GM Is Profitable Again, but Taxpayers Are Still in the Red

Last Summer, as General Motors was preparing to make an initial public offering of stock, President Obama said the federal government had made an investment in GM, and that the taxpayers would get all their money back from this investment.  I was skeptical, because for taxpayers to recover all their money meant that GM would have to be valued at about $80 billion, which seemed unrealistic to me.

GM just reported a 2010 profit of $4.7 billion, so their recovery after their government bailout is on track.  The day after reporting that profit, GM stock is selling for $34 a share, making the market capitalization of GM about $51 billion.

GM’s stock would have to rise to more than $50 a share for the taxpayers to recover President Obama’s “investment” in GM.  That’s more than a 50% increase over its current price.

I doubt that anybody — including President Obama — really thought that the government could get its money back from the GM bailout.  But the president did say that last year, prior to GM’s initial public offering.  Now that GM’s stock is on the market, and GM has reported a very profitable year, I don’t think it is a bad thing to point out that despite good news for GM, the deal did not turn out well for taxpayers.  We now have facts to evaluate the president’s claim, and what the president said turned out not to be true.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
Full Biography and Recent Publications
Beacon Posts by Randall Holcombe | Full Biography and Publications
  • Catalyst