The Treasury instead waited for a better point after the election, and announced on Dec. 19, 2012, that it would sell back 200 million shares of GM stock for $5.5 billion, or $27.50 per share — still about 17% worse than what it received at GM’s IPO.
If the Treasury held onto those shares, today they would be worth $8.2 billion, or 49% more.
If the Treasury had put the $5.5 billion into Ford stock, it would have achieved a 45% total return. Once again GM would have been the better investment.
Unfortunately, the government sold out for too little.
The Last 300 Million
As GM entered 2013, the Treasury Department was in the homestretch. It had just 300 million shares to unload, one-third of its original stash. As part of its share repurchase agreement in December, it commenced a share trading plan that would see it sell its remaining interest in five blocks of shares between 30 million and 110 million.
In the span of 12 months, the Treasury sold all of its GM stock for gross proceeds of $10.2 billion, or an average price of $34.10.
If you or I had invested $10.2 billion in GM stock at the end of 2013, today those funds would be worth $14.5 billion. The same amount invested in Ford is worth $13.4 billion, $1.1 billion less.
Once more, the Treasury sold too early.
The Treasury recouped $31.3 billion of its bailout money from its three-year sale of GM common and preferred stock. If the government hadn’t sold any of its shares and converted the preferred at the time of the IPO into common stock ($2.1 billion divided by $33 = 63.6 million), today it would have 976 million shares worth $39.9 billion, 27.5% more than it ultimately received.
Politically, it would have been impossible for Treasury to treat its GM investment as a portfolio manager would but it demonstrates why buy-and-hold sometimes makes sense. The U.S. government is estimated to have lost $10 billion from its bailout of General Motors — the additional $8.6 billion it could have made (albeit in hindsight) from continuously holding GM stock would have brought it within inches of breaking-even and that’s completely ignoring the jobs and tax revenue angle.
Unfortunately, patience lost out to political optics. Treasury could and should have done better.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.