GM Can’t Escape The Catch-22 Of Getting Bailed Out

General Motors GM Chevrolet Cruze Assembly Line Production Plant

[credit provider=”General Motors”]

Three years after the historic bailout that saved General Motors from insolvency, things are getting awkward between the auto giant and the Treasury Department.The Wall Street Journal reports that the Treasury Department is resisting a proposed plan that would end the government’s investment in the company.

GM would buy back 200 million government owned shares, and the rest would be sold in a public stock offering. 

GM wants as quick of an exit as possible, claiming that pay restrictions hamper its ability to recruit top talent, and that ongoing government involvement hurts its reputation. 

Though they’re once again the largest automaker in the world, weaker sales in China and losses in Europe make this an additional headwind the company does not need. 

The government is wary of the plan because they’ll end up losing money (around $15 billion) if they sell their whole stake at current prices.

It’s a catch-22. The government has a responsibility to recover as much taxpayer money as it can from the bailouts. That’s gained heightened political importance in an election year where the bailouts have come under attack.

However, the reputational and regulatory costs of government involvement, and the knowledge that they’ll sell as soon as the stock price looks appealing, are a weight on GM’s performance.

The type of thinking that’s holding the Treasury Department back ignores the real point of the bailouts. They were designed to prevent a crisis, not break even. Making that a part of the calculation lessens their effect.

NOW READ: 18 Executives Who Lead By Fear >