GM Books $1.6b Gain On Delphi Share Sale/Pension Shell Game
As galling as the auto bailout was for many Americans, the hidden “stealth bailouts” that occurred during the government-led industry reorganization are often even more galling. Today the final chapter of one of those “stealth bailouts” has taken place, as GM has sold its stake in its spun-off supplier Delphi for $3.8b, booking a $1.6b gain on the deal. So, how is GM divorcing its former in-house supplier a stealth bailout? Back in the dark Summer of 2009, the government organized a GM-led rescue of Delphi, which had been languishing in bankruptcy since 2005 (after GM. By buying a chunk of Delphi for $2.5b of the government’s money and selling it back for a profit, GM’s helped itself to a little extra bump of public money. Oh, and did we mention that GM dropped all kind of pensions in Delphi’s lap when it spun the supplier, including workers who had never been employed by Delphi.
But that’s not the worst part: any guesses as to why GM’s stake in Delphi is suddenly worth so much more? A recovering industry, perhaps? Wrong. Shortly after GM bought back its stake in Delphi, the supplier dumped $6.5b worth of pensions onto the government’s Pension Benefit Guarantee Company, causing huge benefit cuts and hidden government costs. What did the PBGC’s stake, given as “partial compensation” for that pension dump, yield it? A cool $594m. Meanwhile, thanks to the government ‘s arguments, GM still had to top-up UAW retiree pensions, leaving non-union retirees and members of other unions out in the cold [read all about it in a just-released GAO report in PDF here]. A shell game inside of a political payoff inside of another shell game, in other words. There’s nothing to not love here…
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Dumping Detroit's pensions on the taxpayers was always part of the plan. In 2005, Mickey Kaus blogged about the US government taking over nearly $10 billion of pensions at United Airlines. Here's the background: http://www.nytimes.com/2005/04/23/business/23united.html?ex=1271908800&en=50f4ea8f1deca69d&ei=5090&partner=rssuserland&emc=rss At the time, Kaus wrote: "Detroit's future? .... Hmmm. You don't think General Motors and Ford, which would love to unload their 'legacy' pension obligations onto the government, are paying close attention to this development, do you?" Using deliberately lax accounting rules to allow pension programs to become underfunded, and then transferring the liabilities to the taxpayer, is the entire point of the PBGC. Always has been. For some numbers for the auto industry, try this piece: http://www.foxbusiness.com/markets/2010/04/23/carmaker-unions-need-taxpayer-money/
You mean you guys are just now figuring out that the government is the least-talented joker in the room when it comes to playing the money game?
Once again, Ed keenly brings us The Truth About Accounting for insight into the nefarious money dealings of National Motors Corporation.
Posted without comment: http://www.washingtontimes.com/blog/watercooler/2011/mar/31/barack-obama-losing-84-billion-big-success/