GM’s Death by Rescue

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Invariably, whenever the upcoming presidential election is brought up, advocates talk about it almost as much as the administration’s Affordable Care Act.  It’s right up there in esteem and brilliance with um…whatever else there might be to crow about.

Of course, I’m talking about “the rescue of GM.”

“Hey, we still have an auto industry,” goes their argument, “what did you want to see happen?  Did you want GM to declare bankruptcy?”

Well, in a word, yes.  Bankruptcy would have been a very effective way for GM to get back on its feet, which is not where it is today.

Ah, but wait, GM is having their best year ever, right?

That’s what the news reports say…

But in reality?  Not so much.

So what’s the real deal with GM and the government takeover?  Did Barack Obama rescue GM or what?

Rescue is such a definitive word when it comes to GM; let’s just say that a whole lot of dollars were given to GM and other related parties.

Rescuing Unions

How many?

Well, over all, $70-80 billion is a good place to start.  Some of the money was used to buy 500 million shares of GM, or about a 25% interest in the automaker.

Unfortunately, GM is still losing market share; many its cars still aren’t what people want to buy.  GM’s market share in the crucial basic sedan market is shrinking.  GM is losing out to folks like VW, Nissan, and all the other usual suspects.

And then there’s the strategic blunders—think of the explosive electric car, Volt, that President Obama told GM to build—and it’s no wonder that the stock price is nowhere near a break-even point for the Feds to sell it.

As long as the stock price is below the purchase price, there is little chance that the government would sell; it would just show what a stupid move it really was.

But buying stock was not the only place the money was spent.  It was also spent on unions; specifically, it is paying for union members’ pensions and fattening their war chests.  At the same time, non-union autoworkers lost most of their pensions and health coverage under the terms of the bailouts.  Apparently, there just wasn’t enough money to go around…

But GM just didn’t get billions of tax dollars from the Feds; it also received billions in tax breaks.  How many billions?  About $45 billion.

That’s right; GM can write off about $45 billion in post-bankruptcy losses against post bankruptcy profits.  That’s why in 2011, GM paid no taxes, and in fact, got a tax rebate of $110 million in a year of “record profits” of $7.6 billion.  And GM’s tax break is good for 20 years.

And of course, a huge chunk of GM’s sales are to whom else?  The federal government.  But hey, GM is having a great year, right?

GM’s problems are unions

As it is, the underlying problem that GM faces is not resolved.  It is not being allowed to be a real carmaker any more.  Building cars for GM is now, more or less, just a hobby.

Why do I say this?

Easy. It’s the truth.

Today, if you looked at expenditures on GM’ balance sheet, you would see that GM is much more of a health care and a retirement fund provider for hundreds of thousands of retirees, than it is a carmaker.  Many of those retired autoworkers that GM supports decade after decade stopped working the age of 50 or 55, and retired with almost a full salary, 100% health care coverage and other perks.  Those were union workers, of course.

Those generous union contracts were negotiated decades ago, when it was a different world; when GM still had a large share of the US market.  Those days are long gone; but the contracts and the gravy train goes on.

But if GM is losing market share and a chronically low share price, how is it going to continue to pay for all the retired autoworkers for the next few decades?

The answer is that it won’t be able to.  In fact, Forbes magazine has already predicted that GM is headed for bankruptcy again in the near future.  One reason?  It spends too much money on its primary business of health care and pensions and too little of it on innovation and building quality cars.

If that’s true, it may be just what GM needs.  A real bankruptcy filing would allow GM to renegotiate the union contracts that are choking the firm to death right now.  It would also allow it to stream line production, lay off over paid union labor and higher more, less expensive non-union labor.

And then…who knows?

GM just might find that it can build cars in the US of A that are of high quality and style, that people will actually want to drive.  It can be done.  After all, if BMW, Mercedes, Nissan and other carmakers can do it, so can GM.

It just has to be allowed to do so…

But in the mean time, hey, how ‘bout that GM rescue, eh?  How ‘bout it?

And those are…The Gorrie Details.

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4 Comments

1. 

   ted

   August 21, 2012 at 12:01 am

   You are absolutely right and the sooner the better that GM go bankrupt. Obama was using our tax dollars to buy votes so I don't expect anything will be done or allowed to happen before the election. Besides, bankruptcy was designed for workers to keep most of their jobs and to relieve the company of its debt. GM as a business was not allowed to fix its financial situation. I get pretty disgusted with the stupid and selfish decisions made by both of our political parties. Don't you just "love" those in charge who just love to spend other people's money? What ever happened to statesmanship in this country? Have we degenerated to nothing more than personal gain and greed? Wasn't that the downfall of the Greek civilization?

   Reply
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     James R. Gorrie

     August 21, 2012 at 8:51 am

     When a nation stops being a nation of laws, and becomes a nation ruled by the whims of the corrupt, competitiveness and social cohesion deteriorate into a law of the jungle mentality, i.e., there are no laws, only what you can get away with. JRG

     Reply
2. 

   stormydave

   August 21, 2012 at 2:32 pm

   You just wrote about what I've been thinking for years. I was a teamster for about 3 years. I hated every minute of it,even though I was making more than I had ever made before. They kept telling me to make sure I was taking all my breaks. They said I was making them all look bad because I was doing " other peoples work ". I started working when I was 12,mostly on farms where one works hard from dawn to dusk. I earned my pay. I've always thought that unions have been the real problem for successful business in america. Lets get it out there!!!
   Love your stuff Surf's up somewhere

   Reply
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     James R. Gorrie

     August 23, 2012 at 6:09 pm

     Appreciate it, StormyDave. The union mentality that comes after too many years in power and is not a productive one; but rather, tends to be destructive for innovation and dignity. Thanks for the post. JRG

     Reply