Feeds: 
symbol identifies content for paid subscribers only.
Can the Government Recover Its Investment in General Motors?
The Government Accountability Office (GAO) concluded that the government was unlikely to recover its investment in General Motors based on the history of GM's stock prices. This is a bad metric, reporters should have looked to other analysts instead of just repeating the GAO figures.
GM's past stock prices were depressed by pension and health care liabilities that will not apply to the new GM. The better metric is a projection of stock prices based on estimates of future profitability. Toyota's quarterly profits peaked at just under $4 billion in the 3rd quarter of 2007.
Suppose that a reborn GM is able to achieve half of Toyota's profits or $8 billion a year. If GM's stock price is equal to 15 times earnings (roughly the historic average), then the market capitalization would be $120 billion. The government's 60 percent stake would then be worth $72 billion, enough to give it a decent profit on its investment.
Of course there is no guarantee that GM will reach this level of profitability, but this is the question that GAO should have assessed in trying to determine whether the taxpayers will recover their investment.
--Dean Baker
COMMENTS (6)
The GAO report relies on the Treasury and CBO estimates.
Here are two quotes that considered the repayment question.
"Treasury’s own analysis suggests that the circumstances necessary for the companies to reach market capitalizations high enough for Treasury to fully recover its equity investment are unlikely."
"In June, the Congressional Budget Office (CBO) estimated that the federal government would recoup only 27 percent of its initial investment in the auto industry. CBO’s analysis relies on data from the auto companies prior to bankruptcy to estimate the likelihood of repayment in the future. Chrysler and GM had poor credit ratings and significant debts prior to bankruptcy, so the average projected repayment is only 27 cents on the dollar."
http://www.gao.gov/products/GAO-10-151
The market cap reference was only "As a point of reference for these values,... GM, at its peak in 2000, had a market capitalization of $57 billion."
http://www.brookings.edu/~/media/Files/events/2009/1021_us_auto_industry/20091021_auto_industry.pdf
Posted by: AndrewDover | November 4, 2009 10:39 AM
In June, the Congressional Budget Office (CBO) estimated that the federal government would recoup only 27 percent of its initial investment in the auto industry.
Posted by: coach handbags | November 6, 2009 4:29 AM
The Post loves to rail against the budget deficit.
Posted by: weight loss tips | November 6, 2009 4:30 AM
sesli sohbet sesli chat Thnx...
Posted by: sesli sohbet | November 6, 2009 12:59 PM
Question from the TARP Oversight Panel: What are your projections for your company over the next five years?
Response from representatives of GM: "Business plan projections for GM were included in the Stephen Worth Declaration filed in
Bankruptcy court on June 4, 2009, in support of the proposed 363 sale. These projections contemplate
adjusted Earnings Before Tax (EBT) of ($1.3)B, $3.0B, $5.3B, $6.9B and $7.8B for CY 2010 – 2014 and
at the time were based on current assumptions including total U.S. industry sales projections of 12.5M
units, 14.3M units, 16.0M units, 16.4M units and 16.8M units for CY 2010 – CY 2014"
http://cop.senate.gov/documents/cop-090909-report-additionalviews.pdf
However, the October annualized sales rate was 10.46 million. See
http://online.wsj.com/article/SB10001424052748703740004574513511577759396.html?mod=WSJ_hpp_sections_business#project%3DAUTOS90218%26articleTabs%3Darticle
Posted by: AndrewDover | November 8, 2009 3:32 PM
nice post, thank you for your sharing
Posted by: queue management system | November 18, 2009 10:21 PM