General Motors Will Never Repay Taxpayers, SURPRISE!
It’s getting tougher and tougher to keep track of all the Barrack Hussein Obama administration’s disastrous economic policies. Not that the lame stream media will mention this but guess what, the taxpayers are getting shafted again by one of Obama’s campaign payback shakedowns. When will these stupid goddamn liberals learn, big bloated federal bureaucracy cannot fix economic problems. Big labor union agreements combined with decades of poor leadership drove the company off the cliff. It’s not the taxpayers responsibility to bail out incompetent morons. The company like any other business should have been left to the mercy of market forces to correct the problem. If bankruptcy and reorganization where the answer so be it, the federal government should not rewarding bad business practice. In effect Barrack Hussein Obama choose one group of workers over another group. Who is to say if that tens of billions of dollars was left out of politicians hand it wouldn’t of led to the start of fifty new Apple computers or Microsoft type start ups providing thousands more modern high tech jobs. After World War II we where the only industrial giant left, in the ensuing 60 plus years the rest of the world has grown up and rebuilt there industrial capabilities. While big labor fought to maintain the status-quo countries like China, Brazil and India developed the ability to manufacture the same products with much cheaper labor costs. These manufacturing jobs cannot be sustained without the big labor unions accepting major wage,benefit and bargaining cuts. The Obama payback just delayed the inevitable, big industrial manufacturing is going to flee offshore as long as big labor is allowed to strangle these companies. I challenge anyone to name one successful economic initiative implemented by the Obama administration. The stimulus is a trillion dollar failure. Programs like “cash for clunkers” only succeed in driving up the price of used cars for the average citizen,. Obama, Pelosi and Reid’s energy policy has driven fuel prices to record highs and cost tens of thousands of jobs in the oil business. Obamacare is driving medical costs up and driving doctors into new career paths. His Green policies like support for ethanol has led to massive spikes in food prices and added regulatory burden to companies struggling to stay afloat. What did people expect to happen when they voted for a guy who has never held a real private sector job or ever been involved in creating one.
General Motors Will Never Repay Taxpayers
Obama’s spin on GM’s latest profit report is pure baloney
Shikha Dalmia | May 24, 2011
The Obama administration, and its media backers, have seized upon news that General Motors made a $3.2 billion profit in the first quarter of 2011 as proof positive that its auto bailout is a success. President Obama is so buoyed that he is reportedly planning to make the bailout a major part of his reelection campaign.
But by this standard, Charlie Sheen’s comedy tour ought to be declared a smash hit. Sheen’s backers will lose relatively less money on him than taxpayers will on the bailout.
No sooner had GM made its announcement than Washington Post columnist E.J. Dionne dashed off a stinging rebuke to naysayers (like me) who had dared doubt the wisdom of the bailout. Likewise, the auto czar Ron Bloom credited the turnaround to the president’s “tough love” approach.
No doubt, $3.2 billion is a big number. But an even bigger number is $60 billion. That’s what this administration and the last one together sank into GM (not to mention another $20 billion or so they dumped into Chrysler). When President Obama gave GM this money, he insisted that it was not a handout but an “investment” that would cost taxpayers “not a dime.”
But if there was ever any doubt that this wasn’t going to happen, this earning report dispels it.
For starters, included in the $3.2 billion figure is the net $1.5 billion that the company generated from the one-time sale of Delphi, its auto parts supplier, and Ally Financial, its financial arm. Subtract that, and its performance looks much less impressive, especially compared to its rival Ford that really didn’t receive a dime from taxpayers yet made $2.6 billion last quarter—or nearly a billion more than GM.
But cold, hard cash is not the only help that GM got. Usually when companies declare bankruptcy, their tax liabilities increase since they have no more losses to write off. But GM got Uncle Sam’s special bankruptcy package that allows it write off up to $45 billion of old losses going forward. That puts its total bailout at up to $75 billion*. Even that’s not all. The Treasury gave GM $10 billion of the $60 billion as a loan; the rest was through the purchase of equity. (It has more or less paid back the loan.)
The equity means two things: One, GM has zero interest payments, something that gives it a distinct advantage over competitors. Ford, by contrast, had to pay $251 million in debt-service costs. Despite this, GM’s real per vehicle margin was over $1,000 less than Ford’s, thanks to the heavy incentives it was forced to give buyers. (If the administration can call this success, can it please call me the next American Idol?)
And two, taxpayers have no guaranteed return as they would have with a loan. Therefore, market valuation of GM’s stock will determine what they will recover. They got back $20 billion when the Treasury sold half of its equity when GM floated its first post-bankruptcy IPO in December. But that still leaves a $30 billion shortfall (excluding the $45 billion tax break). To get this back, the federal government would have to sell its remaining 365 million shares—about 26.5 percent of company equity—for about $55 per share. But after GM posted its latest earnings report, its stock price dropped to $31, a few dollars below even its IPO price of $33.
Nor are things going to look up for taxpayers going forward. One reason GM’s first-quarter profits were even as high as they were was that low gas prices boosted the sale of SUVs and trucks, GM’s (as Ford’s) most profitable products. But with gas prices rising, customer demand is expected to shift to smaller, more fuel-efficient cars. GM’s small cars such as Chevy Cruz and Malibu have certainly done well in recent months, but their profit margins are small because GM’s labor costs are still too high.
GM slashed these costs during bankruptcy to $58 per hour, comparable to Toyota’s $56. But the problem, notes Henry Payne, editor of Michigan View, is that Toyota is not the industry cost leader anymore; smaller Asian transplants such as Hyundai and Kia with $40-per-hour labor costs are. To compete with them, GM needs to extract more concessions from its labor unions during contract negotiations this September. But United Auto Workers President Bob King has declared that workers have already sacrificed enough to keep GM solvent and now expect givebacks.
Given such realities, Bloomberg’s survey of 21 auto analysts put the average projected price for GM at $42.85 per share a year from now. This means that, outside of miracle, taxpayers will lose anywhere from $13 to $19 billion on their principal and another $15 billion on taxes for a grand total of up to $28 to $34 billion* in losses. And that’s just for GM. Chrysler is whole different—and equally sordid—story. Even Treasury Secretary Timothy Geithner acknowledged last month: “We’re going to lose money in the auto industry.”
Let’s hope that next time this administration decides to rescue someone, it’s Charlie Sheen. He might be less high maintenance than GM for taxpayers.