Let go of ‘Government Motors’

The taxpayer bailouts of General Motors and Chrysler kept the companies afloat while they went through bankruptcy, averting liquidations that would have caused catastrophic job losses across the U.S. auto industry at the height of the recession. One consequence of the intervention, however, is that the government is still holding on to more than a fourth of GM’s stock. The Treasury Department argues that the time isn’t right to sell and that GM’s shares are undervalued by the market. Maybe so, and maybe the ultimate cost to the taxpayers would be lower if Washington held on to the shares longer. But there’s a more important principle at stake, namely that the government shouldn’t have an ownership interest in private companies.

The Bush and Obama administrations tapped the $700-billion Troubled Asset Relief Program for about $80 billion in loans to GM, Chrysler and their consumer-lending businesses. Much of the debt was converted into equity as part of the bankruptcy process, leaving the feds with sizable holdings in the two companies.

The new, post-bankruptcy Chrysler — owned by Italian automaker Fiat — bought out the government’s stake, with a net loss to the taxpayers of $2.9 billion. The feds’ stake in GM was much larger, though, and the Treasury Department didn’t want to sell it all at once for fear of flooding the market and lowering its returns. So far the Treasury has recovered almost half of the $49.5 billion loaned to GM, and it still holds 500 million of the company’s shares.

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Selling those shares at their current price would leave the Treasury with a loss of about $15 billion on the GM loans. Of course, dumping that many shares on the market all at once would probably drive the share price down, increasing the government’s losses and hurting other GM investors. Assistant Treasury Secretary for Financial Stability Timothy G. Massad told CNBC last week: “We’ve made it clear we’ll be patient. So we’ll sell when we think the time is right.”

A more cynical explanation is that delaying the sale helps President Obama on the campaign trail — he can tout the success of the auto bailout without having to acknowledge its ultimate cost. Regardless, when you factor in the jobs preserved across the auto industry as well as the damage averted to communities dependent on those jobs, the bailout saved the taxpayers and the economy far more than it cost. On the other hand, continuing the government’s stake in GM invites accusations that Washington is tilting the playing field to favor its investment and that it’s forcing the automaker to support the administration’s agenda. GM says Washington plays no role in its decisions, yet the company is still stigmatized among some consumers as “Government Motors.”

The administration has accomplished what it hoped to with its loans to GM. The company has restructured and cut its production and distribution costs significantly, and appears self-sustaining. The Treasury should sell its holdings in an orderly fashion and leave the auto industry to private investors.