable" while the tax-payer is holding the losses that used to belong to GM. Thanks for the "wiping the slate clean," (bitter sarcasm intended). GM: next time, get your own blackboard monitor.

Joe_Limon - 12/23/2011 10:42:32 PM

-2 Boost

Yes the public may have got the shitty end of the stick. But to manipulate that argument into saying that GM isn't currently making a profit isn't quite the strongest argument you could be making now is it?

mini22 - 12/23/2011 3:59:51 PM

+3 Boost

The question is this. Was it worth keeping all those jobs, not only for GM, but also Ford, Chrysler,all the domestic parts suppliers and the foreign transplant factories. Yes we are fielding this debt. But what kind of debt are we fielding for AIG,(to big to fail). I'm sure it dwarfs what we've paid out for GM.What about Freddy Mac and Fanny Mae. How much money have we put into them to keep them propped up. The point is there are much larger debts we are fielding the bill for then for GM.

acronis - 12/24/2011 1:15:35 PM

-1 Boost

Mini22 your post shows exactly why those detractors making the argument against General Motors receiving a bailout fall flat because in their rabid opposition, they conveniently ignore the big picture; saving American jobs.

MBCLS07 - 12/26/2011 1:59:45 PM

+5 Boost

Acronis, don't be so naive. Here's the real big picture: GM bailout was a case of political quid pro quo/bribery. The Obama Administration used taxpayer money to bailout union jobs and screw taxpayers and investors. In return, the union continues to donate big money to Obama's re-election campaign and vote Democrat. If Obama was really concerned about American jobs above politics he would stop opposing domestic energy production which has cost thousands of American jobs and billions in tax revenue.

skytop - 12/28/2011 9:07:24 PM

+2 Boost

Why is it necessary to pollute this site with a picture of the liar and thief in chief? obama is a toxic, malignant disease afflicting this country. He is a facist socialist working to destroy this country, destroy capital