The (Scary) Math Behind the GM Taxpayer Bailout

Why are the taxpayers only going to get a few pennies on the dollar for its GM investment?  Its very simple math that goes something like this

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 (or as of last Sunday) 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. Check out the Toyota trouble post here.

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.

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