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GM Soon to Not Be Government Motors: Lessons of the AIG Exit

Jon C. Ogg

General Motors Co. (GM) soon will have less and less government (and taxpayer) oversight. Ongoing share sales have now reduced the government ownership to about 7.3%. This is still a significant stake on the surface, but the reality is that we may be only a few months away from the government being entirely out of owning GM common stock. In fact, 24/7 Wall St. believes that the Treasury could exit its GM ownership entirely as soon as the end of 2013, rather than in early 2014 as has been suggested.

The Treasury now owns 110 million shares, but you have to recall that Uncle Sam was the majority holder after the bailout. The bondholders of the old GM owned the rest, outside of the unions' stake. Uncle Sam has received about $35 billion of its nearly $50 billion bailout back. The current stake is worth close to $3.7 billion.

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If you just use simple math, the net loss to the government for its bailout may be around $10 billion. In reality, it is much less because the transition from bankruptcy was close to seamless, and the thousands of job disruptions that were spared contributes directly as tax revenue for their salaries. It also contributes to the spending.

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The size of the loss is may not matter to the government, which has maintained that the goal was the preservation of jobs over a profit. Interestingly enough, the government agencies keep going after the banks, even though the banking bailout generated a profit for taxpayers. But that is a different story.

The sale of GM stock from the Treasury in August came to the tune of $877 million. The Treasury does not want to pressure GM's share price down, but it may want to consider that as it came closer and closer to its American International Group Inc. (AIG) exit the shares rallied. Perhaps the same could be true for GM, and perhaps the Treasury could exit before the end of 2013, versus by March of 2014 (or so) as has been telegraphed.

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If you will recall, it took years for the Treasury to exit AIG. It did so with a profit. Now AIG is operating without the government in its board room. The media and government relations with the auto sector have been far less hostile than they were with the financial sector, but it should be pointed out that the Big Three did not exactly create the financial crisis, even if their downfall was due to internal issues that had to be fixed.

As a reminder, this matters for Chrysler. We recently highlighted the risks that could drive the Chrysler IPO to be a bust for investors.

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