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Was the GM bailout a bargain – or a ripoff?

The resurrection of General Motors Co., on the surface, looks like another of those stories that drive Main Street America crazy. Fat-cat investors on Wall Street get rich again, at the expense of the honest, hard-working taxpayer. But that would be looking at Washington's bailout of the automaker through the eyes of an investor, rather than a citizen – or, it now seems, a Canadian.

Yes, Wednesday's news that GM will buy back 200 million of its shares from the U.S. government for $5.5-billion (U.S.), or $27.50 a share, and that the government plans to sell its remaining 300 million shares (about a 19-per-cent stake in the company) over the next 12 to 15 months, suggests the government isn't going to come anywhere near recouping the nearly $50-billion it spent to save GM from bankruptcy and dissolution during the 2008-2009 financial crisis. Even if Washington is able to sell the shares at something close to analysts' consensus 12-month target price on the stock of roughly $33, it will wind up about $11-billion in the hole.

Shareholders in the company, in the meantime, are positively gleeful at the prospect; GM's stock surged 7 per cent Wednesday on the news. They're looking at a company that has experienced an impressive recovery in sales and is sitting on $30-billion in cash – money that it will soon be free to spend however it likes, once Washington no longer has a voice at its table.

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But for American taxpayers who feel like they got the short end of this deal, they may be missing the bigger picture. GM's failure would have been disastrous for an already reeling U.S. economy in 2009, especially in the manufacturing heartland.

It's hard to put a fair dollar value on providing stability to what, at the time, was a dangerously teetering house of cards. But in the grander scheme, a few billion dollars, shared among a few hundred million citizens, doesn't sound unreasonable.

Canadian taxpayers, on the other hand, are now discovering how little their own $10.6-billion contribution to GM's rescue and revival was worth in those important economic and social terms. Within hours of GM's news of its payback to the U.S. government, the car maker showed an appalling lack of gratitude and integrity in abruptly announcing it would move its Camaro production line out of Canada – putting its flagship Canadian operations in Oshawa, Ont. in peril.

This after GM had pledged in the bailout deal to keep at least 16 per cent of its North American production in Canada through 2016.

The federal and Ontario governments acquired about 140 million shares of GM in the bailout – and unlike Washington, both seem more inclined to hang onto the stock until it rises to a level that offers more attractive financial returns. The stock would have to roughly double before the governments would break even on their investment.

But again, the real investment wasn't about money – it was about ensuring the survival of a vital industry and a way of life for communities in the country's industrial heartland. If GM doesn't live up to its end of the bargain on that front, this investment will have been a cruel folly – regardless of the price of the governments eventually get for their stock.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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