GM bailout a lousy deal for taxpayers

Posted on June 3, 2009 by Les Jones

The (Scary) Math Behind the GM Taxpayer Bailout

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.

Everyone seems to think GM will need even more govt. cash before this is all over, so the deal just gets worse.

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One Response to GM bailout a lousy deal for taxpayers

  1. TinMan says:
    June 4, 2009 at 4:07 pm

    Though I can’t help but feel a bit of BOHICA is forthcoming with this one, I think there are a lot bigger things at stake with the outright failure of any of the “big” 3 (they aren’t so ‘big’ anymore are they?).

    Specifically related to suppliers and distributors of their products. From the raw material comsumers (though that’s less in the US with more parts coming from overseas) to transports of both micro-components (think parts for subassemblies) and then completed subassemblies to the tool & die manufacturers that create the tools to produce the parts for cars our country’s manufacturing base is HUGE.

    Yes, I’m not taking into account the volumes the non-domestics (both Asian & European) produce but I’m comfortable stating (with no real support at the moment) that a majority of non-dom plants here in the US are just that: assembly locations. They receive parts/pieces that are shipped from suppliers elsewhere and it’s merely the labor to assemble the completed piece that they’ve “invested” here in the US.

    Again, it’s going to be expensive and there will be hiccups and missteps (check out AIG for a prime financial example) but like AIG this isn’t something that will be playing out in 9-18 months but more like 2-5 years at least.

    We won’t be able to look at either Chrysler or GM to declare a positive/negative conclusion until there’s been at least one revision of some key vehicle models.

    Hopeful in NJ,
    TinMan