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By Catholic Online (NEWS CONSORTIUM)

7/5/2012 (2 years ago)

Catholic Online (www.catholic.org)

Unlikely the Obama administration will sell off GM stake before Election Day

General Motors shares fell to a new 2012 closing low of 19.57 this week. The stock hit 19 last December, the lowest since the car maker came public at $33 in November 2010 following its June 2009 bankruptcy.

The Volt hybrid was supposed to provide a green veneer to GM's entire lineup, much in the manner of what the Prius did for Toyota.

The Volt hybrid was supposed to provide a green veneer to GM's entire lineup, much in the manner of what the Prius did for Toyota.

Highlights

By Catholic Online (NEWS CONSORTIUM)

Catholic Online (www.catholic.org)

7/5/2012 (2 years ago)

Published in Business & Economics

Keywords: GeneralMotors, Government Motors, tax breaks, stockmarket, Volt


LOS ANGELES, CA (Catholic Online) - Dubbed "Government Motors" by some, this would be bad news for those who invest in GM - but it's a much larger issue here. The Treasury still owns 26.5 percent of GM, or 500 million shares. Taxpayers are out $26.4 billion in direct aid. In essence, shares would have to hit $53 for the government to break even. GM stock is worth about $9.8 billion as of the beginning of this week, leaving taxpayers with a loss of $16.6 billion.

U.S. President Barack Obama let GM keep $45 billion in past losses to offset future profits, which are usually wiped out or slashed, along with debts, in bankruptcy. The White House essentially gifted $45 billion in write-offs to GM. So when GM earned a $7.6 billion profit in 2011, no taxes were paid. Including the $18 billion gift, the taxpayers' true loss climbs to nearly $35 billion.

It is highly unlikely that the Obama administration will sell off its GM stake before Election Day, forcing Obama to recognize actual losses, which would remind voters that the bailout was a massive transfer from taxpayers to unions.

Union workers made sacrifices in bankruptcy, but not nearly enough, as GM only narrowed the labor cost gap vs. what Japanese automakers pay their workers. Given that Toyota still enjoys a price advantage over similar GM vehicles, the U.S. auto giant needs a labor cost advantage, not near-parity.

The Volt hybrid was supposed to provide a green veneer to GM's entire lineup, much in the manner of what the Prius did for Toyota. The Volt instead has become a public relations disaster following fires and anemic sales that led to a temporary production halt earlier this year.

GM's market share and profits got an artificial boost in 2011 as Japan's earthquake and Thailand's massive floods wrecked havoc with supply chains for Toyota and other Japanese automakers. Toyota is now happily back on track and VW and Hyundai are both expanding in America.

Overall U.S. auto sales were strong to start the year, but that momentum has faded along with slowing economic growth and hiring. Falling gas prices also may reduce the incentive to replace aging cars and trucks with higher-mileage vehicles.

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