General Motors Co. is free from U.S. taxpayer ownership almost half a decade after first receiving government aid, underscoring the domestic auto industry’s rebound from the deepest downturn since the Great Depression.
The Treasury Department’s sale yesterday of final shares of GM signals the end of Government Motors, as the nation’s largest automaker was derisively labeled by some critics after the U.S. government stepped in with emergency funding in 2008. Bailouts from the George W. Bush and Barack Obama administrations helped GM avoid liquidation and reorganize in a 2009 bankruptcy that has given new life to the company.
“This marks one of the final chapters in the administration’s efforts to protect the broader economy by providing support for the automobile industry,” Treasury Secretary Jacob J. Lew told reporters yesterday on a conference call.
Buoyed by lower debt, reduced labor costs and a focus on only its strongest brands, GM is emblematic of a revitalized U.S. auto industry that’s on pace to reap the fastest sales growth since 2007. While the U.S. said it lost about $10.5 billion on its investment of $49.5 billion, the government’s exit paves the way for an influx of fresh investor money.
Warren Buffett’s Berkshire Hathaway Inc. and State Street Corp. are among investors to buy into GM. J. Kyle Bass’s Hayman Capital Management LP has taken a stake in GM as well.
“Detroit is back. And GM could lead the way forward on the equity front,” Dallas-based Hayman Capital said in a presentation published last week on the website HVST.com.
The exit would end restrictions on pay for top executives that the largest U.S. automaker has said hampered recruiting, and analysts have predicted it may clear the way for the company to initiate a dividend or stock buyback.
A total automobile-industry shutdown from a liquidation of GM and Chrysler would have cut 2.63 million jobs from the U.S. economy in 2009, according to a study by the Center for Automotive Research released just hours before the Treasury announced its stake sale. The bailout saved or avoided the loss of $105 billion in transfer payments and the loss of personal and social insurance tax collection in 2009 and 2010, according to CAR.
The auto bailout will rank as “one of the most important interventions, maybe the most important, in U.S. economic history,” Sean McAlinden, CAR’s chief economist, who led the analysis, said yesterday in a telephone interview. Without it, “the upper Midwest would still be a gaping, double-digit unemployment hole in the economy, 600,000 retirees would’ve lost their pensions.”