General Motors Company (GM) Has Done Its Share, But Taxpayers Are Still In The Hole

To break even, Treasury would have to get about $125 per share for its remaining shares. But GM’s stock is currently trading around $36. At current prices, the Treasury’s remaining stock is worth a little over $4 billion.

You see the problem.

When all is said and done, we’ll be out about $10 billion
Unless GM’s share price suddenly takes off in a big way, Treasury is likely to come up about $10 billion short once it sells off its remaining GM stock.

What happens then?

Legally speaking, nothing has to happen. As I said, GM already satisfied the terms of the deal.

Now, we could argue that General Motors Company (NYSE:GM) might have a moral obligation to make taxpayers whole. GM does have a lot of cash on hand, as a reserve against the next big recession.

Of course, as an investor, I need to point out that holding a big cash hoard is a smart move by GM’s new management. Handing a big chunk of it over to the government isn’t really a prudent idea from the perspective of keeping GM’s finances strong.

On the other hand, we could argue that a deal is a deal, and GM lived up to its end. We might also argue that the $10 billion “investment” by the U.S. government got a good return in other ways, by saving tens of thousands of American jobs, and the American economy is better off when GM and its Detroit rivals are healthy and profitable.

The article Why GM Still Owes Taxpayers originally appeared on Fool.com and is written by John Rosevear.

Fool contributor John Rosevear owns shares of General Motors. You can connect with him on Twitter at @jrosevear. The Motley Fool recommends General Motors.

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