GM unlikely to pay back government in full

The Detroit News has a very interesting article looking at the prospects for the newly restructured General Motors to repay all of the money that the federal government loaned them once the company goes public. The conclusion is that the chances of full repayment are pretty slim.

For taxpayers to recoup their equity investment, the total value of all stock in the new GM enterprise will need to be worth about $68.7 billion.

Just one problem: At the height of its value, in April 2008, the total worth of old GM stock was $57.2 billion, notes one analyst. That’s when GM was the world’s largest automaker and consumers were buying millions more vehicles than today.

That means for U.S. taxpayers to break even, shares of the new GM would have to climb to a price worth 20 percent more than the old company saw on the best day in its 100-year history.

“The odds of getting paid back in full are pretty slim,” says Peter Cohan, an economic analyst and professor of management at Babson College in Wellesley, Mass.

There are analysts who think full repayment is possible, but those scenarios require that everything go right for the company over the next couple years — and a fair amount of luck as well. It will require reducing the structural costs per car by about $3,000, which is doable given the drop in debt and labor costs resulting from the recent restructuring, and increasing sales of GM cars to about 3.5 million units per year, a much dicier prospect given the state of the economy at the moment.