Ed Whitacre, the Obama-appointed CEO of GM, just announced that GM is paying off the $6 billion TARP loan it owes the US government - sounds like GM is coming back.
Let’s see if I’ve got this straight.
The story began in early 2009, when the US government pumped around $15 billion into GM to bail them out and prevent them from going into bankruptcy. Well, the $15 billion evaporated and they went into bankruptcy anyway. Then, the US government used an additional $30 billion of Obama-money (money we either printed or borrowed, but certainly didn’t have) in exchange for GM stock, with another $6 billion pumped in as a TARP loan. All told, the US taxpayers were on the hook for about $50 billion. The bankruptcy deal ended up with GM ownership divided among: the US government - about 60%; Canada - about 12%; the United Autoworkers Union - about 18%; and various bondholders - about 10%. Existing GM stockholders were wiped out.
Well, GM just announced they are paying off the $6 billion dollar TARP loan. Now, although GM did turn a small profit in 1Q10, it was nowhere near $6 billion, which begs the question, “Where did GM get the money?” Funny you should ask. It turns out that, in addition to the $6 billion TARP loan, the government had set aside additional funds in “escrow” for GM, in the event of another financial crisis. Aha! Yep, Mr. Whitacre failed to mention that GM used this escrow money to “pay off” the loan – sort of like borrowing money on your house to pay off your car loan. You still owe the money, and GM still owes the $6 billion.
Nonetheless, the mainstream media and press, as well as the White House, are heralding GM’s recovery and the fine job the government has obviously done in running the company. Feel better? Confidence in Obama restored?
All of this also brings up another issue that I’ve been pondering. Assuming GM stays profitable, they plan on selling stock again and using the money to buy back the government’s shares, at which time we will no doubt be inundated with huzzahs about the taxpayers having recovered all the money “invested” in GM – well, a lot of it, anyway. Hmm. So, what will have happened? Absent government interference, GM would have declared bankruptcy and re-organized as a leaner, debt free company, with no burdensome union contracts. Instead, the government did interfere, GM declared bankruptcy anyway, and did reorganize into a leaner company. But, that leaner company now has to buy itself back from the US and Canadian Governments; and, the very unions that caused many of GM’s financial woes in the first place are now poised to become the major shareholders.
Feel like buying more GM stock?
3 comments:
Feel Like buying some GM Stock?
Well Joe, maybe..For starters, I bought a 2010 Silverado 2500 HD this weekend...Got to tell you..very spiffy! Fit and Finish as good as the best that Toyota can produce and better than Ford..Technology..unreal...human Interfaces the best I've ever encountered..
So, I'm not really sure where you are on this deal. You're the ex Marine Aircorp Fighter Jock who gave all you had for the USA...So, Whitacre came in from AT&T, canned the archaic GM management team that was taking GM down, revitalized the people who break their picks each day top build these pieces of art..and..you're bad mouthing the fact that GM paid back a bunch of billions...So..here's my question...If Whitacre's not doing the right thing, what's your plan to save the jobs of everyone who works at- GM, Chrysler and Ford?
Alan Mullally is actually a sage..He called it, borrowed to the max before his credit lines got frozen (Remember how that feels?) and kicked Ford in the butte and now , he's in profit heaven...
Bottom line, I bought GM..and it rocks...
Let me know your experience after your next purchase of a GM or Ford product..
Chrysler's still a work in progress..given that they're being run by a non-american management team, I'm willing to write them off...
Like u, I will bet on Americans..all the way..
GAF
Joe,
Today's Republicans need to move away from simplistic reliance on buzzwords and buzz phrases and look at what is best for America. It was simply best for our country that GM not fail. Aside from the preserved jobs, a major manufacturing company with many tentacles into the rest of the business world of our country was preserved. Yes. We did not get the full story from Whitacre, but who cares? The company is coming back. And that is VERY good for America.
If you accept the idea that government is the people acting collectively in their best interest, then this bailout and several others have been good ideas. To wit:
- Lockeed; 1971, 250million under Nixon. Money paid back with interest. A major defense contractor saved.
- New York City, 1975 Ford administration; 2.3 billion each year thru 1978. THE premier city in the US saved from bankruptcy
- Chrysler, 1979 Carter administration. Loan paid back with interest. CBO estimated that 360 thousand jobs were saved directly and an equal number in collateral industries. Also avoided 800 million in unfunded pension obligations.
GM too big to fail? You bet. And I am glad the Obama administration had the sense to do something about it. Common sense won the day.
JCP
I don't usually engage, since my policy is to write the essay and then let it stand on its own. However, both of these comments seem to ignore three important points.
1. Had GM declared bankruptcy, it and its jobs would not have disappeared. GM would have reorganized just as it did (Whitacre followed almost to a "t" the reorg plan prepared by GM execs prior to the takeover), thus keeping roughly the same number of jobs.
2. GM has not come back, at least not yet. It still owes a nearly all it owed before, as I explained in the essay, and the major cause of the GM failure - untenable union contracts - are not only worse, but the union is now in charge. Wait and watch.
3. The administration is doing all in its power to focus our attention on the saved jobs (jobs that would have been saved in any bankruptcy reorg), but everyone seems to be ignoring the shareholders (most Americans had GM stock in the 401Ks and IRAs etc.) who were wiped out. How exactly are the union bosses, who are more than willing to sacrifice their company for their own benefit, more worthy or valuable than the shareholders who funded the company's growth in the first place.
Bottom line is that GM and its former shareholders are in exactly the same place they would have been with or without the government takeover. The only ones who benefited from the deal were the unions.
Btw, I still do like GM vehicles - they're made by good Americans. It's GM stock that I'm suspicious of.
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