Why GM Hasn't Repaid Taxpayers

GM headquarters in Detroit. Photo credit: General Motors Co.

It's a question that readers ask me all the time: When will General Motors (NYSE: GM  ) repay taxpayers?

The answer is that it depends on how you look at it.

Legally speaking, GM has already repaid the $49.5 billion loan it got from the U.S. government to fund its bankruptcy restructuring in 2009. GM gave the U.S. Treasury a mix of cash and stock, as agreed. There's nothing more that GM is required to do under the terms of those loans. It's a done deal.

But here's why some folks continue to complain: The amount that has been returned to the U.S. Treasury so far is much less than that $49.5 billion.

The government has been recovering more every month, as it sells off its holdings of GM stock. But as I'll explain, the government probably doesn't have enough stock left to fully pay off the debt.

The government has been selling off its stock ...
Here's the background: At this time last year, the U.S. Treasury Department held just over 500 million shares of GM's common stock. But last December, GM and the Treasury struck a deal: GM agreed to buy 200 million of those shares outright, for a price that was a bit above what the stock was trading for on the market at that time.

In turn, the Treasury agreed to start selling off the remaining 300 million shares on the open market -- gradually, so as not to disrupt the markets. It said that it would complete its sales by next spring.

The first of those sales happened early this year. Since then, the government has been releasing monthly updates on its progress. Last week, it said that it had sold nearly $2 billion worth of stock in June.

Here's how GM's "repayment" so far breaks down.

... but it's likely to come up short in the end
As I said, Treasury's loans to GM totaled $49.5 billion. Of that, the Treasury has since recovered around $33.4 billion.

A little over $6 billion of that came from the Treasury's stock sales since January, along with dividends and interest received since GM emerged from bankruptcy. The remainder breaks down like this:

$6.7 billion in cash, the last of which was paid in April 2010. That was when then-CEO Ed Whitacre declared that GM's debt had been "paid in full," which was not his best move. $13 billion via GM's IPO, back in 2010. The government sold about 45% of its stock holdings at that time. $2.1 billion recovered when GM bought back some preferred stock from the Treasury in late 2010. $5.5 billion when GM bought back those 200 million shares from the Treasury last December, as I mentioned.

The upshot? The Treasury is still a little over $16 billion short – but it has about 160 million shares of GM stock left to sell.

That's not likely to be enough to make things whole.

So where will that leave taxpayers – and GM?
At current prices, those shares are worth a little less than $6 billion. Unless GM's stock goes way up, and soon, Treasury is going to be left with a shortfall after it sells the last of its stock. That shortfall is likely to be in the neighborhood of $10 billion.

Now, it's possible to argue that the U.S. government has received more than $10 billion in value from its decision to save General Motors. That decision kept the U.S. automotive supply chain alive in a time of deep crisis, which probably indirectly saved Ford as (NYSE: F  ) well -- along with thousands and thousands of American jobs. The recession would have been a lot worse had the U.S. auto industry collapsed.

But it's also possible to argue that GM, which is now a solidly profitable global company with more than $20 billion in cash on hand, might be obligated to make up some or all of that $10 billion shortfall -- morally, if not legally.

What do you think? Scroll down to leave a comment and let me know.

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