General Motors To Escape Government Clutches
|   Saturday, December 22, 2012
Once upon a time, the American auto industry was on the verge of collapse. The hard-line capitalists said "Fine! Let them fall! From their ashes stronger car makers will emerge," but the Government thought otherwise. One of the main beneficiaries of governmental help was General Motors in 2008. This move generated a huge controversy back then, a controversy that is still undergoing today. So far, there hasn't been any clear victor in this battle.
But maybe things are about to change.

Since it's that time of the year when everyone has to offer a gift or forever be labeled as cheap, GM thought it would be nice to return some money to the US Government by buying back some of its shares. Apparently, the company will retake possession of some 200 million shares from the Treasury, in exchange for 5.5 billion dollars, or 27.5 dollar per share. Furthermore, the final objective is to regain full control from the state in 12 to 15 months. We'll see how things work out then.

Coming back to this transaction, we learn that Gm paid more than the shares are actually worth. The stock was trading at around 27 dollars per share on December 19th, well below the 33 dollars price the initial public offering held back in 2010. This may be seen as the bad deal for the company, but there are other considerations to be had.

The fact that the full support of the state in the company will not be matched must be known. Out of all the 49.5 billion dollars poured into to GM to keep it afloat, only about 36-37 billion will be recovered. So, the automaker is not making such a bad deal after all. In fact, by doing this it may sweeten the bad taste left behind by its bankruptcy and subsequent state aid.

But let's not forget that some 28.7 billion dollars have already been recovered, which is a good sum especially if we keep track of the shaky situation the auto segment was in just a few years ago. And the company has indeed emerged stronger than before and even launched a few cars that seem to appeal to the general public (the Chevy Corvette C7 is one example).

Right now, the state still has about 300 million shares in the company, which will be sold off the end of 2014. Dan Akerson, GM chairman and chief executive: "This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future."

Lastly, one strong argument in favor of the state's intervention was the people. Some 20,000 jobs have been saved this way. This didn't affect only them, but many others too. Those people pay taxes, eat, drink, have fun and so on. If they didn't have a job they would only have been a burden, instead they continue to support various economy segments. Overall, the results were favorable for everyone involved. Plus, like many others have noticed, how would the collapse of such a symbolic segment and company have affected the overall image of the US both internally and externally?
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