Tuesday, September 18, 2012

More on "Saving" GM, aka Government Motors, and U.S. Taxpayers as Well

The Obama administration isn't willing to sell its remaining stake in GM just yet. It's either waiting for a higher price or until the November election is over, or perhaps both, as we've reported previously.

My bet is that the administration officials are more interested in getting the election over before selling the GM stock and that they're not so worried about the price for the GM shares that taxpayers will eventually receive. But perhaps I'm just not being trusting enough of the politicians and their motives.

The latest thing on autos and key Midwest states and how the vote will go in November is that now we're going after the Chinese for unfairly exporting auto parts to the U.S. Am I the only one wondering why all this delay in selling the stock and this new action in challenging the Chinese is happening so close to the election?

Treasury Motors is subtitled "If GM is 'roaring back,' why won't Obama sell our shares?

"Perhaps you've heard that General Motors is "alive" and that President Obama is more or less solely responsible. But if his $50 billion federal bailout is why "the American auto industry has come roaring back," as he put it in Cincinnati Monday, why not formalize the achievement by unwinding the taxpayer stake in GM?

Er, because that would mean exposing the bailout's ongoing damage. The Journal's Jeff Bennett and Sharon Terlep reported Monday that the GM brass is importuning the Treasury to offload at least some of its 500 million shares, or 26.5% of the company. Their complaints include the Government Motors stigma and compensation ceilings that make it difficult to recruit talent—and though they don't mention it, probably the political mediation over business decisions as well.

But the Administration is refusing GM's stock buyback because it would mean losing billions of dollars on this "investment." The auto maker's shares are trading around $24, which is not merely a tumble from the November 2010 IPO price of $33 but means the government would lose $15 billion if it sold today.

GM's share price needs to hit $53 for the U.S. to break even. Treasury may be waiting until after the election, when losses on any sale won't affect electoral votes in Michigan or Ohio. Such a sale might be financially wise, because while GM may have come back from bankruptcy with the help of your tax dollars, its future profitability is far from guaranteed. The company's government-financed bankruptcy failed to rationalize longstanding problems like union liabilities and especially fleet-mileage rules that will force Detroit to make cars it can't sell profitably for years to come.

Speaking of government help for Detroit, on Monday the U.S. filed a World Trade Organization complaint accusing China of illegally subsidizing exports of automobiles and car parts to the tune of $1 billion between 2009 and 2011. "It is not right, it is against the rules, and we will not let it stand," said the President, who owns a quarter of an auto maker. The trade action came a couple of days after Mitt Romney began running an ad saying Mr. Obama was soft on China trade." 

Summing Up

I realize we reported on this yesterday, but the Chinese adder made it seem worth bringing up again. 

GM's problems are real and won't be solved anytime soon.

Its European operations are losing money by the boatloads, but the boat isn't going to capsize anytime soon either.

We'll have plenty of time to assess the future of GM in 2013 and beyond.

For now, it's election season, of course, and that means don't rock the boat. The voting boat, that is.

Thanks. Bob.

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