The government effectively will get 60% of General Motors in exchange for $50 Billion in aid.

This, using standard investor math, means that GM has an implied value of:

50 Billion/.60 = $83.3 Billion

Currently (just prior to bankruptcy) GM had 610 million shares outstanding.

That means that for the taxpayer to break-even GM shares (in the pre-bankruptcy world) would need to be worth $136.55 PER SHARE (83.3 Billion/610 Million)

The lifetime HIGH for GM is $93.62 back in April 2000 when the going was good. So good luck with that.

Oh and to complicate matters the government will see its holdings diluted if the bondholders take the extra 10% that they were promised as part of setting up the bankruptcy filing. If GM is doing well one would assume they would exercise these options and taxpayer shareholders would get diluted.

In that case the taxpayer stake goes to 54% which means an assumed market cap of $89.3 Billion or a per share price of $146.39

So even if GM were to return to its lifetime high of $93.62 the taxpayer would only get back $34 Billion 0r 68% of its investment if GM got as BIG as it ever was.

This of course is impossible based on the Government’s own admission that they are structuring GM to compete in an economy where car sales are 33% less than they are now.

Sure these numbers are approximations and some of the debt might be repaid like a normal loan (and I hope most of it is) but you can tell that there is no way that the taxpayers will see even HALF of their money returned even if all the right things happened (in a short-period of time as President Obama doesn’t want to hold on for long).

Well look on the bright side. We got rust-protection and under-coating free with the deal and we know how important those are.

http://watchingmarcitz.com/2009/06/01/the-scary-math-behind-the-gm-taxpayer-bailout/

See my blog post of yesterday.

Posted by PD Shaw

That would have been a good way. The only thing I'd change is to judge them on the past decade's performance, under the assumption that GM doesn't have years to waste.

Given the way the government has handled the property rights of the investors and creditors of GM, why would anyone put money into a business that had a democratic client (like the UAW) that could benefit from your money being stolen.

It is hard to pick which action by Obama will have the longest negative impact on the US, but the trampling of property rights for political expediency has to be in contention.

A large part of the problem though is that by the time the cuts were being made, the government was already involved and the automakers and their czar were being lobbied on which dealerships to save.

My preferred approach would have been to use bankruptcy to set new performance standards for the dealerships. Those dealers that didn't like the new standards or couldn't meet them, could close and then file a claim in bankruptcy for any resulting financial obligation.

Many of us without billions, tag along with the big investors who can influence decisions in operating their investments but we do so with the assumption that influence will be to increase the value of the investment. The government and the UAW may not probably won't influence to increase return or even to strengthen survival of the company. Their investment strategies are not to make money but to pursue agendas divorced from market realities.

Jim Manzi, Kevin Drum, and Matt Yglesias are upset with the notion that the government might intervene to keep the automakers from unilaterally closing 2000 dealerships.

Dunno why. As I see it, the Feds mandated, as part of the aid they recieved prior to bankruptcy, that GM and Chrysler cut dealerships. The only problem was that those dealerships (privately owned companies of 70-120 employees)were found to donate a lot of $$$ within communities (sponsors of little leage baseball, soccer, etc.) not to mention the unease of the added layoffs and the problems for state reps in Washington. Oddly, there was a sudden reversal that they didn't need to cut more dealerships.

So at this point, closing any dealerships would give the appearance that it was via the heavy hand of the Feds. It's pure politics.