DETROIT (Bloomberg) -- The Obama administration's decision to sell more of its stake in General Motors Co. underscores the resurgence of a domestic auto industry that emerged from near-collapse to become a pillar of economic growth.
The U.S. Treasury Department said Wednesday it will sell 30 million GM shares, leaving it with less than a 15 percent stake more than four years after rescuing the company along with Chrysler Group LLC. The plan coincides with GM's return to the Standard & Poor's 500 Index for the first time since its 2009 bankruptcy.
GM shareholders will hear more today about the company's progress at its annual shareholders meeting in Detroit.
"The auto industry is alive and well," said George Magliano, senior economist at IHS Automotive in New York. "And today one of the leading industries in the recovery, though it's a rather lackluster recovery, is the auto industry."
Automakers in the U.S. contributed 14 percent of the 2.1 percent average rate of growth for gross domestic product in the recovery that began in the third quarter of 2009, according to data from the Commerce Department. U.S. auto sales are on pace for the best year since 2007 as GM, Ford Motor Co. and Chrysler Group all gained market share in the January-May period -- the first time that has happened in at least 18 years.
The federal government spent $80 billion to bail out the industry, including more than $63 billion on GM and Chrysler. The effort will cost taxpayers $20.3 billion, according to a March 31 Treasury estimate.
That cost tarnishes the auto bailouts, which were "more expensive than they needed to be" and structured to favor labor unions, said Phillip Swagel, who was an assistant Treasury secretary under President George W. Bush and is now a professor at the University of Maryland in College Park.
Still, the industry's revival has drained much of the controversy from the Obama administration's decision, which was opposed by some congressional Republicans at the time and later became a flashpoint in last year's debates between President Barack Obama and Republican challenger Mitt Romney.
But the concern was that an uncontrolled GM liquidation would have a domino effect throughout the U.S. auto industry, causing suppliers, already struggling to stay in business, to collapse as well. Industry supporters have said that if GM failed, the whole industry could have collapses as well.
Edge of cliff
A healthy GM has a carryover effect to other parts of the industry, including suppliers and dealers, David Whiston, an equity analyst with Morningstar Inc. in Chicago, said in a telephone interview. "A stronger GM is great for GM stakeholders," he said. "It is certainly good for the auto industry."
The rescue saved 1.14 million jobs in 2009 at automakers and companies that depend on the industry, according to the center. A collapse would have cut $96.5 billion in personal income in 2009 and 2010, and it also would have cost the federal government $28.6 billion in extra jobless benefits and reduced Social Security contributions and income taxes in those years, the center said.
"There are parts of the country where the unemployment rate would have been a couple of points higher and taken much longer to come down than was actually the case," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who previously was Vice President Joe Biden's chief economic adviser.
"It would have been a much tougher job market," said Bernstein, who was a member of a presidential task force on the auto industry.
The U.S. unemployment rate fell to 7.5 percent in April from a peak of 10 percent in October 2009. In Michigan, home to GM, Ford and Chrysler, the rate has fallen to 8.4 percent from 14.2 percent in August 2009.
The Troubled Asset Relief Program, initially aimed at financial firms, was broadened to housing and autos as the 2008 crisis unfolded, though less than two-thirds of the $700 billion authorized by Congress was used. The Treasury has recovered $398.2 billion of the $420 billion disbursed through TARP, the department said Wednesday in a statement.
The U.S. owned 241.7 million shares in GM, or 16.4 percent, as of April 1, according to the automaker's proxy statement.
In 2008, Bush gave GM and Chrysler federal money, and the companies received additional help through managed bankruptcies under Obama's administration.
GM gained 1.2 percent to close at $34.44 today in New York. Before today's trading, GM shares had gained 18 percent this year, eclipsing its $33 initial public offering price, compared with a 13 percent increase for the S&P 500.
Investor confidence in GM has increased since the automaker said in December it would spend $5.5 billion to buy 200 million shares back from the Treasury, and the government said it would sell the rest of its holding within 15 months.
Shares reached a 10-month-high the day of the announcement in December and have continued to climb after topping their IPO price on May 17 for the first time in two years.
The sale announced Wednesday is part of the Treasury's strategy to gradually sell its GM ownership stake. By spreading out its share sales over many months, the Treasury can minimize pressure on the stock price.
Dan Ammann, GM's chief financial officer, has said the Treasury's sale of shares is good for GM because it removes the perception of government involvement in the company.