Last updated: December 19, 2012 6:23 pm

GM buys back $5.5bn in Treasury shares

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The US auto industry took a key step towards ending more than four years of dependence on the US government when General Motors revealed on Wednesday it would pay $5.5bn to buy back 40 per cent of the Treasury stake in the carmaker.

The US Treasury would subsequently sell the 19 per cent stake in GM that it would retain after the transaction over the next 12 to 15 months in the open market, the company added.

According to the Treasury, the buyback means that the government has recouped $28.7bn of the $49.5bn it invested to stabilise and restructure GM in a complex process that started in 2008 and continued after GM’s 2009 bankruptcy.

Dan Akerson, chief executive, said the announcement was an important “in bringing closure to the successful auto industry rescue”.

“It further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM’s progress and our future,” he said.

GM is the only one of the big three Detroit automakers still dependent on government financing. The other rescued carmaker – Chrysler – repaid all its post-restructuring government loans six years early as the industry recovered more quickly than expected. Ford Motor, the third of the big three, avoided bankruptcy.

The repurchase announced on Wednesday values each GM share at $27.50, a 7.9 per cent premium to Tuesday’s $25.49 closing price.

Timothy Massad, assistant treasury secretary for financial stability, said the auto bailout had saved more than 1m jobs during the financial crisis. But the rescue – part of the wider Troubled Asset Relief Plan undertaken in the depths of the crisis – had always been intended as a temporary, emergency programme.

“The government should not be in the business of owning stakes in private companies for an indefinite period of time,” Mr Massad said. “Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down Tarp as soon as practicable and protecting taxpayer interests.”

The GM announcement is one of a series of moves in the past two weeks to unwind the US government’s continued exposure to Tarp. The Treasury last week sold its remaining shares in AIG, the insurer, and said earlier this week that it intended to make “significant progress” during 2013 winding down its bank bailout packages.

Michelle Krebs, an analyst at Edmunds.com, a car information site, said it would take years before the success of the auto bailout could be fully assessed.

But she went on: “There’s no doubt that General Motors is in a better position now than it was four or five years ago, and that’s all thanks to the government bailout with taxpayer money.”

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