By Peter Schroeder - 12/19/12 01:17 PM EST
The Treasury Department said Wednesday it expects to exit its $49.5 billion bailout of General Motors (GM) within the next 12 to 15 months, likely at a substantial loss to the government.
Treasury holds roughly 500 million shares in the auto manufacturer, but GM will buy back 200 million of those shares at $27.50 a share by the end of the year. The company's stock is currently valued at $25.49 a share.
The Treasury did not detail exactly how it would market those shares, saying the precise plan is "dependent upon a number of factors."
In October, the Congressional Budget Office (CBO) estimated that the GM bailout would cost the government $20 billion, while the Office of Management and Budget (OMB) has pegged the cost at $25 billion.
The government's official bailout watchdog has estimated that the government would need to sell its remaining GM shares at a price of $53.98 to break even on the bailout.
The October report of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) found that, even if the government takes into account all the dividends and interest it might receive from GM on its investment, it still would need to sell the shares at a price point of $52.39 to avoid a net loss.
Treasury's move marks the exit from yet another high-profile remainder of the financial crisis, and draws to a close a move by President Obama that was reviled on the right but became a cornerstone of his reelection bid.
“The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program. The government should not be in the business of owning stakes in private companies for an indefinite period of time,” said Assistant Secretary for Financial Stability Timothy G. Massad.
Obama made the auto bailout, begun under President George W. Bush, a key piece of his reelection campaign. The controversial decision helped him win Michigan and the key swing state of Ohio, where he ran ads criticizing his challenger, Mitt Romney, for advocating that the auto industry be allowed to undergo bankruptcy.
“Today’s announcement is welcome news for General Motors and a testament to the resurgence of the American auto industry,” said Sen. Debbie Stabenow (D) of Michigan. “Some wrote off Michigan workers and auto companies and said we should let the American automobile and millions of jobs vanish. Instead, over a million jobs were saved, and more are being created as the American auto industry comes roaring back.”
Earlier this month, Treasury ended another huge government bailout by selling its remaining 234 million shares of the insurance company American International Group (AIG). That company, which teetered on the brink of collapse during the financial crisis and came to serve as an outlet for much of the public anger surrounding the bailouts, received as much as $182 billion in bailout funds from the Treasury and the Federal Reserve Bank of New York.
— This story was updated at 1:47 p.m. and 2:07 p.m.