According to a new report US taxpayers could wind up losing as much as $25 billion on the 2008 – 2009 automotive bailout. The estimated loss has increased by 15% since an earlier forecast, due in large part to the significant downturn in General Motors’ stock price.
Beginning with the Bush Administration and continuing with President Obama, the U.S. Treasury invested $85 billion into the domestic auto industry to fund the post-bankruptcy turnarounds at GM and Chrysler.
In a report sent to Congress, the White House raised it’s previous quarterly estimate of $21.7 billion to $25.1 billion the amount it said it now does not expect to recover by selling off the remaining 26% stake it still holds in GM.
Last year government analysts issued a projection closer to $15 billion. Back in November of 2010 there was hope that the Treasury might break even. That was based on some industry research, such as one report from Deutsche Bank that initially forecast GM shares could eventually top $50 compared to the IPO strike price of $33.
In recent months, automotive shares have been falling. The $25 billion government loss forecast was largely based on a GM stock price of $22.20 at the end of May. During the last month the number has dipped to less than $19 a share, though it has since rebounded to $20.61 at midday today. GM’s stock price would need to jump to $53 for the government to break even.
President Obama has repeatedly defended the bailout, insisting that the long-term cost of allowing GM and Chrysler to go bankrupt would have been significantly more than what the Treasury might ultimately lose on the effort.