Business/Finance

What's good for GM is good for America

And so, as i predicted in December, it came to pass that GMAC was given bank-holding company status and GM declared bankruptcy. Chrysler did too, but as always Chrysler is an afterthought. With the benevolence of the taxpayers and their representatives ushering GM through a very quick bankruptcy process, something called “The New GM” has emerged phoenix like from the ashes of a house fire it set by falling asleep with a lit cigarette. We’re treated to headlines of how wonderful the new company will be and optimistic scenarios of returns to profitability in the near term. But let’s put the word “new” into its proper, governmental, context. When the CEO says “new”, hear your Congressperson saying “reform” or your presidential candidate saying “change”.

After miraculously freeing itself from the debts incurred by horrible decision making, short-sighted strategy, and woeful products the new GM is ready to get busy. Too bad for you if you happened to be a stock-holder, an employee (many of whom were stockholders but at least a few will get to keep their jobs), a retiree or the owner of a dealership that got shuttered. The old GM bemoaned its labor costs that arose from having not prefunded the pension/retiree health care plan that it had agreed to in contracts written long ago. So the UAW cut a deal with the manufacturers to operate the plan after the companies contributed seed money. The new GM is not liable for the contribution; because that was the old GM…it’s a different company now. Instead the UAW gets stock in the new GM and can only hope for the rosy predictions of near-term profitability.

The corporate motto appears to be: that was the old GM, so it ain’t our problem.

Cleaning up the sites owned by the old GM and now worth nothing because they are environmental nightmares isn’t the new GM’s problem. Thanks to the particulars of this government intervention, those problems belong to the old GM which doesn’t really exist and has no money to pay up in any case. The taxpayer can fund those cleanups, because the new GM is staunchly against socialism and needs to focus on the rumored IPO. You don’t want to ruin your “investment” in the new GM by saddling that IPO with obligations of the old GM, do you? Of course not, because you’re not a socialist.

The new GM will not participate in the program to remove mercury switches from out-of-service vehicles, because the new GM doesn’t make any vehicles with mercury switches. See, that was the old GM and it doesn’t exist anymore. Mercury poisoning is no concern of the new GM. That’s your problem (and Ford’s problem because they weren’t smart enough to declare bankruptcy). If you’ve got a problem with that, then take it up with the government.

Please focus your attention on the Volt, because if/when it actually enters production the new GM is claiming that it will get 230+ mpg. Of course it will cost you $40,000, but through the wonders of capitalism you’ll be eligible for a $7,500 tax credit.

Do not, under any circumstances, attempt to apply the maxim “what’s good for GM is good for America.” You shouldn’t wipe out your debt incurred from buying things you cannot afford on credit by declaring bankruptcy. This is America, not a stinking socialist wasteland like Europe. We’re about individual responsibility, hard work and hard knocks. Do not attempt to have the government rescue you from cancer or unemployment. That stuff’s for commies. The maxim applied to the old GM, so it doesn’t count. This is the new GM. Isn’t it shiny?

6 replies »

  1. The bondholders of GM and Chrysler were the ones screwed after the administration declared that property rights don’t matter and put the bondholders to the back of the line. That puts us on a real slippery slope.

    Jeff

  2. Lex,

    To the best of my knowledge, GMAC was spun off by GM in 2007, who sold a large majority stake to a group led by Cerebrus Corp. GM on paper held 49% of GMAC after the sale, but their stake was heavily collateralized and they didn’t get a dime out of the company after the initial sale. In fact, the money raised in that sale was used to prop up the hemorrhaging cash flow at GM., In 2006, when shopping GMAC, they sold ~80% of GMAC Commercial Holdings to KKR. When GMAC was converted to a Bank Holding Company, GM ended up with less than 10% of equity in GMAC…..actually the union and government own the 10% equity, Part of the condition is also that Cerebrus gives up the majority of it’s stake, turning it over to the crooks in this administration.

    Jeff

  3. Jeff, i forgot the bondholders in the list of who got the short end of the stick on this. Thanks for the clarification on what happened to GMAC. I knew that Cerberus held 49% but didn’t know about GM’s stake. Strange that it was around the same time that one could hear rumors of GM’s wish to sell the auto division. I had no idea about the collateralization…but it doesn’t surprise me. I’m not thrilled to find out We the People own GMAC. But i should note that the GMAC situation was only part of the prompt for my prediction in December about bankruptcies. I hope i didn’t lead readers to believe that GMAC has anything to do with the New GM.

    But that raises a question: how would i finance a GM purchase at the dealership? Does GMAC still write the loans?

    Denny, thank you. I got cynicism breakfast lunch and dinner (with late night munchies to boot)

  4. Lex,

    The real question is if you can find a GM dealership. Actually, GMAC does more financing for Chrysler than GM because of the Cerebrus connection. They still write paper, but have really tightened up with their lending. GMAC’s paper is almost worthless, and the company has a negative net worth of about 20 Billion. No problem, as the Treasury’s fiat money will take care of their debt. Hell, the treasury’s fiat money will take care of our entire national debt and there’s nothing the rest of the world will be able to do about it. People worry about our exposure to China, but China’s internals don’t look very good, especially when you look through the propaganda and study the real numbers.

    I’m not cynical at all, as nothing has really changed since 1762. I do believe that, despite what the media tells you 24/7, that the worst of the recession is over. Anyways, if this recession is over, it was much milder than the Carter recession.

    Still, I would be surprised if GM and Chrysler, owned by a combination of government and union trusts will ever make a profit. The smart money says no. I guess I was right on my bet on Ford which has gone from $1.01 to $7.70 at today’s close. Speaking of smart money, it’s betting on the banks these days.

    Jeff

  5. I would never buy a small car for 40K just because they say it does not burn gasoline or diesel.
    I don’t care about it. Environment will suffer regardless whether we drive cars with electric or
    gasoline engines. Transportation, distribution, maintenance and production would be a complete disaster for the environment.

    Add to this an additional huge spike in demand for electricity and you have a real problem.
    Guys who think electric cars are the answer to our problems are smoking some good stuff.

    Electric cars are just another way to get your money.

    Peter

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