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What We’ll Actually Lose on GM
What We’ll Actually Lose on GM
Posted Monday, November 23, 2009 - 10:58pm
Earlier today, I took exception with Edward Niedermeyer’s NYT op-ed, in which he argued that General Motors will never be able to fully pay back the U.S. taxpayer, an apparently unforgivable offense. Paying the taxpayer back never really seemed why GM got bailed out and then shepherded through a full-court-press bankruptcy, but what if GM could pay back a decent portion of what it was given?
Former car-czar-in-all-but-name Steven Rattner thinks that’s within the realm of possibility. First, we have to forget about the $20 billion GM got from the Bush administration. That leaves us with the $30 billion GM got from the Obamastration during bankruptcy, which was converted into a combination of equity and debt (I’m paraphrasing the Detroit Free Press here). Pre-bankruptcy bond valuations put that equity stake at $17 billion, and when that’s added to the debt, the Obama administration comes out with a $5 billion loss.
Not bad, in other words. Not bad at all (even if Rattner is doing some advance defense of his legagcy). Doubt I’ll be able to convince TTAC of this, however, as they’re determined to be on duty when GM goes down for the second time.
Comments
what we will actually lose on GM
The biggest loss isn't the tax dollars that go to waste, it is in rewarding poor management and lackluster technological "innovation" of a politically well-connected corporate giant. The fact is that car production capacity at pre-crisis levels was simply too high. The world needs less of the cars that GM was making well (SUVs, trucks and large landyachts) and more of what they tried but simply couldn't do: modern cars that people actually want to buy. Keeping the behemoth alive simply locks up a lot of resources that could be better used elsewhere.
Of course, GM might be able to turn itself around, but it will take a lot of time. Just letting it go and selling off the production capacity (and redistributing the workforce) to viable competitors would have been faster and more likely to get a good result. The odds against GM are still huge. They're finally going to have to compete in the same car categories where other companies (Toyota, Honda, Ford, Huyndai, ...) have been besting them for decades. What, exactly, do they have now that they didn't have two years ago, or even ten years ago?
Official government backing, perhaps. Judging from the way GM is acting in Europe (wrt. the Opel deal), the current leadership has decided that it is now the automotive face of the US government, and therefor able to do whatever it wants. Not only did they cavalierly decide to offend the two most powerful European leaders (Merkel and Putin) in one fell swoop, they then had the gall to demand billions of dollars in handouts from European governments (which, obviously, would be used to pay back American taxpayers).
Not only does the taxpayer get stuck with subpar cars for longer, they also get to have their public image tarnished by a technically antiquated, government-subsidized bully. That is the real cost of keeping GM alive.