U.S. plans to exit GM stake by year-end, may lose $10 billion

By Paul Lienert

DETROIT (Reuters) - The U.S. Treasury Department said it expected to sell its remaining shares of General Motors Co by the end of the year, a plan that may leave taxpayers with a shortfall of about $10 billion on the automaker's 2009 bailout.

Treasury on Thursday said it had completed the sale of 70.2 million shares of GM stock and to date had recouped $38.4 billion from the $49.5 billion taxpayer-funded rescue of the Detroit company.

At current prices, Treasury would recoup another $1.2 billion from its remaining stake of 31.1 million shares, bringing its total recovery to $39.6 billion. Treasury said its initial cost basis for the GM shares was $43.52 per share.

Treasury previously said it expected to exit by April 2014, but analysts had expected it to move up the final sale date.

"Our goal was never to make a profit," said a Treasury official who requested anonymity. "It was to save the U.S. auto industry."

U.S. auto sales through October have risen 8.4 percent, with sales expected to top 15.5 million for the full year - comfortably above the recessionary trough of 10.4 million in 2009.

The Detroit automakers are profitable, too, although GM's net earnings for the first nine months dropped to $4.3 billion from $5.0 billion in 2012. One thing that hasn't changed is that the majority of those profits are still driven by large pickup trucks and SUVs, which contribute more than two-third of GM's global pre-tax earnings.

Treasury said the final GM share sale would take place by year-end, subject to market conditions and if average daily trading volumes continue at recent levels.

GM stock was up 1.7 percent at $38.36 in afternoon trading.

Analysts have said Treasury's exit from GM would lift the "Government Motors" stigma from the automaker, which would also be able to begin paying dividends for the first time since the restructured company returned to the market with an initial public offering three years ago.

Treasury's sale of the shares "could lead to the lifting of compensation limitations for GM's key executives," Buckingham Research analyst Joseph Amaturo said in a Thursday note to clients.

The removal of those restrictions also may enable GM to offer a more generous and competitive compensation package if the board elects to search for outside candidates to succeed Chief Executive Officer Dan Akerson, said analyst Matthew Stover of Guggenheim Securities.

In a quarterly filing to Congress in late October, the U.S. government said it already had booked a loss of $9.7 billion on its shares, which were acquired as part of GM's Chapter 11 bankruptcy filing and subsequent bailout.

Treasury since then has whittled down its GM stake through a series of stock sales.

A healthcare trust for the United Auto Workers union still owns a stake of about 10 percent in GM.

"While the U.S. Treasury's equity stake draws to a close, our work to transform GM continues," GM said. "We're making great progress in our efforts to make the most of this second chance."

A GM spokesman on Thursday said the company since July 2010 has invested $8.8 billion in 34 U.S. facilities, "saving or creating more than 25,000 jobs."

The GM bailout was implemented under the government's Troubled Asset Relief Program (TARP), which disbursed $421.6 billion and has recovered $406.7 billion. The total does not count Treasury's additional shares in AIG, which Treasury valued at $17.6 billion in a Wednesday report.

(Additional reporting by Timothy Ahmann and Jason Lange in Washington; Editing by Lisa Von Ahn, Gary Hill)