In November 2013, one of the largest bankruptcies in U.S. history came to an end when the Treasury Department announced it would sell its remaining 31.1 million shares by the end of the year. The $51.043 billion bailout will only cost taxpayers $10.4 billion. Treasury recouped the other $39.6 billion by selling its shares of GM stock. Treasury also gained back $12.23 billion of the $16.29 billion it invested in GMAC. The automaker's finance arm has been renamed Ally Financial Inc., and it's still mostly owned by taxpayers. (Source: WSJ, U.S. to Sell Rest of GM Stake by Year-End, November 22, 2013)
The government's goal was to make GM more efficient, so it could become profitable when U.S. auto sales returned to 10 million vehicles a year. Sales hit a peak of 17.296 million in September 2005, but fell until they hit their low point of 9.545 million in June 2009 -- the same month GM filed for bankruptcy protection. Sales returned to 10.758 million in Julu, when GM emerged as two separate companies. Old GM held most of the debt, while New GM held the assets, $17 billion in debt, the contract with unions, and its underfunded pension funds. (Source: Macrotrends, Auto Sales Historical Chart )
The U.S government bought 60% of GM in return for the funding needed to keep the company afloat while it was reorganized. Canada bought 12%. A union health trust received 17.5% stock ownership in lieu of the $20 billion needed to cover benefits for 650,000 retirees. Bondholders received 10% stock ownership in lieu of $27 billion in bonds. GM shut-down 11 factories and closed 40% of its 6,000 dealerships. On May 2, 2009, GM stock fell below $1 a share for the first time since the Great Depression. (Source:CNN, "Bankruptcy Judge Approves Sale of GM Assets," July 6, 2006; Washington Post)
Here's a timeline of GM's bailout, explaining why it happened.
4. Dec 08 - What's Good for GM Is No Longer Good for the Economy
In 1953, former General Motors President Charles Wilson said "What's good for our country was good for General Motors, and vice versa." However, that statement is no longer true.
The bailout will really only make a difference for GM, since Chrysler was sold off and Ford didn't really need the cash. With or without the bailout, GM will cut production, jobs and dealerships, as it should have done years ago. Ford, Toyota and Honda will pick up market share and increase factories and jobs in the U.S. once the recession is over. The loss of GM will be like the loss of Pan Am, TWA and other companies that had a strong American heritage, but lost their competiveness -- perhaps a tug on the heartstrings of America, but not really bad for the economy.
The auto industry contributes 3.6%, or $500 billion to total U.S. GDP output. This means that the current 30% decline in auto sales will translate directly into a 1% decrease in economic output. However, these figures include foreign-owned as well as the Big 3 auto makers. The economic slowdown is causing GM to slash its employment and production, whether it receives a bailout or not. Furthermore, once the recession is over, Toyota and Honda will continue to increase their U.S. factories. As a result, the auto industry bailout is not seen as critical to the U.S. economy as the rescue of AIG or the banking system, and not a good use of the $700 billion bailout fund.
6. Mar 09 - Feds Take Over GM, Chrysler to Protect U.S. Auto Industry
The Federal Government took control of GM and Chrysler. The Feds fired GM CEO Rick Wagoner, and require that Chrysler merge with Italy's Fiat SpA. In return, the government will loan both companies enough funds to stay afloat and provide incentives to spur new car purchases. In effect, the government is nationalizing the two auto-makers just as it did AIG, Fannie Mae and Freddie Mac. Obama's goal is to force the companies to change strategy, and become more competitive in the global economy.
Government funding provided many incentives for new car buyers.
- The government backed all new car warranties.
- The Economic Stimulus bill allowed new car buyers to deduct all car sales and excise taxes. For details on this program, see IRS Pushes New Car Tax Break.
- Part of the $700 billion EESA fund was used to subsidize zero percent financing for some Chrysler vehicles, and to lend $24.5 billion to GM, Chrysler and their financing divisions.