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The U.S. government’s bailout of the auto industry is nearly at an end.
General Motors (NYSE: GM), the largest carmaker in America by sales, is buying back 40% of the government’s stake in the company, paying the U.S. Treasury $5.5 billion. Investors are eating up the buyback news, pushing GM shares up 8% in early Wednesday trading.
GM’s share buyback is the latest in a series of positive steps toward ending the government’s auto bailout. The U.S. Treasury recently announced plans to sell its remaining stake in GM over the next 12 to 15 months.
Once that happens, the bailout – which essentially rescued the U.S. auto industry from the brink of extinction during the 2008-09 recession – would be complete. Chrysler, the other automaker rescued during the bailout, already repaid its loans when Italian carmaker Fiat bought it out.
With an end to its bailout in sight, investor confidence in America’s top carmaker is soaring. At $27.50 a share, GM is close to an 18-month high. GM shares are up 21% in 2012.
The $27.50 share price isn’t just a product of investor confidence, however; that also happens to be the price per share GM will pay the U.S. Treasury in its latest buyback.
With profits rising and the stock trading at just over seven times forward earnings, $27.50 wind up being a bargain.