By on February 24, 2011

The Detroit News reports that top White House economic adviser Austan Goolsby indicated today that the government would be exiting its equity position in GM in the short term. The DetN’s David Shepardson quotes Goolsby as saying

The writing is clearly on the wall that the government is getting out of the GM position. The government never wanted to be in the business of being majority shareholder of GM. It was only to prevent a wider spillover, negative event on the economy. So we’re trying to get out of that. We’re not trying to be Warren Buffet and figure out what the market is doing

And he’s not kidding: GM’s stock just closed at its lowest level since the IPO, after GM’s Q4 results came in below analyst expectations and the overall market experienced turmoil due to Middle East unrest.

If Treasury pulled the trigger today, the taxpayers would stand to lose some $10b on its bailout of GM. Luckily, Treasury signed a six-month “lock up” agreement for The General’s IPO, so it can’t sell off until at least late May. The bad news: Automotive News [sub] leads its analysis of GM’s Q4 results with the following gloomy ‘graph:

General Motors Co. today posted a fourth-quarter net profit that was its smallest of 2010, exposing profit drags that are likely to linger this year. [emphasis added]

It’s beginning to look like the GM bailout will lose at least few billion. Meanwhile, GM’s market cap is just under the $50b the government put into it. But hey, “negative event on the economy” averted, right?

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34 Comments on “Quote Of The Day: Abandoning The Bailout Edition...”


  • avatar
    redliner

    What would have happened if we (I say ‘we’ as if you and I had a choice) had let GM die? Yes, there would have been massive job loss and some suppliers would have also been deep sixed but it’ not like the demand for cars would have gone away. The other automakers would have expanded to fill the hole left by GM, adding jobs and spending money in the process. So what I’m saying is, apart from some nationalistic ‘save Detroit’ sentiment, what exactly have I, as a taxpayer, gained by saving GM? Besides everyone knows that the only real car from Detroit worth saving, the Panther, is from a different company that didn’t need a bail out.

    Perhaps thats an oversimplification.

    • 0 avatar
      WRohrl

      No, it’s a fair question, but you could ask the same question about any one or more of the banks that were bailed out for much larger dollar amounts.  There was no need to bail out ALL of the larger banks.  The world would not have greatly missed Citibank for example, the others would have been there to mop up the void…It’s not like after all of those bailouts that Main Street sees much of a willingness on the Bank’s part to change much…

    • 0 avatar
      Jimal

      Not many people (here at least) want to talk about the bank bailouts because they are seen as being not car-related. The problem is all of it is related. The auto industry (arguably) needed to be bailed out because of incompetence. The banks needed to be bailed out because of fraudulent activity and gaming the system. Why no one has been held accountable for the bank failures and why there isn’t more of an outcry over the bank bailouts is beyond me. I don’t hear cries of “I’m not using [INSERT BANK NAME HERE] because they were bailed out with my money.” You just don’t hear it. Oh, you’ll hear it now that I’ve mentioned it but find me the huge outcry and the heads on platters over the banking collapse.

    • 0 avatar
      MikeAR

      Jimal, I’ve talked about it several times. It is all intertwined with the auto industry but this is a car website so we shouldn’t waste a whole lot of time on banking. I will say this though, both the too big to fail banks and the car companies should have been allowed to fail and the people in charge should have been put on trial for what they did. Instead the bankers have gotten richer with no punishment at all and the car company execs have either stayed in place, been promoted or given golden parachutes and consulting contracts. So nothing has changed and we are most likely doomed to repeat it again.

    • 0 avatar
      DC Bruce

      Saved union jobs, you did.  A lot of that “demand” would have been sopped up by the non-union “transplants.”

      In fairness, there was a legitimate concern that supplier networks (which feed all North American car manufacturers) would have been “shocked” with possible adverse consequences for everyone.  IIRC, even FoMoCo argued for the bailout, even though the “new” GM and Chrysler, having shed billions of debt, should be much more formidable competitors to Ford.

      Oh, and banking is quite a different business than making cars, unfortunately. (Which is why it is more heavily regulated (assuming, that is, that the regulators haven’t gone to sleep and the banks aren’t regulated to achieve political, rather than economic, goals.)

    • 0 avatar
      jimboy

      @Jimal I agree completely! I have harped on this topic on the blogs for the last couple of years. To take it one step further, if the banks had not failed, neither would have the auto companies, who could no longer get financing from those very same banks. Most people refuse to connect the dots, though, preferring to whine about auto bailouts while doing business with Citibank, AIG, etc…. As far as redliner’s comments go, if you were willing to let the banks go, as they should have, I’m right there with you. You can’t just bail out one segment, in for a penny, in for a pound!

    • 0 avatar
      Steven02

      @redliner
      I think it is an over simplification.  While the other auto manufactures would have eventually filled the gap in sales, it wouldn’t have been turn key.  It would take months or years for it to happen.  At the same time, many suppliers, who are not able to keep up with the demand may have gone out of business because they can’t swing production that quickly either.  What could have happened was suppliers going out of business crippling the ability for any auto manufactures in the US to keep up building cars at what was current levels.  GM and Chrysler going under could have hurt Toyota, Honda, and Ford severely, along with the jobs that go with it.  But, it may not have happened this way either, but it is one of the possibilities that could have happened.  Either way, the only way to truly to know what could have happened was to let it happen.  The question is, would it have been worth the risk?  The gov’t didn’t think so.

  • avatar
    WRohrl

    While I am no fanboi, most of the market dropped the last couple of days and you’d have to be a bit of a fool to sell right now…One quarter of missed expectations does not a failure make.  Most people here seem to think that Ford has done very well over the last year and they missed expectations slightly as well (and the stock got clobbered without recovery so far).  I’m thinking even if there was no lockup period, I doubt the treasury is foolish enough to sell on the day of a large drop.  I also don’t think they are going to announce the day of the actual sale in advance, but only time will tell…Automotive News is not who I generally turn to for investment advice.

    Notice that the media referenced in this post seems not to take note that there actually IS a profit, but instead that it is a SMALLER profit than previous ones.  In my book, as long as you have more money at the end of the day than at the beginning, it’s a good thing. 

    Losses (and gains) are not realized until you push the “Sell” button….

    Again, not a fanboi, but not gonna buy into the hysteria either…

    • 0 avatar
      Motorhead10

      The lock up period ended January 16 – The final cost of the bailout is just a paper loss as of now. Treasury was likely holding out hope GM shares would make a straight shot to the mid-$50s and they would be able to claim economic meltdown was avoided AND it didn’t cost anything. Eventually, shareholders will get impatient and will just realize the loss, claiming they at least saved the economy from catastrophe by doing what they had to do. The (our, your) money was collateral damage.

  • avatar

    It’s not just the market turmoil in general, it’s the concern over oil prices as well.  GM, like the other American automakers, is still heavily dependent upon trucks and SUVs for profitability.  The return to profitability occurred only because the trend of moving towards fuel-efficient vehicles went away in 2010.

  • avatar
    highdesertcat

    The bottom line and end result will be that the tax payers will lose their shirts, both arms and both legs on this deal. It would have been cheaper to let GM go under, or sell it for scrap to China.  No one objected when Chrysler was donated to Fiat. And there is no guarantee that GM will even survive the next three to five years.  Right now, GM has no liabilities, pays no taxes, and enjoys liberal write-offs.  But at some point GM has to start paying taxes and funding the UAW pensions and health benefits, expenses that now are paid for courtesy of the US taxpayers. Has anyone given any thought to how much better off Ford would be if they got the same tax breaks and creative accounting measures that GM enjoys? But, as in all matters economic, if you do not like the scam that GM is perpetrating on the American people, you can always choose to buy a Ford, or any other brand, for that matter.

    • 0 avatar
      mike978

      No the bottom line is it was cheaper to have the bailout. Hell the $10 billion loss is speculation and a worst case scenario. If the Government kept the shares for say 2 years they would probably break even. But your sort complain loud enough that the Government is forced to sell and make a loss, which you then complain against. A vicious cycle.

    • 0 avatar
      highdesertcat

      Mike978, I was against the bail outs, both when Bush did it, and also when Obama did it. I never thought it would lead to any good.  In all fairness I should tell you that I personally pay no income taxes because I haven’t been gainfully employed since I retired from the Air Force in 1985.  My wife, however, does have her own business, along with her sisters, brokering and selling real estate,  and they pay enormous amounts in taxes to both the feds and the state. These days, all they have to do is sell four $250K homes to be members of the million-dollar sales club, and their income taxes reflect that. If there is any fairness in the US  taxation system the government should have extended the same rights and privileges to Ford that they did to GM and Chrysler. Near as I can figure there was nearly 200Billion that was funneled to the US auto industry with the bail outs and nationalization, along with the hand outs for the UAW, not to forget the nationalization of their retirements being absorbed  by the PBGC.  I think the tax payer money was badly spent, and we should have sold GM to China for the scrap it is. (BTW, I have owned plenty of GM vehicles in my younger years – also Fords – I have since voted with my feet and my wallet and drive Toyota products exclusively now)

    • 0 avatar
      WRohrl

      Getting way off topic here, but selling four $250k homes even if you handle BOTH sides of the deal AND get 100% of the commission and have ZERO expenses for desk fees, marketing etc, nets an income of $60000 at the traditional 6% total percentage.  The income taxes on $60K are NOT excessive, especially since any deductions bring it down even further.  Heck, the highest tax bracket in this country is quite low by historical and world standards.  While plenty of people complain about the amount of taxes they pay, the reality is that you keep significantly more than you pay out to the government in income taxes.  Take a look at the UK for example to see much worse splits.
      The “million dollar sales club” is considered a bit of a joke on the West Coast.  Your average 4 bedroom shack on the San Francisco Peninsula has no problem costing that much, any of the agents there with one sale are in the club….My wife is a Realtor as well and when she was selling out in CA the commissions were extremely nice. 

    • 0 avatar
      highdesertcat

      WRohrl,  it was an oversimplification on my part.  My wife and her sibs sell a lot more than four houses a year, each.  There is a military base nearby and the turn-over ensures lots of sales for all realtors in this area.  My point was that, since everything they buy is through and for the business, even the groceries, they write off everything they can as a business expense. Even so, the taxes paid by the business are staggering. My wife’s gross personal income before federal and state taxes was $121,118 for 2010.  Since all the husbands are retired military they are all covered under TriCare and the VA, and their wives under TriCare Prime, until we all turn 65 and go on Medicare.  My point was that bailing out GM and Chrysler was just a wrong-headed thing to do.  I was also against bailing out Wall Street, the Mortgage brokers and Fannie and Freddie.  The US taxpayers have no business underwriting failed businesses and institutions because those should not be rewarded for failure.  Bail outs do exactly that: reward failed entities for failure.  However, if we make bone-headed choices in life and lose it all, no one bails us out.  That’s what the bankruptcy courts are for. Obama wants to spread America’s wealth around, but all he has succeeded in doing with his bail outs and hand outs is spread the misery around, to those who work for a living and pay taxes.

  • avatar
    mike978

    Let me get right. A lot of people, including some of the editors, think the Government shouldn`t have shares in GM. So when the Government proposes to sell quickly so as to leave the company it gets criticized by those same people.
    The bailout was worth it. It is speculative if it has lost $10 billion. I remember a lot of people saying the Government (and hence taxpayers) would receive very little. Since even by this estimate %50 of the $60 billion spent has been (or will be) repaid then getting >80% is better than the nay-sayers thought. Another thing to remember is that we would have had the lost income (and social security) taxes whilst also paying out unemployment for hundreds of thousands of people. Never mind the loss of confidence associated with this.
     
    Yes Toyota etc would have employed some of those fired because some one would fill the gap left. But economies of scale kick in – less people would have been needed than who lost their jobs. GM HQ staff for instance wouldn`t be needed. Dealers wouldn`t have been needed etc. So you would still have lost thousands of jobs.
     
    I just hope some of the nay-sayers the intellectual honesty to say the bailout has worked better and quicker than they ever thought possible.
     

    • 0 avatar
      highdesertcat

      Mike978, after having lost well over 15MILLION jobs nationwide within the last three years, the thousands of lost jobs because of the demise of GM and Chrysler would be a drop in the bucket.  The bail outs didn’t work, just like Cash for Clunkers did not work.  It just delayed the inevitable by about three years.  The American car makers are leaving the US for Mexico as fast as they can to get away from the UAW. Remember that saying: “Life is a bitch. Then you die. It’s hell after that.”

    • 0 avatar
      FleetofWheel

      @mike978,
      Odd that you recognize there are economies of scale but are still against their effects.
      The jobs that get eliminated are due to the increased synergy and efficiencies.
       
      What you seem to believe is called the Broken Windows Fallacy.
      By your model, GM could split into ever smaller companies, each one with its own HQ staff, dealers and so on…creating lots of new jobs in the process. Of course, the economy does not work like that.

    • 0 avatar
      Mark MacInnis

      @Mike978….I just hope some of the yay-sayers would have the intellectual honesty and do the math:  Forking over $1,000,000 in borrowed taxpayer-financed debt to save a job is neither a good deal or a sustainable practice.   All we have done is just push a bigger problem down the road for our children to solve.  The tens of billions we borrowed will be paid back and when they do, will end up having cost us triple the face value.  Worse, it created a ‘bailout’ mentality which is playing out across the country.  You think the union idiots in Wisconsin don’t have the Federal governments bailouts of their GM union friends in mind as they chant their foolish slogans?  We have created a bailout-entitlement society where no one wants to stand on their own to feet and it sickens and disgusts me.  You guys who say the GM bailout was a ‘success’ cherry pick your facts and numbers and put lipstick and earrings on a pig.  It is still a pig.  And with $4 – $5 gas coming, pretty soon, GM will be porkchops.  

  • avatar
    dusterdude

    yah…I am not employed buy the auto industry, but, it does seem like the decision to bailout GM was “a necessary evil”. .. As far as goverments that chipped in (US and Canadian) I’m sure they will basically end up “breaking even” on the transaction… thanks to increasing demand for some GM models in China …and a slight bolstering of GM image in N. America….
    The Chrysler bailout is more controversial, and will be tough sledding to make that decison look good, but, never say never…time will tell..

  • avatar

    With GM making – and selling – respectable vehicles again, turning billions in profit and coming within 30,000 cars of matching Toyota’s global production volume, and with millions of industry jobs saved by the Obama bailout, TTAC had to pull out all the rhetorical stops to fluff up a dark cloud and counter the genuinely luminous silver lining. Because news of this automaker’s solid progress simply cannot be allowed to stand.
    With its well-practiced data mining skills, some strenuous extrapolations and the good old [emphasis added], TTAC again works its well-worn magic of denigrating anything constructive and successful in terms of U.S. auto production/policy. It’s just what you do.
    The government cashing out as it always intended to is cast as abandonment. And of course the same Middle East upheaval affects all automakers, but it’s imperative that the focus is solely on the ill effects it may have on GM.
    One can scarcely imagine the exhilaration with which TTAC would have reported the Obama approach failing, with millions unemployed, families starving and domestic automaking having collapsed. It probably wouldn’t even need [emphasis added] for us dummies to get the drift: U.S. automakers bad; TTAC clever.
    Oh, woe betide the GM Death Watch; that was a mini-institution, but alas, it just didn’t pan out. And there are even darker days ahead for TTAC. GM pulled off a profit position with the economy in the toilet and auto demand at historical lows. When it comes back guns blazing, with innovative new vehicles riding atop an improving economy, what kinds of posts can we expect? Glowing reviews of Chinese cars, maybe? More retrospectives on the Catera? How about an in-depth investigation of the Fiero? C’mon guys, dig deep.
    Trot out the old reliable TTAC warhorses, because, despite the triumphant glee with which any shred of bad news is reported here, not to mention the rivers of counterprogramming bile generated whenever good news happens to dominate the headlines, the simple fact is that the bailout worked and GM is making cars worth buying.

    • 0 avatar
      Rod Panhard

      GM hasn’t changed. I hope I’m wrong, but one thing GM can’t do, and can’t do consistently, is make a profit when the price of gasoline goes up and kicks consumers in the ass.

    • 0 avatar
      bikegoesbaa

      Oh, woe betide the GM Death Watch; that was a mini-institution, but alas, it just didn’t pan out.
       
      You do realize GM went into bankruptcy, and much of what was GM is currently being liquidated, right?  I’d say it panned out pretty much the way they predicted.

    • 0 avatar
      Mark MacInnis

      For the record, the GM Deathwatch was valid.  The GM we have today is the NEW GM, the old GM was liquidated.  And in my opinion (see? I can do a better job than you in labeling opinion as opinion and letting facts speak for themselves!) GM is making incrementally better cars today, but is over-reliant on in-efficient vehicles like the Camaro and the Silverado for their profitability.  The Volt will soon be revealed as a massive money-loser despite the tax incentives.  The Cruz appears to be a marginal player in the market.  $4 to $5 per gallon gasoline will take the wind out of the sales of GM in fairly short order. 

      So, they may have resuscitated the patient just in time for it to be killed by a bus walking out of the hospital.  Jus’ sayin’.  I’ve gone back and reread the GM Deathwatch series and think about what a fine book Farago would have on his hands if he would just write the damned thing.  Any hubris he and TTAC displayed was born of frustration that they could see and prove what the rest of the world was denying….the emperor truly had no clothes.

      In other words, mate, if you think GM is out of the woods yet, well, I also have some stock certificates in Old GM you might be interested in buying…

    • 0 avatar
      FleetofWheel

      “Oh, woe betide the GM Death Watch; that was a mini-institution, but alas, it just didn’t pan out.”
       
      GM did die. Farago was right. Zombie GM was resuscitated with a huge govt infusion of public cash, protection, sympathy and tax forbearance.
      But if you’re the kind of person who believes that every kid getting a trophy for being on the soccer team simply for having a pulse is a real award, then yes, GM did not die.

  • avatar
    Rod Panhard

    The price of oil is up, and creeped up during the last quarter of 2010. GM’s profits were down. The price of gasoline has gone up 10 cents this week at my local gas stations.
    When, in the last 30 years, has GM done well when the price of gasoline has gone up? Watch kids. This time, the price of gasoline isn’t going to be coming down as fast as it did last time. This time, the price of gasoline is up because the future of political leadership in the Middle East is more uncertain than usual. That’s going to take a very long time to resolve. There is no leadership in waiting in any of the recently turned over governments.
     

  • avatar
    John Horner

    GM and the government both want the Government Motors moniker to go away as rapidly as possible. This is a good thing.

    The stated goal of the Treasury taking the role of debtor in possession for GM’s bankruptcy and restructuring was to prevent the implosion of the company and the fallout thereof. If you are going to attempt to do the profit and loss math on this deal then you have to include the likely costs of a complete GM shutdown. Unemployment payments, lost income tax receipts, lost sales tax receipts, increased Medicade spending and so on would all need to be included in the costs to government at all levels had GM been allowed to implode.
    But, one can never be certain what would have happened had other courses of action been taken. We know what course was taken and we know, so far, how it has worked out.
    All the critics really have left to say now is “well, but, but, the government didn’t get all of its money back!” Compare that to the prognostications of doom these same voices were making contemporaneously when the intervention was happening and it looks like a massive bit of back pedaling. Like it or not, GM is once again a viable player in the market, is making a profit, employs a whole lot of people and is probably the only force keeping prices down for consumers in certain segments of the market. How much do you think an F150 would cost if it didn’t have to compete with the Silverado?
     
     

    • 0 avatar
      FleetofWheel

      Based on your dire predictions of the cost fallout, GM (nor any large employer) can ever be allowed to fail. Under what conditions would you allow GM to fail?
      Too big to fail now, too big to fail ever.
      Can you grasp that perhaps a business that is so faulty and money-losing is actually wasting the precious societal resources you are so concerned about preserving?

      Your solution is to recapitalize that loser at the public expense, amazing logic there.
      Double down your bet on the slowest horse in the race.
       
      Post-bankruptcy, their balance sheet looks great. Of course, you are talking about the new GM not the old GM that still creepily exists…so convenient. Another good reason for new GM to keep a govt BK on their list of options going forward.
       
      If there was no Silverado, new market entrants would rise to compete.
      Just like the Japanese earned the minivan business away from GM, Ford and a bit from Chrysler.
       

    • 0 avatar
      geeber

      I doubt that F-150 prices would rise much, if at all, because the Tundra and Titan would immediately take the Silverado’s place. Ford would not have a monopoly on the full-size pickup market.

      And we don’t know how this will ultimately work out. The new GM isn’t where it is today because of the brilliance of its management. If that were the case, then the celebrations would be justified. 

      GM has made it to this point thanks to a huge injection of taxpayer money and government action to eliminate debt (except for pension debt). That gave GM a clean slate. Any company that can’t make a profit under those circumstances should quit now.

      It did not result in a more foresighted union or GM management able to articulate long-range plans for each remaining brand or a GM vehicle development process that will consistently turn out best-in-class models. If anything, what I see is a union itching to return to the Bad Old Days and too much top management turnover, with the current top seat being occupied by someone whose public statements would make Bob Lutz wince.

      The jury is still out on this one, folks…

  • avatar
    MikeAR

    John your whole post is doing what you accuse those who were against the bailout of doing. You’re engaging in pure speculation, guesses and what ifs. You don’t understand one thing or you are conveniently omitting it because it goes against your side. A debtor in possession bankruptcy would have happened anyway with the senior debt holders taking the company and running it. All the supplier and union contracts would have been invalidated and renegotiated but people would still have had jobs and cars would have been made. Now their would have been changes, no UAW contract and assembly line workers making a fair wage instead of what they are making now for example. There would have been economic pain from all this, UAW leeches and retirees but the country would have survived. The major thing that the people who support the bailout wanted, if you could get an honest answer from them, is the continued survival of the UAW so they could keep bleeding the companies dry and contribute to the Democratic Party. 

  • avatar
    Invisible

    Dear God,
    GM can’t wait to pay undeserved bonuses to all those asshats that drove the company bankrupt.  Executive, UAW, et al.
     
    Please sell off the entire company, stop giving grants and loans, and let this company die already.
     
     
    BTW,
    B O Y C O T T
    U A W
    P R O D U C T S
     

  • avatar
    Carlson Fan

    “A debtor in possession bankruptcy would have happened anyway with the senior debt holders taking the company and running it. All the supplier and union contracts would have been invalidated and renegotiated but people would still have had jobs and cars would have been made”

    And that would have been the best thing for GM because it would have forced cutlture change which you will never convince me happened w/bailout. 

    • 0 avatar
      Mikemannn

      Exactly…

      and as was stated already, the very same can be said for the bank bailouts.  This whole business of “feeding the wrong end of the horse” as it were, is a sure way to repeat the mistakes that lead to the companies needing bailouts in the first place. 

  • avatar
    highdesertcat

    In the end, if we don’t support the bail outs and nationalization, we each have the option NOT to buy GM or Chrysler products, which, in turn will leave a lot more choice for the GM and/or Chrysler fan-club members.  In reading this and other boards it has become increasingly clear to me that there is a major shift in the buying habits of Americans today. Toyota is losing sales to…… Hyundai and KIA, for instance. VW is robbing aficionados of all other brands for sale in the US. The people committed to buying GM and/or Chrysler will continue to do so, but I do not believe for one instance that there are enough of them to make both these companies viable and on-going concerns ever again.  And isn’t that what caused carmageddon in the first place: not enough sales for GM and Chrysler?


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