StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Government Motors

27 May 2009
Posted by Pete Davis

Yesterday, President Obama's auto team anonymously briefed key reporters on the impending takeover of GM.  Uncle Sam will become a 70% shareholder, the UAW will become a 20% shareholder, and bondholders and other creditors will share the rest.  This is not going to come to a happy end for taxpayers for several reasons.  First, the taxpayers will not get back all of $19.4 b. they've already "invested" in GM, nor all of $30 b. in loans they're about to be saddled with.  Second, auto parts firms will soon need additional funds as well.  Third, the collateral damage to Ford and other companies making cars in the U.S. will not be small.  Finally, despite Administration assurances that they will be "reluctant owners," eager to sell, it will take a long time to extricate ourselves from this mess.

The New York Times asked the right questions.  When the Postal Service and the Army choose between GM and Ford vehicles, who is going to get the contract?  Will Ford be penalized for turning down taxpayer money?  The Administration vowed "no government employees would be put on the GM board," but when it comes time to shut plants and lay off workers, will the Administration shrug off congressional pressure to keep those plants open and those workers employed at taxpayer expense?  I can see the campaign posters now, "You own 70% of GM, but you couldn't save my job!"  Will GM be allowed to skimp on energy efficiency and pollution controls to better compete with foreign competitors, many of whom are producing better cars right now here in the United States?  Will owning GM cause government regulations to be written that hinder technological advances made by competing firms?  What is the Labor Department going to do when it has to choose between rules that benefit the UAW and rules that favor non-union GM competitors?

It's hard to believe that all of this is going to be avoided by booming sales of the all-electric Chevy Volt in the fall of 2010.  What other business plan is there?  At best GM comes out of this in five years at a fraction of its present size only having cost the taxpayers a much larger fraction of their "investment."

Those who don't learn from the past...

Are doomed to British Leyland Redux.


Withdrawal from GM

I'd feel a lot more comfortable with the Obama/Bush "strategy" of taking shares in exchange for bailout money, for GM & the banks, if there was a set timetable for the government to orderly dispose of the assets. For instance, the U.S. now holds 60% of GM. I would love it if the Administration announced that commencing January, 2010, we will be auctioning off 1% per month. That amount shouldn't shake the market; it gives us a better timetable for withdrawal from GM than we have from Iraq; and it would make it clear that Obama is not doing this to create a socialist society, but rather only as a needed short-term stop gap.


Withdrawal from GM

Tony:

I like that idea.  That would generate an interesting price pattern upon which to evaluate Uncle Sam's intervention on behalf of GM.

Pete




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