The government has reached a deal with Fiat to sell its remaining 6% stake in Chrysler for $500 million and is preparing to unload its remaining GM shares later this year, according to numerous reports.
Based on GM's current share price, the entire auto industry bailout will end up costing U.S. taxpayers $10 to $12 billion; that's money well spent, according to Steven Rattner, the former head of the government's automotive task force and author of Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry.
"As an economic recovery matter, the $10 billion plus or minus the auto intervention will cost was a great deal for American taxpayers and a critical part of the economic recovery," Rattner says. "We saved 2 or 3 million jobs, at least in the short run, because the entire industry would have shut down had we not helped these two companies because of the interlocking nature of the suppliers."
Furthermore, the final cost of the bailouts is now projected to be 60% less than the Treasury Department previously estimated.
Given all that, Rattner has little patience for those who still believe the auto bailouts were a mistake, declaring "chaos and economic devastation" would have occurred in the Midwest had the government failed to step in. "That to me seems completely clear: I cannot even understand an argument for what else could have possibly happened," he says, suggesting there was "just no [private] capital" to support GM and Chrysler in late 2008-early 2009.
Seeking Bailout Balance
As noted above, the new projected loss on the auto bailouts is based on GM's current stock price, which is trading about 11% below its IPO price of $33. The government still owns 26.5% of GM and White House officials said this week the government will seek to exit its remaining stake as soon as possible, most likely by the end of the September.
"As a pure investment matter, if I were managing this piece of capital, I would hang on at the moment," says Rattner, the co-founder of private equity giant Quadrangle Group. "I've got my fingers crossed the market will generally improve and GM with it and the government will be able to get out and it'll be a good outcome for everybody."
Citing its improved capital structure and lower cost basis, Rattner "remains optimistic" on GM stock, although he declined to say whether he owns it or not.
"I'm a believer in GM and therefore one could assume I'm a believer in GM stock, but I also get the fact the government should not be owning GM or any part of its stock," he says. "It's a tough balancing act."
- cost basis
- private equity
- Steven Rattner
- Quadrangle Group
- capital structure
- task force