NCPA - National Center for Policy Analysis


July 1, 2009

If a new General Motors emerges from bankruptcy as planned, U.S. financial aid for the company will expand to nearly $50 billion, but neither the government nor the company is forecasting how much of the public money will be repaid.  For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained, says the Washington Post.

"I don't know how much we're going to recover," a senior Obama administration official said as the company headed into bankruptcy last month.

According to the Post:

  • This uncertainty stems from the difficulty in valuing the 60 percent GM stake that the United States will receive in exchange for the public investment; the government also gets preferred shares and other compensation.
  • The stake will be worth enough to fully cover the government's direct investment only if GM's stock rises above $68 billion; even at its recent 2000 peak, GM's stock was worth only $56 billion.

"I don't see GM hitting those benchmarks in a very long time," said Maryann Keller, a veteran automotive analyst and author of "Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors," which was published in 1989.

She noted that global competition will continue to squeeze American automakers.  Though the world's factories can produce about 100 million vehicles a year, demand for them only stands at about 55 million, and the gap will push prices and profits down, she said.

"It's very unlikely" that the government will recover its money, said David Whiston, auto equities analyst at Morningstar.  "GM will be a smaller company after the bankruptcy and there are going to be more foreign automakers entering the market that will make GM's efforts more difficult."

Source: Peter Whoriskey, "Uncertainty clouds recovery of U.S. investment in GM," Washington Post, June 30, 2009.

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