Treasury to Sell G.M. Stake Within 15 Months

11:13 p.m. | Updated

For months, General Motors executives have been pressing Washington to sell its stake in the company, desperate to rid itself of the yoke of being called Government Motors.

Nearly four years after what became a $49.5 billion bailout, the Treasury Department announced on Wednesday that it would sell 200 million shares back to the company for $5.5 billion, then sell an additional 300 million shares by early 2014.

Currently, the exit would produce a loss of more than $12 billion for taxpayers - one of the few major bailouts that did not produce a return. Yet, after the sale of its remaining stake in the American International Group last week, the government can now claim that it has largely unwound the huge, poli tically contentious corporate rescues it undertook amid the worst economic crisis since the Great Depression.

“This can't happen soon enough,” said Henry T. C. Hu, a professor at the University of Texas School of Law. “You don't want an industrial corporation being subject, in effect, to government limits.”

The Treasury's presence in G.M. disturbed investors and prompted some consumers to avoid its products in an increasingly competitive United States auto market. Independence, however, will leave the company with no excuse as it battles domestic and foreign rivals, many of whom did not turn to the government for a lifeline.

When G.M. was given its first loans by the Bush administration, the company was still the industry leader, with a 22 percent share of the market in the United States. After bankruptcy and its re-emergence as a public company, that dominance has eroded.

As of the end of November, G.M.'s market share had slipped below 18 percent this year, and it was struggling with hefty inventories of some major models like the Silverado pickup and the Malibu midsize sedan.

And while General Motors has benefited from shedding debt and four brands in bankruptcy, it has considerable work ahead to rebuild a product lineup that withered during its financial crisis. For one, its hometown rival, Ford Motor, earns more money in North America despite selli ng fewer vehicles.

“There's no doubt that General Motors is in a better position now than it was four or five years ago,” said Michelle Krebs, an analyst with the car research site Edmunds.com. “The key is to watch and see if the company falls back into old habits.”

G.M. executives say that the company has changed its ways.

“As today's news travels around the world, the question will be asked, ‘Did G.M. truly learn the lessons of the bankruptcy?' ” Daniel F. Akerson, the chief executive, wrote in an internal memo. “Our results show that we are changing the company so we never go down that path again.”

The sale is expected to bolster morale inside the company.

“It's probably more significant on the employee front than on the automotive side,” s aid Mike Wall, director of analysis at the research firm IHS Automotive. “After what they have gone through the past four years, this is an emotional event and a rallying point for the future.”

Executives were eager to shed the government's 32 percent ownership stake, but the election in November delayed any talk of a share buyback. But soon after President Obama's victory, G.M.'s chief financial officer, Daniel Ammann, called Timothy G. Massad, the Treasury Department's assistant secretary for financial stability, to begin negotiations, according to people with direct knowledge of the matter.

An offer to buy back a substantial number of G.M. shares at the market price - no premium for the Treasury - was rejected. Several weeks of start-and-stop negotiation followed, during which the company demanded a firm timetable for the government's exit.

By about 5 p.m. Tuesday, G.M.'s board had voted to offer $27.50 for the Treasury stake, an approximately 8 perc ent premium to the stock price at that day's close. By about 7:30 p.m., the sides signed off on the deal.

Despite the relief of reaching an accord, G.M. executives planned no celebration or new marketing campaign, feeling that might look unseemly or even arrogant.

Wednesday's deal all but guarantees a loss for taxpayers. The remaining shares need to be sold at close to $70 each to break even. But a Treasury official argued that the company's stock hadn't surpassed $27.50 since the government was legally cleared to sell additional shares after G.M.'s initial public offering.

The Obama administration has long argued that the rescue was always about saving the American auto industry, not making money. On Wednesday, Treasury claimed to have saved more than one million jobs through the bailout.

The administration is hoping to offset the losses from the G.M. rescue with the profits from its A.I.G. investments and the bank recapitalization program, which tog ether have reaped about $46 billion for taxpayers.

The Treasury Department has also long favored a quick exit from its investments rather than turning a profit. It has already divested its stake in Chrysler, selling it last year to Fiat, the Italian carmaker that was a crucial ally during Chrysler's bankruptcy.

“The government should not be in the business of owning stakes in private companies for an indefinite period of time,” Mr. Massad, of the Treasury Department, said in a statement. “Moving to exit our investment in G.M. within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protec ting taxpayer interests.”

But the government still owns large portions of other firms, including 74 percent of Ally Financial, G.M.'s former lending arm.

Being a ward of the state has cost G.M. more than its reputation. The company has been subject to a number of restrictions that it claims have hampered its ability to attract fresh talent. Some of those limits, including the use of corporate aircraft, will be lifted after the stock buyback.

But the biggest, a cap on the compensation of top executives, will remain in place until the government sells off its entire stake.

The news was welcomed by some of G.M.'s biggest investors. Among them is Greenlight Capital, a prominent hedge fund that has called the company an “ugly duckling” underappreciated by the market.

“We appla ud G.M. management for unlocking shareholder value by releasing excess capital and beginning a resolution of the government stake overhang,” David Einhorn, the head of Greenlight, said in a statement.

G.M. has improved in several respects. Its annual profit has risen over the last two years, and as of the end of the year will have about $38 billion in cash and credit lines to draw upon.

But much hard work remains. Ford has had a head start on G.M. in globalizing its products and spreading out development costs. And during its bankruptcy, G.M. had to delay some new models, costing it valuable time in reacting to market trends

Given the challenges that lie ahead for G.M., the company cannot appear to be celebrating or placing too much emphasis on the government's ultimate exit.

“They have to keep their head down and keep plugging away and executing their strategy,” Mr. Wall of IHS Automotive said. “It is the beginning of the end of government ow nership, but way too soon to celebrate anything.”