SmashMouth

On the campaign trail, Barack Obama’s signature definition of “success” is the government bailout of General Motors. “I said I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he told an audience in Pueblo, CO last week. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.” That pronouncement should send a shiver up the spine of every American, due to an inconvenient reality: according to Forbes Magazine, GM is likely headed for bankruptcy all over again.



The numbers are stark. The 500,000 shares of GM stock, comprising 26 percent of the company owned by the government–or more accurately the American taxpayer–sold for $20.21 on Tuesday. This left the government holding $10.1 billion worth of stock representing an unrealized loss of $16.4 billion. Even worse, in order to reach the break-even point, the stock would have to sell for around $53 per share.
The numbers remain in flux. As Investors Business Daily reveals, the Treasury Department continues “to revise upward the staggering losses inflicted on U.S. taxpayers.” They further note that the same day GM announced it was recalling 38,000 Impalas used by police in both America and Canada, due to a possible crash risk, a new Treasury report forecast that losses for GM were expected to reach $25 billion, which is $3.3 billion more than predicted earlier. Furthermore, since that report was based on GM’s stock price at the time of the report–15 percent higher than it is currently–those losses are likely understated.


And even those numbers are somewhat misleading. In June, while the media was busy touting GM’s “success,” government purchases of GM vehicles rose a staggering 79 percent. And no doubt by sheer coincidence the purchase occurred only weeks before GM was to announce its 2nd Quarter earnings. GM also got an additional $2.7 billion from the Department of Energy (DOE) to reduce energy consumption in its door-making process. Still more? In a move reminiscent of that which precipitated the housing meltdown, GM has ramped up its uses of risky sub-prime loans to drive vehicle purchases. “The subprime market grew as a result of the recession,” said GM spokesman Jim Cain. “Our experience, however, is that with proper management they are very good risks.” That’s what Democrats like Barney Frank (D-MA) said about the housing market–just before it tanked and took the rest of the economy with it.
A report by the Heritage Foundation paints a devastating picture of how politicized the bailout of GM truly was. Heritage notes that even if one accepts president Obama’s premise that the bailout out GM was necessary to prevent massive job losses, “the government could have executed the bailout with no net cost to taxpayers. It could have–had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion–more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.” (Note that the subsidies are higher than the total loss currently attributed to the auto-maker.)
The preferential treatment had two primary components. Despite the fact that the UAW had the same legal status as other unsecured creditors, they recovered a much greater proportion of the debts GM and Chrysler owed the union. And even though bankruptcy typically brings uncompetitive wages down to market levels, UAW members took no pay cuts.
In short, the UAW an Obama administration picked both the “winner” in the deal–the UAW–and the “loser,” aka the American taxpayer.

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Ashley

GM is likely headed for bankruptcy all over again.
My god, Obama ... give them one more chance, they might get it right the second time around

saintfan

I think it's more like the 4th time actually. 100% insane either way.

SmashMouth

Maybe this time will the charm as far as redoing all UAW contracts under bankruptcy protection, as should have happened long ago?

QBREES9

When will it all stop.

saintfan

The abuse of our Constitution began over a century ago. Obama is simply carrying the torch.

SloMotion

Yes, and hopefully they will be allowed to pursue a normal, structured bankruptcy without the use of taxpayer dollars and dump the Opel Division as they were prepared to do in '08/'09 before Obama's "new" Board of Directors stepped in and turned the whole deal into such a farce.

Keeping the Opel Division in Europe afloat is what's dragging GM & their stock price down ... in '08/'09, they had a deal on the table to sell that failing division to Magna, a global parts supplier that has bought up many of the struggling Tier I & II suppliers the past few decades and done wonderfully, but the "new" Board & the UAW squashed the deal.

What a fiasco this whole deal has been ... estimated losses to the American taxpayer = $26 - $42billion, depending on wether you want to include the GMAC losses under General Motors or not.