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The Federal Government wants out of the GM deal

As part of the controversial “bailout”, the US Federal Government ended up owning a large portion of General Motors which, though the IPO translated into a great many shares of stock but according to The Detroit News, the feds might try to sell off their portion of the automaker even if that means taking a loss.

The government currently holds roughly 33% of General Motors available stock and since the intention of the feds was never to end up owning a (massive) piece of the automaker, the Treasury Department might look to sell the stock very soon. This might seem like great news – especially to those who don’t think that the government should have any involvement in the company – but it comes with a catch. If the government was to sell all of its stock in GM at the current market price, the funds raise from the sale would effectively account for a loss of around $10 billion compared to the amount “owned” to the government.

The government original lent General Motors around $49.5 billion to keep the troubled automaker afloat but since then, the feds have already recuperated $23.1 billion. In order to make up the additional $26.4 billion from the bailout loans, the government would have to sell all of their stock in GM at a price of $53 per share. Unfortunately, GM stock closed today at $33.25 and should they liquidate their stock at that price, it would leave them around $9.9 billion shy of reaching the total amount of the original loan.

Should the government attempt to go this route, taking a loss and getting out of the business deal with General Motors, there will certainly be people who do and do not support the move due to the realized loss but will that be enough to keep Uncle Sam from cutting ties with GM? The progress of GM stock over the next few months as gas prices climb could have a great deal to do with the government’s decision as to when to pull the trigger and sell off their stake in GM.

For the General Motors faithful, regardless of the financial outcome, this could mean that they could hear less "Government Motors" jokes once the move is made.

Source: The Detroit News

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