I have a quote in this Bloomberg article, but the more important stuff is further down in the article.


“General Motors Co.’s initial public offering showed that while U.S. President Barack Obama’s administration may lose billions on the auto-industry bailout, the national budget and economy might be better off for it.

The U.S. sold almost half of its stake in the nation’s largest automaker for $33 a share — about $10 less than it needs to break even. The remaining shares will need to sell for about $20 higher to make up the difference. GM opened at $35 and stayed within $1.11 of that price all day. Selling the remaining shares at that price would produce a loss of about $9 billion.

That may go down as a bargain. The U.S. would have lost $28.6 billion in spending on social services and missing tax revenue if not for the bailout of GM, its former lending arm and Chrysler Group LLC, according to a study released Nov. 17 by the Center for Automotive Research in Ann Arbor, Michigan.

“GM ends up an economic contributor to the U.S. economy,” said Barry Ritholtz, author of “Bailout Nation” and chief executive officer of New York investment research firm FusionIQ. “It’s manufacturing products, it’s creating jobs, it’s buying wholesale parts, it’s doing what an industrial company is supposed to do.”


Ok, that’s my quote — and please keep in mind, it was made in the context of “We should have done this to the banks, too.”

But to me, the really interesting aspect is who else gets paid back from the IPO:

“The government-sponsored bankruptcy reduced GM’s obligations and helped it become profitable in a below-average U.S. auto market. Before entering bankruptcy on June 1, 2009, GM had $54.4 billion in debt and owed an additional $20 billion to a retiree health-care trust managed by the United Auto Workers. GM had $88 billion in losses from the end of 2004 until going into bankruptcy.

GM now owes $15.6 billion in debt and preferred stock and $9.4 billion in underfunded retiree obligations. The company has made $4.77 billion in the first three quarters of this year. The old General Motors Corp. hadn’t made so much in the first nine months of a year since 1999 when it earned $5.75 billion.”

And, there is this from another Bloomie article:

“Creditors of General Motors Co.’s bankrupt predecessor, who will likely get about $5 billion from the new automaker’s $20 billion initial public offering, might be able to buy millions more new shares for as little as a third of yesterday’s price.

GM’s bankrupt estate was issued 150 million shares, or 10 percent of stock in the new company, to help pay off creditors. At yesterday’s closing price of $34.19, that stock is worth about $5.1 billion.

So-called Old GM has warrants that entitle it to buy about 273 million shares at between $10 and about $18 each, according to the company’s Nov. 17 filing with the U.S. Securities and Exchange Commission.”

Fascinating stuff . . .


Note: We do not have any position in GM stock or debt . . .


Too Bad Banks Missed Out On the GM Treatment (November 18th, 2010)

Chapter 11: IN RE GENERAL MOTORS CORP (November 19th, 2010)

GM’s Bailout Losses Worthwhile for Obama as IPO Shrinks Cost
David Welch and Craig Trudell
Bloomberg, Nov. 19 2010  

Old GM Creditors Get $5 Billion From IPO, More If Shares Rise
Tiffany Kary and Linda Sandler
Bloomberg, Nov. 19 2010  

Category: Bailouts, Consumer Spending, Economy, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “GM: The Most Successful Bailout Bankruptcy”

  1. “GM ends up an economic contributor to the U.S. economy,”

    So let me see if I have the math right:
    1. Creditors were owed $54 billion which went to $15.6 billion
    (not sure how much of this was secured)

    2. Retirees were owed $20 billion which went to $9.4 billion
    (not sure if this includes the underfuned pension or if this landed in the government’s lap separately)

    3. Creditors may receive $5.1 billion and may buy more stock through warrants.

    Seems to me that the Creditors are still short over $30 billion…

    The message here seems to be “Creditors Beware – do not invest in large U.S. companies potentially subject to government bailouts without a higher risk premium”….

    I believed that GM should be saved, and believed it was firmly in the U.S. interest to bail it out, however, I would have saved it primarily to provide a production platform for U.S. military and infrastructure needs and only secondarily as a consumer products company….

    Perhaps it should have been merged into Apple — then you would probably see some success on the consumer product side !

  2. Orson Wang says:

    Ritholtz: “GM ends up an economic contributor to the U.S. economy”.

    Via Andy Harless on Twitter: “To tally the Treasury’s net cost for the GM bailout, you need to recognize that Treasury is getting a kickback (taxes) on salaries paid.”

  3. Greg0658 says:

    ring around the rosey
    pocket full of posie
    ashes to ashes we all fall down
    humpty dumpty sat on a wall
    humpty dumpty had a great fall

    right after this period they added Jim Rickard (Omnis) in the middle of the chat
    BR – just for fun go out to dinner with Jim 1 of these days

  4. Bill W says:

    “The U.S. would have lost $28.6 billion in spending on social services and missing tax revenue if not for the bailout…”

    I love when self interested groups do self serving math to justify government largesse in their interest. I’m sure the good folks at “The center of Automotive Research” would never lie to us. Maybe they should spend more time researching how to build decent cars.

  5. number2son says:

    I would have saved it primarily to provide a production platform for U.S. military…

    WTF? When are we going to get over this toxic notion that the best thing the U.S. is good at is killing people or producing weapons for killing people?

  6. jdillonnyc says:

    (Reuters) – General Motors Co may have the world’s biggest initial public offering, but U.S. taxpayers were more than $9 billion underwater on the government-funded restructuring at its current share price on Thursday.

    A breakdown of the paper loss follows.

    * The U.S. Treasury loaned GM about $49.86 billion from late 2008 through 2009 to restructure the company and finance its move through bankruptcy and beyond.

    * Before accounting for the Treasury proceeds from the IPO, GM had repaid about $9.74 billion to the government. Those repayments included unused loans, the purchase of Treasury preferred shares, and dividends and interest. That left taxpayers owed a little more than $40.1 billion.

    * Including overallotments, Treasury will recover more than $13.6 billion by selling 412.3 million common shares, leaving taxpayers owed about $26.5 billion. Treasury would need to sell its remaining 500.1 million share-stake at an average price of about $53 for taxpayers to be repaid.

    * With GM shares trading at $34.50 Thursday afternoon on the New York Stock Exchange, taxpayers were facing an $18.50 per-share deficit on their remaining stake, or about $9.25 billion.

    SOURCES: Treasury public reports, GM SEC filings

  7. alpha_bet says:

    Interesting. Sounds to me like there is a ton of hidden share dilution coming down the line.

  8. number2son –

    You left out my comment on ‘infrastructure needs’ – GM should have been bailed out to retain productive capacity in the U.S. for building vehicles, trains, etc necessary for U.S. infrastructure, not just the military…

  9. b_thunder says:

    don’t forget that “new” GM may have improperly received the tax credits from the “old” GM:


    Improperly, however, would be for your company, or mine, but not for the Government Motors. so, “new” GM will likely NEVER pay any taxes in the USA. If Google pays virtually no tax on foreign income, i’m sure GM won’t pay a penny either. The 40+ billion in tax credits they have now will last forever, considering the level of saturation and competition in the domestic market.

  10. Pat Shuff says:

    The smashing success revisionism is half right anyway. I’m with Top Gear, there may have been good reasons
    for the very significant British car industry to disappear but at present none come to mind. Having said that
    there were myriad GM back door bailouts now crammed down the amnesia hidey-hole whether accounting gimmickry, GMAC, Delphi or even cash for clunkers. Wasn’t that a brief glint of steel slipping from the velvet glove, naming names of recalcitrant holdouts thus location of family for anyone interested.

  11. Compared the bank bailouts, when he handed over trillions in a panic — this one looks brilliant

    Granted, its a very low bar, but my comparos are AIG, Fannie, Mae, Citi and Bank America — this one is the clear winner

  12. True enough as to the “low bar” — and Fannie Mae is not finished yet either…..

    Let us hope that the U.S. does not go further down the road to what the U.K. has become, in terms of having a hollowed out productive infrastructure and being reliant on the financial services industry….

  13. Compared to the bank bailouts, particularly TARP, indeed, I’d give this one a better grade for its efficacy, except that TARP, love it or hate it, was done through normal legislative channels–TARP was voted on by duly-elected representatives of the people and carried the force of law. It did not do great violence to the rule of law. GM’s (and Chrysler’s) bankruptcy shenanigans did. And lest we forget, the financing arm of GM, GMAC, is into the taxpayers for about $20 billion as well.

    Also, what B Thunder said regarding tax credits. And what Bill W said regarding the study conducted by an entity that is at least as conflicted as your average bond rating agency.

    I remember way back in college in the early eighties when the slide in competitiveness for domestic car manufacturers really got rolling that it was estimated in one of my econ classes that we’d do better for the economy as a whole if we paid every laid-off autoworker about $60,000 to go away, instead of throwing up import barriers to protect their jobs. I think the calculus still holds today, even though import barriers aren’t needed anymore, as foreign car makers have located their factories here now.

    What we did in rescuing GM and Chrysler is effectively paid a premium to keep old American icons afloat because we are so rich we could afford to indulge in the luxury of doing so. Had both been allowed to fail, all those factories and workers could have been put to use by car manufacturers that understand how to profitably make cars that people wish to buy. We have rewarded incompetence and punished efficiency, never a good strategy for long-term economic viability.

  14. BuffaloBill says:

    Sure – GM is now a highly competitive corporation. That’s why the pricing on the Volt begins at $41,000 for a fancy golf cart and ends with a “cash-for-clunkers” style tax credit of $7,500?

    Adding in the “old” GM tax-credits of $40 Billion makes them even more competitive – right?

    Meanwhile – we’ve trampled all over “rules of law” to find a balance sheet we are told in the prospectus that we simply can’t trust.

    Financial shenanigans.

    I’d laugh at this but those are my “Tax Dollars At Work!”

  15. DeDude says:

    Glad to see someone put a number on the cost of collateral damage from a bankruptcy to society. Anybody thinking that a bankruptcy would have resulted in anything but an auction of assets has forgotten the how things were back them. The ability to keep workers employed paying taxes and consuming is pretty important in an economy that is 70% consumption. Retaining “on the floor” manufacturing expertise in America is another tangible benefit although putting a number on that is impossible. If “we the people” takes a loss of just 10 billion on this bailout, we got one heck of a good deal.

  16. VennData says:

    There was no trampling over the “rule of law,” it was a prepackaged bankruptcy. Perfectly legal.

    Just more inaccurate GOP spiel. Which ALWAYS leaves out the tax benefit of people paying their taxes ,,, so much for their “dynamic scoring” concenpt they use when it suits them, and don’t when it doesn’t.

  17. Bill W says:

    I think that arguing over the short to medium term cost of the bailout is missing the point. Did we make the economy stronger in the long term? I would argue no.

    Capitalism is a system of creative destruction, not a system of dinosaur preservation. How many potential auto companies did we squash be keeping GM alive. Is it morally right to eliminate opportunities for future entrepreneurs, because we want to preserve the wealth of those who were greedy and incompetent in the present day. Avoiding pain in the short term rarely leads to gain in the long term.

    Maybe we did save money by bailing out GM. We could save money by eliminating unemployment benefits. Would that be he best thing for society? Would it be the moral thing to do?


    BR: Again, my comparison was with the banks. We should have done the same to the banks — not get in the way of the insolvency and inevitable bankruptcy . . .

  18. DL says:

    Too much bailing out of the UAW.

    Too much shafting of the bondholders.

    (However, politically astute bondholders should have seen it coming).

  19. Those ‘old GM’ warrants should exercisable into OLD GM stock and not new stock.

  20. DL says:

    I would have liked to see the Paulson/Bush/Obama triumvirate do to the bondholders of the large banks what Obama did to the bondholders of GM.

  21. DL says:

    DeDude @ 11:25

    “The ability to keep workers employed paying taxes and consuming is pretty important …”

    I’m in favor of doing what we can to minimize unemployment, but “jobs” per se is not the only issue. When the Federal taxpayers are footing the bill, questions arise as to how much the people should get paid, what the benefits should be, and to what extent Federal taxpayers should be forced to bail out pension funds of private company workers (to say nothing of Federal bailouts of state pension funds).

  22. toolman335 says:

    Carmudgeon, I agree with almost everything you say.

    Barry, I apologize for writing material earlier in the day that you deleted. I highly respect how you respond to so many posts on your blog.

    While the GM deal may be better than the other debacles from the last few years, I agree with whoever said that The Lehman situation was the BEST thing to happen during the latest string of bailouts. Fantastic.

  23. DeDude says:

    DL; the taxpayers are footing a very small part of the bill. The beauty is actually that they are footing a much smaller bill than they would if they had let the company dissolve. In case of the private companies the issue of pensions are simply whether the workers who created the value of the company should get a bigger share of the profit or the Wall Street billionaires who manipulate stocks should harvest the fruits of these workers labor. All pensions (private or public) are part of the promise given to a worker when you hire them and should be paid up. All these attacks on pay and benefits of regular hard working people are just another piece of the scam to redistribute income from the lower classes to the rich.

  24. “In case of the private companies the issue of pensions are simply whether the workers who created the value of the company should get a bigger share of the profit or the Wall Street billionaires who manipulate stocks should harvest the fruits of these workers labor.”

    ~Huh? I think the question is whether pension obligations are secured or unsecured creditors in bankruptcy. Until GM/Chrysler, the answer was no. Now it’s anybody’s guess. The operative policy question is which should be paid first, pension obligations or secured creditors. If you believe that pensions should be paid first, that’s fine, but how ’bout letting bondholders know this snippet of truth beforehand next time. It might affect their decision about whether or not they should lend money.

    “All pensions (private or public) are part of the promise given to a worker when you hire them and should be paid up. All these attacks on pay and benefits of regular hard working people are just another piece of the scam to redistribute income from the lower classes to the rich.”

    ~The lower classes’ (since when did we acquire classes in America?) best protection against the rich or anyone else is a system of laws, not men. That the men running the federal government chose to contravene law in order to benefit all those, I guess, lower-class union workers pulling in $50k+ in salary and benefits, is nice for them. This time. Next time, different men may choose differently. The genie’s out of the bottle. Laws now mean whatever the one with the biggest stick says they mean. In a Hobbesian world such as this, the least powerful (lower classes?) are bound to ultimately become nothing more than serfs and slaves.

    “There was no trampling over the “rule of law,” it was a prepackaged bankruptcy. Perfectly legal.”

    Whether the extortion happens before the bankruptcy or during it is immaterial. It was extortion by the single most powerful entity on the face of the earth. Not surprisingly, the guys with the biggest stick won.

  25. Bill W says:

    I got off the topic of the original article in my last post.

    I agree, if you are going to bail a company out, the way it was done with GM is much better than what happened on Wall Street. At least the shareholders, management, and executives felt some pain. The government will get some cash back from its “investment.” Moral hazard was preserved.

    If I can get off topic again. I just don’t believe that any manufacturing company should be bailed out. We have an FDIC to protect depositors. The last thing we need a complete loss of faith in banking where money is buried in back yards and little old ladies have to beg for dog food because their saving were wiped out.

    When the FDIC takes over a bank, there is nothing that says everyone won’t be fired and every branch won’t be closed. If there is real value, the banks will stay open.

    There was real value in GM, liquidation or not. Auto manufacturing in the United States will live on. I do actually think the Chevy Volt is a game changer. I just think Toyota will be doing it better sooner than you think.

  26. DeDude says:

    “since when did we acquire classes in America?”

    You are either kidding me or you have been living in a curmudgeon cave for the past 3 decades. We are currently living in a Hobbesian world where the lower classes are nothing more than serfs and slaves for the rich bastards. That is also why there is little chance that we get the law changed such that the promises to the workers takes priority over any other promises (senior, super-senior, etc.). If the serfs every now and them manage to stick it to the rich bastards – I’ll cheer them on. The whole thing will eventually collapse if we continue to transfer income from the lower classes to the rich – so ironically enough that is also in the best interest of the rich. After the supreme serfs on our supreme court declared personhood for our corporate masters we lost any chance of reverting to a system of laws –so a system of man is our best chance.

  27. Rikky says:

    speaking of the Volt let me see if i have this straight. sans the government ‘subsidy’ you’re paying about $15k more than a ‘gas guzzling’ Corolla. According to GM you’ll pay 2 cents a mile versus 10 cents per mile @$3 a gallon gas equivalent. so to make back my $15k i’d have to drive 187,500 miles to break even on energy costs. this doesn’t include the higher maintenance costs on the Volt. but hey its all in the name of not using non-renewable energy even if the math sucks right?

  28. DeDude says:

    The GM bondholders got a lot more than they would have gotten if the company had been auctioned off in parts. The more greedy bondholders are now crying foul because they wanted a solution (to their own stupid investment decisions) that channeled more government dough into their pockets, and less into the workers pockets. Sorry but the government should be worried about the workers because government lose when workers lose (pension guarantees, social cost, etc.). There is no loss to society when rich greedy bastards, who wanted the extra yield of corporate bonds, lose money. I am happy that the Obama administration learned from the Bush administrations mistakes with the banks and did not allow some little spoiled brads to blackmail them into covering 100 cent of the dollar under threat of blocking a deal and have everything fall apart. Spoiled little brads need a spanking not a reward.

  29. Rikky says:

    DeDude you are shifting outside the argument with Curmudgeon, which by the way is dead on. i’m not questioning your desire for leverage and overall fairness for the ‘serfs’, but we have a rule of law that must be followed. first and foremost laws are meant to protect the populace and when you subvert this even in the face of a beneficial outcome you’ve committed a breach essentially opening up pandora’s box. there are few constants in the world that are positive i’d like the law to be one of them.

  30. Bill W says:


    I don’t disagree with your astute financial assessment of the Volt, but how much did an LCD TV cost five years ago? What was the quality? You would be correct to argue that government subsidies were unnecessary in that case, but I think the subsidies make sense for the Volt.

    I believe it’s a matter of national security. Our energy infrastructure is extremely vulnerable to attack due to it’s highly centralized nature. I think we need to decentralize it, and a fully electric car with the ability to run on gasoline (Or theoretically, any other fuel that can run a generator.), could be part of that solution. Electric cars could offer energy storage, and back up power to the grid in an emergency. They can even generate power for the grid in an emergency.

    As I said before, I think GM is a broken company. It’s broken financially, and more importantly it’s broken culturally. Someday you will be drive by a broken down Chevy Volt in your Ford or Toyota electric car. I hope it’s sooner than later.

  31. DeDude says:

    If a law was broken (government did something it had no legal right to do) then you can sue them. I am sure they will claim that nothing illegal happened. Without seeing the arguments in court as to why one part think it was illegal and the other part think it was legal, all I can judge is the outcome (which turned out to be in the best interest of all parties).

  32. DeDude says:

    I do believe this was a court approved pre-packaged bankruptcy so the question is whether it followed the law regarding those kind of things (not whether a different arrangement would perhaps have given less money to this or that party of interest). As the sponsor of this salvation, the government certainly has a right to dictate who they want to shower with how much money in a specific deal – nothing illegal in that.

  33. philipat says:

    In the Banking comparison, Swedish as opposed to Sushi model? Namechange to Saab seems almost appropriate?

  34. DL says:

    DeDude @ 5:23

    My understanding is that many of the GM bondholders were financial institutions that had received TARP money.
    Obama “owned” those companies. They couldn’t sue.

    There were a few who were in a position to sue, but for one reason or another didn’t (maybe they were bribed or bullied, I don’t know).

  35. DeDude says:

    “maybe they were bribed or bullied”

    Or maybe they realized that they didn’t have a legal leg to stand on :-)

  36. emailcraigs says:

    Yes, fascinating. Its going to make great digital copy when someone writes the story of how the financially dominant oligarchy of the early 21st century bilked the prior citizens, of the now defunct United States, out of Billions of dollars all in the name of….well….keeping themselves rich. Wait, what am I thinking…the victors write history…..where is that “Center of Automotive research” report. I see some plagiarism coming in the future.

  37. [...] return was not a product of individual perseverance or distinctive ingenuity. General Motors was resurrected by the confiscated benevolence of an overprotective government, and billions of dollars [...]