General Motors plans to purchase 200 million shares of the company currently owned by the federal government for $5.5 billion, although the sale will still result in billions of dollars in losses for taxpayers.
GM will pay $27.50 for the stocks, which are being held by the U.S. Department of the Treasury. The treasury department plans to sell its remaining 300 million shares in GM on the open market in the next 12 to 15 months. This means the government will no longer own any stock in GM.
GM payment for the stock is about an 8 percent premium over Tuesday’s closing price of $25.49. The shares went up about 7 percent to $27.30 in Wednesday morning trading.
The government is almost certain to lose billions on the $49.5 billion bailout that saved GM from being auctioned off in pieces during the financial crisis in 2008 and 2009.
The Treasury department says it will have recouped about $28.7 billion after GM completes its buyback. So, to break even, the department would have to sell the remaining 300 million shares for an average of about $70 each.
This decision shows “in three short years” GM has recovered enough to go on its own, said Glenn Johnson, president of United Auto Workers Local 1112 in Lordstown.
“The government, like any other stockholder, had the ability to sit on the stock longer and wait for the price to go up,” he said. “The company had a good reason for offering the deal; and the government must have had a good reason to accept.”
The stock increase after the announcement shows the public thought the decision by GM and the government was correct, Johnson said. “Hopefully, the announcement and stock increase that came with it will help the government recoup more money when those shares are sold,” said Dave Green, president of UAW Local 1714 at Lordstown. “I think a lot of people wanted to see the government get out of the auto business.”
“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,” said Dan Akerson, chairman and CEO of GM.
The office of U.S. Rep. Tim Ryan of Niles, D-17th, issued this statement about GM buying back stock and the corresponding sale: “The Treasury announcement of the sale of GM stock validates what we have been saying all along — the rescue package kept our auto industry solvent and our auto workers on the job.”
An Associated Press report contributed to this story.