The General Motors Co. initial public offering will return more money to federal and Ontario government coffers than expected, but will still fall about $3-billion (U.S.) short of the $9.5-billion Canadian taxpayers doled out to help keep the auto giant afloat last year.
The two governments will reduce their stake in GM to 9.6 per cent from 11.7 per cent in the initial share sale, according to a registration statement filed with the U.S. Securities and Exchange Commission on Wednesday.
Their holding of 175 million common shares is worth $4.8-billion. based on a price of $27.50 a share, the midpoint of the $26 to $29 range in which GM says it shares will start trading at next week. In addition, the governments hold $400-million in preferred shares, giving their stake a total value of $5.2-billion.
GM has already repaid $1.3-billion in loans to Ontario and Ottawa. That leaves $3-billion remaining to make up the total $9.5-billion given to GM by Canadian taxpayers when the auto maker went into Chapter 11 bankruptcy protection last year.
Whether the governments will ever recoup their entire investment depends on what happens with the price of GM shares once they begin trading on the New York and Toronto Stock Exchanges later this month.
When the Canadian governments decided to participate in the rescue package for GM, their biggest concern was protecting jobs in the communities where the company operates, Ontario Finance Minister Dwight Duncan told reporters Wednesday.
"We never looked at it just in terms of its share value," he said. "Our objective was to keep employment and investment here in Ontario. We've been successful at that. General Motors will continue to employ people here and pay taxes here as will their employees, so there will be a long-term gain to the taxpayers."
There are indications that the slow recovery in the North American auto market and the massive reduction in costs in the bankruptcy process are beginning to pay dividends.
GM said Wednesday it expects to announce profit of between $1.9-billion and $2.1-billion when it reveals third-quarter financial results next week.
While in bankruptcy, GM wiped out tens of billions of dollars in debt, shed tens of thousands of employees and chopped its bloated brand structure of eight divisions in half. It's now lean enough that it can break even when U.S. vehicle sales sit at 10.5 million to 11 million annually.
That leads to a bright future if sales return to the level of 16 million annually. The seasonally adjusted annual rate of U.S. sales was 12.4 million vehicles in October, GM officials said Wednesday during a conference call.
"We expect GM to be printing money as vehicle demand comes back over the next few years," Morningstar Inc. analyst David Whiston said in a recent report. "We see the share price rising over time as the market realizes the earnings power of the new GM."
As part of the IPO, the U.S. government will cut its current 60.8-per-cent holding in GM to 43.3 per cent, helping GM shed the moniker of "Government Motors" that appeared to hurt its sales in the months following the bailout.
The original expectation in the dire days of 2009 when GM and Chrysler LLC were sliding into Chapter 11, was that the governments would get back little, if any, of the approximately $75-billion they pumped into the two auto makers.
The three governments intervened to keep GM and Chrysler alive as a recession that began with a financial crisis in 2008 threatened to deepen. There were fears that not bailing out the companies and allowing hundreds of thousands of well-paying manufacturing jobs to disappear would trigger a depression.
Prime Minister Stephen Harper described the bailout as a "regrettable but necessary step" to protect Canada's economy.