Reason Writers Around Town: Shikha Dalmia on the GM Bailout

In her latest Forbes column, Reason Foundation Senior Analyst Shikha Dalmia explains why automaker GM should still be known as Government Motors:

Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when [GM CEO Ed] Whitacre publishes a column with the headline, "The GM Bailout: Paid Back in Full," most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case….

Mr. Whitacre's bailout payback ploy is a desperate attempt to win back the car-buying public deeply disgusted by the spectacle of GM rattling its tin-cup before Uncle Sam. But the fact of the matter is that the company is still deep in the hole.

Read all about it here.

Comments

[James Ard]

Please don't ever link me to a Forbes article again. Thank you.

[.]

Thanks for the Forbes link. Nice, compact, informative article.

[J sub D]

Magliano too maintains that the company will be able to pay back taxpayers if the industry is able to ramp up annual vehicle sales from the expected 10.8 million this year to 17 million in 2014 ...

An optimistic assumption

... and GM captures 20% of these sales.

That means that GM would have to immediately halt a decades long slide in market share. That's not just optimistc, that's hallucinogenic.

[Ken Shultz]

"That means that GM would have to immediately halt a decades long slide in market share."

I agree. It seems to me that GM was forced to make the kinds of cars it made because of their pension overhead.

You can't compete in the economy car sector because the margins aren't fat enough on that end of the spectrum to cover UAW pension costs, so you have to make big, fat cars with lots of features...

And that problem still exists. Until that pension liability goes away... The same systemic issue will be remain. GM didn't build the kind of cars they built because management was incompetent; they built the kinds of cars they built because their obligations to the UAW were such that they couldn't lose money on every car they sold, and make it up in volume!

Until the UAW accepts major concessions that problem will still remain--and as long as the UAW exists, the threat of that problem will still remain.

I only see three options here. 1) Bankruptcy--best option for the taxpayer 2) the government keeps running GM for the benefit of the UAW pension fund--worst option for the taxpayer or 3) the UAW is decertified.

It's interesting because the UAW is actually guilty of a lot of things average people think the investment banks are guilty of. The UAW is certainly guilty of squandering tax payer money just to feed their greed--you'd think if the misuse of taxpayer money justified heavily regulating the investment bank industry, it would justify breaking up the UAW too.

Isn't it "too big to fail"?

[Ron L]

"I only see three options here. 1) Bankruptcy--best option for the taxpayer 2) the government keeps running GM for the benefit of the UAW pension fund--worst option for the taxpayer or 3) the UAW is decertified."

These were the options back when, and we saw which was selected.
I see no reason to bet otherwise; #2 is the odds-on favorite.

[hmm]

There are more than end of the world options. Ford has been getting some concessions, although they are sparse. Ford also has a pretty decent reputation with taking care of those it had to layoff. Locally the people who lost their jobs when the plant closed had the option of a decent buy out or 4 years of college.

It took a while for shit to get this bad, it's going to take a while for it to go the other way. At least the momentum has been in favor of the UAW getting weaker than stronger. Thanks Japan.

[Ken Shultz]

"Locally the people who lost their jobs when the plant closed had the option of a decent buy out or 4 years of college."

I'm sorry, on what planet is having to pay people to leave or paying for them to go to college "reasonable"?

That's the bestcase scenario?!

You understand most of us here aren't UAW parasites, right?

We're not looking at this from the parasite's standpoint--we're the the hardworking American taxpayers who are being forced to pay for this crap...

We're management!

You mean if we negotiate them down from what they have now, we only have to pay them to get lost or give them a free ride through college?

And I'm supposed to think that's a good thing?!

Just goes to show the UAW's all welfare queens now--talk about engendering a sense of entitlement! At tax payer's expense too!

[John Thacker]

Ford has been getting some concessions, although they are sparse.

It's been interesting from a negotiation standpoint, because traditionally the UAW has tried to sign exactly the same contract with all Big 3. Unfortunately for them, that contract was enough to kill GM and Chrysler, but not quite Ford. The UAW gave concessions to keep zombie GM and zombie Chrysler from shuffling off, but has been reluctant to give Ford the same deal, though it's given them a few cuts.

[P Brooks]

just wait 'til the VOLT hits the showrooms. We'll see who has the last laugh.

[Feeble Electricity]

We will. Suckers!

[J sub D]

The makers of the Focus and Prius.

[SIV]

I can't wait
The Future is Electrifying

[JoshInHb]

Is that a real Chevy ad?

It's like a bad parody from the early years of SNL.

[Henry Ford's Corpse]

Whadayamean? It's the best your government can buy!

[KyleG]

That was infuriating.

[Jeffersonian]

Where is Iowahawk...his was much better, and likely more tied in with reality.

[TP]

It's good to see that GM is cutting back on their marketing budget. Really scraping the bottom of the barrel with that one.

[Ken Shultz]

"(If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.)"

GM management was in negotiations with the UAW when it was taken over by the feds.

When the UAW realized that making major concessions was unavoidable, that they were trying to squeeze blood from a turnip? ...the UAW dropped off negotiations with management and started negotiating directly with the government for a takeover.

So it might be more accurate to say that GM couldn't raise the money for continuing operations without the UAW making major concessions, so if GM hadn't been taken over by the federal government, the UAW would have had to make major concessions...

GM wasn't taken over to protect GM shareholders or because of systemic risk to the financial system or for any reason other than to protect the UAW from having to make any major concessions.

[Ken Shultz]

..."sold for scrap" being the ultimate concession.

[Chad-bot trolling machine]

or for any reason other than to protect the UAW from having to make any major concessions.

B- b- but, those are hard working people! And besides, all those wall street types in charge and owning the bonds aren't the ones who would be out of a job in the middle of a recession!

Why are you libertards so heartless?

[Groovus Maximus]

C-. Chad would be screaming about externalities and how GM isn't making tiny electric cars fast enough instead of scrapping it's full size, luxury, and truck fleets.

That's a Tony post, except you forgot to throw in the obligatory "It's the Republicans fault!"

[P Brooks]

The best part is, this whole loan payback dance is being done in order to clear the way for an IPO.

[P Brooks]

I have never bought a new car, and never will, so saying I wouldn't go to a GM dealer and buy a car is completely meaningless. But I *do* invest, and I can assure you, there will never be any General Motors shares in my portfolio.

[Ken Shultz]

If they hadn't ripped off Chrysler's bondholders so bad (and I think that's about the most egregious example of investors being ripped off by the government I've seen sans Hugo Chavez), it might be interesting to look at their senior debt...

Anytime there's an implicit guarantee of government support like that, but you're getting a premium on treasuries? What's not to like!

[.]

there will never be any General Motors shares in my portfolio

If you're a U.S. citizen, don't you already own part of GM?

[J sub D]

61% of it.

[Groovus Maximus]

Oh really? Do I now? Can I cash in my stock now and pull out so I can cut my losses?

[The President]

No. No you can't.

[In the real world]

You should short sell it, but that's probably illegal now.

[Groovus Maximus]

It wouldn't surprise me if it is. Too bad I was stupid and paid off my house instead of getting an ARM, two or three home equity loans, bought both a car I had no business buying and a bunch of hookers on retainer so I could have snorted coke off of their asses and then short sell my way out of fiscal responsibility and all I would have had left is cheeto dust on my hands. Man that stuff gets everywhere. Hard to wash off too.

[Groovus Maximus]

*bought should be buying. Grammar FAIL.

[then lick]

it

[OMG]

QFT

[Sacks of Gold]

You should short sell it, but that's probably illegal now.

It is?

[J sub D]

From today's Detroit Free Press, an article about the Chosen One's weekly radion address yesterday -

"Many believed this was a fool's errand. Many feared we would be throwing good money after bad: that taxpayers would lose most of their investment and that these companies would soon fail regardless," Obama said. "But one year later, the outlook is very different. In fact, the industry is recovering at a pace few thought possible.
...
"It won't be too long before the stock the Treasury is holding in GM can be sold, helping to reimburse the American people for their investment," Obama said, adding "As I've said many times, I did not run for president to get into the auto business or the banking business. As essential as it was that we got in, I'm glad to see that we're getting out."
...
In his address, Obama said the auto industry collapse was triggered by the turmoil on Wall Street, and reiterated calls for financial reforms in a Democratic-backed bill aimed at creating a system for managing the failure of large financial firms along with tougher regulation of banks and lenders.

*sigh*

[.]

Did you throw up in your mouth a little? I know I did.

[In Time Of War]

Isn't it obvious yet? Obama is a sorceror who believes he can speak the world into existence. Ya'll are just disloyal heretics and need to watch out for, oh, flying scorpions 'n stuff.

[wylie]

My bad, i was the one speaking those flying scorpions into existence. Gotta admit, they're pretty cool looking.

[Jeffersonian]

Every word, including "and" and "the."

[sage]

I'm still reeling at the balls of this company. They actually had a commercial that I've seen a couple of times for the Chevy Malibu. And their slogan at the end was "May the Best Car Win." What the shit is that fuck? If we were letting the best car win we'd have already shoved a bone up GM's ass and let the dogs drag them off.

[ed]

Having the President and most of Congress in your corner makes a toothless, arthritic chihuahua feel like a pit bull.

[Groovus Maximus]

Perhaps they have been plying the chihuahuas with oxytocin.

[Turnkey]

That is not entirely unfair. Buick is supposed to be the most reliable type you can buy at the moment.

That said, I think "Buy GM, your 61% of an owner already anyway" would have been more catchy.

[Groovus Maximus]

"It won't be too long before the stock the Treasury is holding in GM can be sold, helping to reimburse the American people for their investment," Obama said

This is truly the Barnum Corollary at it's finest. And there are so many rubes that have already fallen for this shit. And the ones on the inner circle already know that he's full of shit, it just won't effect them.

Thanks J sub Balko..err D.

[troy]

Thanks J sub Balko..err D.

Hmmm..... I don't know who is getting the better of the compliment, Radley or J sub.

[J sub D]

Me. Thanks for the undeserved compliment, Groovus.,

[hmm]

As far as compacts I think it was last year that Toyota said they finally broke even on the Prius. I agree with the long horizon model they use, but I think they screwed up on this one since the rest of the market will catch up to them pretty fast when it comes to "green" car shit.

[zoltan]

Yeah but by being first they get the green hipster rep. There's a lot of rich parents' money to be spent from that group.

[P Brooks]

If you're a U.S. citizen, don't you already own part of GM?

Of course I do; just as I can go to Max Baucus's office when I'm in D C, and sit in his chair, with my feet on his desk.

[Groovus Maximus]

Of course I do; just as I can go to Max Baucus's office when I'm in D C, and sit in his chair, with my feet on his desk.

And how many pints of blood does this cost you? Lawyers tend to be an anemic species.

[.]

Blood, semen. Whatever.

[JB]

GM and Obama are both lying cunts.

I will never, ever buy a GM or Chrysler product and I will mock all those who do.

[Jeffersonian]

Word. Death to Bailoutmobiles.

[troy]

ditto.

[The Parents of Baby-Boomers]

Youse guys is mean.

[prolefeed]

If you're a U.S. citizen, don't you already own part of GM?

The government is not you. The government is other people who are looking out for their own interests, and stealing from you without your consent.

You own nothing that the government owns. And even if you did, that GM stock isn't worth very much.

[Sean W. Malone]

Ironically, even if you sold your shares, since you're forced to pay taxes, you would just wind up buying them up again. And of course, when everything goes belly up, you're on the hook anyway - which kind of defeats the purpose of trying to get yourself out of the GM business.

[Hazel Meade]

It you're not allowed to sell your "shares" how are you an "owner"?

The "shares" in GM are worth absoulutely zero to me unless I either (a) get dividend payments (fat chance) or (b) can sell my stake when I choose to.

Both of which are false.

[Your Current Government]

OK! OK! Sheesh! You're right. Nobody actually owns GM. There. I said it. We took what we like to call "shares" (debts) in a failed company ("GM") and dispersed them to every "citizen" in the United States, with a promise to "sell back" these fake shares to this failed company at a "profit" at some later date, say...2032, give or take. It's all totally legal, as we interpret that term, and who doesn't like hot dogs and baseball anyway? Oh, look! Iran is making nukes!

[Hazel Meade]

I suppose I'll get some kind of royalty check for those shares when they are sold, right? RIGHT?

[J sub D]

If GM were to do an IPO tomorrow with a rock solid guarantee that no more federal funds will be provided ever, would anyone buy shares?

[John Thacker]

There is a sucker born every minute. It wouldn't be worth much on the open market (hell, who would buy their bonds?), but I'm sure someone would.

[TP]

The government owns what you own, but you do not own what the government owns.

[Colonel_Angus]

I have the right to claim whatever the government paid for with my tax dollars. I have an R2D2 mailbox in my den. Never bothered to get the mail out of it, I was afraid of ruining the decal finish.

[Hank]

I wouldn't buy a fucking GM if the government came up with some fucked up plan to subsidize price with taxpayer .... oh shit, that's right. I will never buy a GM. Wouldn't buy a Chrysler before the bailout bonanza.

[Hazel Meade]

If you're a U.S. citizen, don't you already own part of GM?

I realize the original question was meant in jest, but I encountered this infuriating sentiment uttered in all serious growing up in Canada.

"Once upon a time, I used to own part of an airline, an oil company, a telephone company ... " blah blah

As if the supposed owners ever saw a dime of profit from any of these "crown corporations".

Gah, How brainwashed do you have to be to buy the "if it's owned by the government, you're like a tiny shareholder" bullshit? You're not. Do you have any stock certivicates? Do you get to vote for the board members? No? Then you don't own it fucktard.

[Just curious]

If you were to fall ill and without insurance, would you return to Canada?

[OMG]

If she felt like waiting in line for 6 months for treatment she might ?

[Hazel Meade]

No. I have a high-deducible insurance plan, and enough in savings to cover the deductible.

[Sean W. Malone]

+100

[Sean W. Malone]

My +100 was to Hazel's comment, not the "Just Curious" one above... Stupid threading makes it look wrong at the moment.

[.]

I feel your pain.

[.]

"If you're a U.S. citizen, don't you already own part of GM?"

I realize the original question was meant in jest

No it wasn't.

[P Brooks]

"Part of what led to the crisis in our auto industry, and one of the main causes of the economic downturn, were problems in our financial sector," Obama said in his weekly radio and Internet address. "Wall Street firms took enormous, irresponsible risks."
Business Week

Shut the fuck up, you useless sack of shit.

[Barry O.]

(sigh)
I am that.

[Lester Hunt]

If you go to the White House blog you can see Obama repeating GM's original lie about repaying the loan in full, two days after it had been exposed (scroll to 2:18):

http://www.whitehouse.gov/blog.....o-industry

[John Thacker]

Yeah, it's pretty stupid.

They're losing money at a slightly slower rate than before and at a slightly slower rate than their worst case. They were extended a TARP line of credit sufficient to cover the worst case scenario. Since it isn't worst case scenario, they paid off the one loan with the credit line.

But they're still losing money. Sure, they can say, "it's not as bad as it could be," but they're still losing money.

[Lou Madrin]

That dude is actualyl making some good sense.

Lou
http://www.online-anonymity.tk

[TP]

Christ. You guys act like GM will never make money again. Look at Chrysler's first bailout. Iaccoca put a bunch of shit into a piece of shit (known as the "K" car), gave it a bullshit warranty, and sold a couple hundred thousand of them to the government. That's genius. The only reason Chrysler is having problems now, is because of that incompetent ass they have for a CEO. Nardelli's last job nearly put Home Depot into bankruptcy. Now you know why Jack Welch let him go from GE.

[.]

That's genius.

I'd call it "criminal," but that's just me.

[TP]

I'd call it the embodiment of Crony Capitalism.

[car shipping]

When I originally commented I clicked the -Notify me when new comments are added- checkbox
and now every time a comment is added I get four emails with the identical comment. Is there any manner you possibly can remove me from that service?
Thanks!