Government sale of GM will cost taxpayers

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(MoneyWatch) The government's decision to sell its remaining shares of General Motors (GM) means the automaker's bailout will likely wind up costing taxpayers at least $10 billion. If you include the bailout of GMAC, now a separate entity operating as Ally Financial, that number could swell to at least $15 billion.

In 2009 the Obama administration bailed out GM and Chrysler in an ultimately successful effort to save jobs by keeping the companies in business. The government spent $49.5 billion to stabilize and restructure GM and has so far recouped $28.7 billion of that.

Wednesday the Treasury Department announced plans to sell of its entire stake in the automaker over the next 15 months. GM has said it will buy back almost half of that stake, 200 million shares, for $5.5 billion by year end. GM is buying back its stock for $27.50 a share, 7.9 percent more than the current trading price.

If GM's stock price rises over the coming year and the government is able to sell the remainder of its shares at the same price it will have lost $10 billion on the deal. The company's shares have gained 26 percent this year. Yesterday's closing level, $25.49, was 23 percent lower than the company's IPO price of $33 a share.

It's estimated that the stock would have had to trade at about $53 a share for the government to have made back all its money. The Treasury Department has said all along that it expected the auto makers' bailout to lose money. It expected those losses would be covered by the rescue of AIG -- which the government has so far made $22.7 billion on -- and the bank recapitalization program.

Also, the losses incurred on the GM bailout do not include revenues generated indirectly by income taxes from workers who would otherwise have had to be laid off and businesses which depended on GM for revenues.

The automaker was not the only part of GM to need a bailout. The government still owns 74 percent of Ally Financial, the bank formerly known as GMAC. To date, the department has earned back about one-third of its initial $17 billion investment. It is far from clear when the government will be able to sell that stake. That is unlikely to happen at all unless the company goes public or sells itself to a private equity firm. Ally has made no indication that it is preparing to do either yet.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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