Multi-billion-dollar taxpayer stake in GM could be used to help Conservative government live up to balanced budget promise
OTTAWA—The Harper government’s push to deliver a balanced budget despite the burden of low oil prices has attracted fresh attention to a potential stockpile of federal cash: A multi-billion-dollar taxpayer stake in the auto business.
The government’s remaining 73.4 million shares in General Motors Co. (GM) are now worth more than $3.4 billion in total, thanks to the combined effect of a solid stock price and a weakened Canadian dollar.
In fact, once the Canadian exchange rate is factored in on the stock, its per-share value is higher than it has been in more than five years.
The government needs to make $4 billion in proceeds from its remaining shares to break even on its initial investment, which would leave it only $600 million short if it sold the stock at current values.
Earlier this month, Ottawa became the only North American government still holding stock acquired as part of the 2009 effort to bail out the then-sputtering automaker.
Ontario’s recent sale of its last GM holdings may add to the federal government’s temptation to offload some—or all—of its own stock.
The United States government sold the last of its stake in December 2013.
Renewed interest in Ottawa’s stash of GM shares surfaced last month as one of several possible money-generating options that could help the Conservative government live up to its promise of balancing the 2015-16 budget.
Fulfilling the pledge will be central to Tory re-election fortunes.
The government insists it will achieve a balanced budget even as lower crude prices indirectly carve billions of dollars out of federal revenues.
Last fall, the government predicted a $1.6-billion surplus for 2015-16, but the price of oil fell even further in the months that followed and forced Finance Minister Joe Oliver to delay the budget until at least April.
Oliver has even acknowledged achieving balance may mean dipping into Ottawa’s $3-billion contingency reserve, which was set aside for unforeseen circumstances.
Selling the GM stock and booking the proceeds in the 2015-16 budget could help Ottawa offset the financial blow from the oil slump.
Ottawa has reiterated its intention to eventually unload its shares.
But Conservative MP Rick Dykstra, who represents the riding of St. Catharines, Ont., home to a GM plant, said any share sales in the coming months shouldn’t be connected to the balanced-budget objective.
The government’s primary goal for holding the shares in the first place is to secure a good return for taxpayers and hopefully get back its initial investment, Dykstra said.
It doesn’t need to sell them off to balance the books, he added.
“If we were to do it, it would obviously be because it would be most beneficial to both the federal government and taxpayers,” Dykstra said.
In last year’s federal budget, the government promised to sell the shares in an “expeditious manner, while maximizing value for Canadian taxpayers.”
So, how much does the government stand to gain?
Ottawa initially booked the value of the stock at about $1.1 billion, according to the Finance Department.
The net gain or loss from a sale would be the total proceeds minus the book value, a spokesperson said.
That would mean a tidy net gain of $2.3 billion if the shares were sold at the current market valuation of about $3.4 billion.
Pulling in $3.4 billion would also leave the government only $600 million short of breaking even on the original investment.
Through repaid loans and previous sales of GM holdings, Ottawa has already recouped about $3.2 billion of its initial $7.2-billion contribution to the auto bailout, the Finance Department said.
“We’re getting there, but we’re not at that level yet,” Dykstra said about the prospect of breaking even.
He’s not aware of any government timetable to sell shares, he added.
However, conditions show the stars could soon be aligned for the government to offload another batch—or even the entire lot.
Factoring in the exchange rate, the Feb. 20 closing price for GM stock was $47.20 per share—a five-year high after conversion.
By comparison, Ottawa sold 30 million GM shares in September 2013 at $37.96 per share, after conversion.
Earlier this month, the Ontario government sold the last of its GM shares for $1.1 billion, cash it plans to invest in public infrastructure.
Leslie Shiell, an assistant professor at the University of Ottawa who has studied the auto bailout, cited the Ontario case as an example of how it makes sense for governments to sell one asset in order to pay for another.
Selling assets to generate revenue, however—”liquidating your wealth,” he called it—is less prudent, Shiell warned.
“That’s selling the family silver to keep eating,” he said. “That’s not sustainable.”
Unifor, the union that represents 7,000 GM workers in Ontario, has urged Ottawa to hold on to the shares.
The stock’s value could continue to rise, said Unifor economist Jim Stanford, who noted that remaining a shareholder would ensure the federal government has a seat at the company’s table.
“The worst reason to sell GM shares is to help the government cover its little optics problem with a possible deficit,” Stanford said.