Credibility and Closure for GM

Credibility. It's a precious commodity in the car business, something that's hard fought, easily lost and takes years to rebuild. And General Motors has just earned back a little bit more of its historic standing.

In sort of an early Christmas present to the U.S. government, GM said it will buy back 200 million shares of its common stock for $5.5 billion, or $27.50 a share. Moreover, the Treasury will completely sell off its stake in GM in 12 to 15 months, spelling an end to any notion of Government Motors.

If perception is reality, then not having Uncle Sam's perceived influence hovering over the nation's largest automaker is the definition of a credibility boost.

From a financial standpoint, this is not a good deal. GM actually paid more than its own stock was worth the day before the agreement was announced, tacking on a 7.9-percent premium over the closing price from Dec. 18. The stock remains well below its $33 price during the 2010 initial public offering, and it was trading around $27 a share on Dec. 19.

Regardless, GM should consider the arrangement a gift, since even with the slight sweetening, taxpayers will never recover their full investment in the automaker. The government sank $49.5 billion into GM to prevent the company from collapse and then rebound from its historic 2009 bankruptcy -- a monumental event that transformed the industry yet was more traumatic than perhaps anyone could have known at the time.

The scars remain, but a stronger company has emerged. And the feds have recovered $28.7 billion of their investment in GM, a figure that's actually pretty positive considering just how dire the state of the auto industry was in December 2008. The government will still own about 300 million shares of GM stock, or about 19 percent after the recent move, though that will be sold off by early 2014.

“This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future,” Dan Akerson, GM chairman and chief executive, said in a statement.

If it's possible to believe, GM's bankruptcy and the final financial details still being ironed out years later were not actually about raw numbers. In a results-driven world, the recovery of GM has been about people -- to the tune of 20,000 jobs created or retained since the auto industry rescue. Take that a step further: what would not having those jobs have meant to the banks and housing sector? How about suppliers and related industries? Dealers? The list goes on.

And if the government cashed out the rest of its stake at the selling price as of this writing, it would still grab another $8.1 billion, allowing taxpayers to recoup a total of $36.8 billion, leaving “only” a $12.7 billion write-off.

Let's put it in a different perspective. If a presidential candidate had advocated spending about $13 billion (or roughly the cost of two of the Navy's future generation of guided-missile destroyers) to create 20,000 jobs in a rocky economy -- they probably would have gotten a lot of votes this fall.

Finally, none of this accounts for the intangibles -- can you put a price on saving one of the enduring symbols of U.S. industrial might? History aside, GM will still have $38 billion in liquidity at the end of 2012 and has a viable business going forward.

In hindsight, perhaps the math did add up -- regardless of how the finances shake out.

Greg Migliore is news editor of Autoweek.

Photo by Greg Migliore/2009
General Motors has a decidedly different outlook today than it did in 2009.

By Greg Migliore