GM executives hope that the government’s sale of its remaining shares will help General Motors Company (NYSE:GM) finally escape the “Government Motors” moniker that has clung to it for several years. The stigma of receiving a bailout has driven some potential investors away, and more importantly, it has alienated a large swath of potential customers in the U.S. However, I do not expect the government’s sale of its shares to help GM in any way, and in the next few years, it could actually exacerbate GM’s PR problems. The main problem for GM is that when the Treasury finally exits the investment, it will confirm that the U.S. has lost money on GM. This is likely to further ingrain the widespread perception that GM has taken advantage of U.S. taxpayers, and it could take many years for Americans to “get over” the company’s bailout.
Bailout stigma has deep roots
The TARP bailouts of the auto industry have been incredibly divisive from day one. Supporters argue that, due to the credit crunch, the only alternative for General Motors Company (NYSE:GM) and Chrysler would have been liquidation. This would have resulted in the loss of hundreds of thousands, or even millions of jobs. Some opponents of the bailouts have argued that the free market should have been allowed to work, even if that meant the liquidation of one or both automakers. Others supported the concept of the bailouts, but argued that the bailouts were structured in a way that unfairly helped union workers and retirees at the expense of creditors and taxpayers.
Over the last several years, this significant backlash has helped Ford Motor Company (NYSE:F), and even (to a lesser extent) foreign automakers, as some individuals have boycotted General Motors Company (NYSE:GM) and Chrysler on principle. Ford Motor Company (NYSE:F) took advantage of this sentiment with a controversial ad campaign in late 2011, highlighting its independence and American values. Despite airing nearly three years after the auto bailouts were initiated, the ads struck a responsive chord among many Americans, while irritating others (including the Obama administration). Americans can be slow to forgive what they see as an injustice, and as the largest U.S. automaker, GM has borne the brunt of this backlash.
Hard feelings will remain
While GM executives hope that the end of government ownership will improve the company’s public image, General Motors Company (NYSE:GM) is likely to take a hit initially, as the government calculates its losses from the GM investment. At the end of March, the Treasury had recovered $30.4 billion of the $49.5 billion it originally invested in GM through the TARP bailouts. In order to break even, Treasury would need to sell its remaining shares for an average of roughly $79. Considering that GM’s 52-week high is $32.44, it is safe to say that the losses will be substantial. At the 52-week high of $32.44, the Treasury’s proceeds on its remaining shares would be less than $8 billion, leaving it with an 11-figure loss: significant even by U.S. government standards.
It will take almost a year for the Treasury to sell its remaining shares, and it could take several more months to calculate the final cost of the GM bailout. It is reasonable to expect another round of criticism after these numbers are released. After that, GM can hope that potential customers begin to put the bailout in the past, but it would not be surprising if it takes several years of continued success for bailout-mania to fully recede.
The article U.S. Treasury Prepares to Wrap up Auto Bailout: Will It Help GM? originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Motley Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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