By on April 19, 2011

With GM’s share price slipping below $30, the cries are going up again around the internet about the government’s stake in the bailed-out automaker. Thus far the Treasury has remained mum on its exit strategy, only indicating that it would emphasize speed rather than maximum return as it charted the course for its sell-off. But now, Reuters reports that “a big chunk” of the government’s 33% remaining stake in GM could be sold “in the summer or fall.” With the government’s shares “locked up” until May 22, that could mean the government is bailing as quickly as possible at a time when GM’s stock is hitting post-bankruptcy lows, and its CEO offers little in the way of explanations beyond blaming the Japanese tsunami and rising fuel prices. The Wall Street Journal figures taxpayers would lose $11b on its “investment” in GM equity if the government sold at today’s prices (the stock must hit $53 for break-even), but reports that political motivations outweigh fiscal considerations. The White House does not want “Government Motors” to be an issue in the next election.

A Treasury spokesperson insists that

Planning for the sale of our remaining GM stock is still at an early stage and the IPO lock-up does not expire until late May. At that point, we will consider all of our options, based on our twin goals of protecting taxpayers’ interests and exiting as soon as practicable.

But, once you get folks off the record, the real issue emerges:

Government officials are willing to take the loss because the Obama administration would like to sever its last ties to the auto maker, the people familiar with the matter said. A summer sale makes it more likely Treasury could sell all of its stake in GM by year’s end, avoiding a potentially controversial sale in the 2012 presidential election year.

So how does the White House expect to sell early and not lose its shirt? Well, for one thing, it’s premature to use today’s stock prices as a measure because the sale likely won’t happen all that soon. The WSJ reckons that

a sale in May is unlikely because Treasury would need time to put together a deal once the May share sales restriction lifts.

Another issue: on April 21, the former bondholders of Old GM will receive warrants and stock, and will likely sell them, placing further short-term downward pressure on GM’s share price. June? Not likely either, as Bloomberg [via Automotive News [sub]] cites sources who claim

The U.S. Treasury Department will wait for General Motors Co.’s first-quarter earnings before deciding whether to sell more of its investment in the nation’s largest automaker

The second quarter doesn’t end until June 30, and earnings won’t be publicly reported until August. So much for June. Starting in July GM becomes eligible to file an S3 with the SEC (allow Treasury to sell shares without having to address SEC comments), but it would be strange if the government sold shares of a publicly-owned company after viewing earnings that hadn’t been publicized. Unless you enjoy a soft spot for conspiracies, you can rule out July.

Starting in August, GM’s Q2 earnings will be out, it will have an S3 filed, and the government will have had time to structure a deal [according to Reuters]. If gas prices aren’t making headlines, the government will likely think very hard about selling at this point. The only issue: an August sale would have to take place in the first half of the month, as Wall Street takes the second half off. Trading should be closed through Labor Day, meaning Treasury could have to wait into September if it doesn’t pull the trigger in early August. Then, after the Treasury sells its “big chunk,” its remaining stake would be locked up again, meaning a final exit might not take place before December.

Is the remainder of this year a good timeline for Treasury to pursue as it seeks to exit its unwanted ownership stake in GM? On face value, it’s not ideal, with gas prices continuing to threaten, and worries about executive shuffling and incentive dependence taking the shine off GM’s stock. More than anything else, GM needs to signal a sense of consistency to investors in order to calm fears about the restructured company’s ability to rebuild its empire. More time would help calm those jitters (provided things go reasonably smoothly in the interim), meaning waiting could be in the taxpayers’ fiscal interest.

But since politics seems to be driving the sale, and the future can’t be counted on to give GM time to prove its stability in its “new normal,” the sale will happen sooner. And luckily, the Treasury does have one ace up its sleeve, as Reuters explains:

GM is expected to join the S&P 500 index . Such an inclusion would likely generate additional demand from portfolio managers who benchmark their holdings against the index. The U.S. Treasury might be able to sell additional shares based on this demand in what is known as an index inclusion trade.

Will increased demand from institutional investors as a result of an S&P500 listing be enough to buoy GM’s stock? Maybe not. But then, the White House has insisted for some time that recouping its investment was not the main point of the bailout, and that as an emergency economic measure, it was already “worth it.” At this point, there’s not much choice but hope they’re right, but the very question about how to time the government’s exit raises an interesting point: even after a government-backed bankruptcy and a cash injection of tens of billions of dollars, GM’s position remains uncertain and its future remains unclear. If The General collapses again, and investor pessimism indicates that it’s a possibility, will the “emergency economic measure” still have been “worth it?” Will another such measure be forthcoming? Regardless of how much the treasury loses when it exits GM, this question will dog the auto industry for some time to come.

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78 Comments on ““Government Motors”: The Exit Strategy...”


  • avatar

    combine an incompetent management with banksters on the dole and you have a share price that dwindles to $20 and languishes for the summer. savvy investors think “puts” and “short”.

    Buickman

    • 0 avatar
      highdesertcat

      I don’t know if anyone considering buying GM now would be considered savvy. The tax payers basically got f’d and didn’t even get kissed! At least the UAW can claim that they really screwed over the tax payers. The bail out was bad. What we should have done was to give GM to Red China, like we gave Chrysler to Fiat. If you must buy American, buy a Ford.

      • 0 avatar

        Fiat doesn’t wholly own Chrysler yet and even if/when they do Chrysler will still be an American company designing and producing the vast majority of it’s wares here for this market just as they did under German ownership.  Fiat’s stake doesn’t make Chrysler any less American than Ford just as Nissan’s tie-up with Renault doesn’t make Renault any less French or Nissan any less Japanese.

        Ford recieved billions directly from the Fed under the radar so the Ford family could retain control of their great grandfather’s business during the economic shitstorm instead of selling it to the Treasury via TARP like Chrysler and GM. However you feel about all that it is long done and over and those companies are saved and exist today as well as many of the people they employ.

        I did not support the bailout but it was the decision of two Presidents and the Treasury to go forward with it as well as the Fed giving Ford the money they needed in addition a host of other companies both foreign and American.  If all we’re out is 11 billion then that is really chump change compared to the overall spending the current administration has been doing the past two years or even compared to the so-called budget deal last week. 

        If you can’t stand the US government supporting our home businesses in an unprecedented economic catastrophe I suggest you stop doing business with numerous banks, stop eating at McDonalds and don’t buy a single Chrysler, Ford or GM product.

      • 0 avatar
        highdesertcat

        TriShield, Fiat only needs 51% stake in Chrysler.  All the shots are already called by Sergio. Chrysler ceased being an American company when Daimler bought them.  But Daimler realized too late what a pig in a poke they bought, something that the more attuned bloggers had already pointed out prior to the sale.
         
        Ford did indeed receive tons of money from the tax payers, disguised as all sorts of financial vehicles, not to mention the special write-offs and accounting privileges to make their balance sheet look more attractive, and lower their tax burden.
         
        The bail outs and nationalization were bad decisions by two presidents. Presidents are not infallible, and surely the advisors to the presidents thought they were going to avert a disaster, but all they have done is lay the burden on the tax payers and delay the inevitable.
         
        I cannot stand the government supporting large for-profit businesses and corporations because that is both communism, like in Russia and Red China, and Socialism, like in much of Western Europe, neither which has a place in capitalist America.  If you or your business fails, it fails.  There is no do-over.
         
        The economic catastrophe you refer to was largely brought on by the US Congress and its encouragement of the financial industry to ‘invest in America’ through NINJA loans and the CRA.  The CDS vehicles that followed were a natural outcome of risk diversification, and also a back-handed way to ensure a safer investment (all which were legal at the time). There is no doubt in my mind that we, the people will get back all the money used to bail out the financial industry, and then some. We will get precious little money back, if any, from the failed US auto industry because their income depends of sales of vehicles, not the shuffling of paper assets. And there aren’t enough people buying their goods for them to make enough money to pay back their debts or carry their own expenses.
         
        This albatross is going to cost the tax payers a lot more money than the $11Billion lost on just GM, and we can only hope that at some point, real soon, we give this failed giant to China, like we gave Chrysler to Fiat.

      • 0 avatar

        puts and shorts are not considered investments in the traditional sense. they are bets placed on the downside, hence the reference to savvy.

      • 0 avatar
        highdesertcat

        Thank you Buickman. I was an investor for the two decades I was on active duty in the military and hold an MBA in Finance from the University of Maryland.  Got it while I was on active duty and the Air Force paid for all of it.  Your tax dollars put to better use than in GM, no doubt.
         
        My point, which I did not develop properly because I did not want to drone on in the post, was that GM is such a loser, as a manufacturer and as an investment, that I would not consider anyone considering GM for any kind of investment as savvy.  I pulled out all my money in the US auto industry when I retired from the Air Force in 1985.  With those proceeds I built (physically and literally) a house in the high desert of New Mexico.
         
        What really ticks me off, because of all the taxes I have paid and because of all the taxes my wife is paying on her real-estate business, is the misapplication of tax payer money in losers like the UAW and the US auto industry.  First the UAW collectively bargained their employers into the grave and then they came out and sat in front of Congress and begged for money to haul their bacon out of the fire.  I bet our Congress wouldn’t do anything like that for you or me. Disgusting!

      • 0 avatar
        Greg Locock

        “I don’t know if anyone considering buying GM now would be considered savvy.” If you are right then someone /selling/ now is doing the right thing.

      • 0 avatar
        highdesertcat

        Greg, yes I do believe that.  Without a doubt selling at a later date, or a much later date would result in an even lower stock price and an even greater loss to the tax payers than the current $11billion loss anticipated.  Without the prospect of a rise in GM stock price any time soon it would indeed be best for the Treasury to dump GM stock now, instead of at a later date.  The bottom line is that we, the people, lose. A lot now, a great deal more later.

    • 0 avatar
      doctor olds

      You doom sayers may want to note that GM stock is already back up to $31 share.

      Prognostications that the stock will continue to decline are founded on emotionalism and ignorance of the business reality. GM is profitable and will grow more so as volumes increase. 

      • 0 avatar
        MikeAR

        You’re grasping at straws there. Stock prices go up and down all the time. A 3% increase over a week or so means absolutely nothing. Would you like it if I posted GM’s close every day it was down? The only way to look at a stock is over time. The only time short term price changes really mean anything at all is when they are part of a trend and right now there is no real trend either up or down in GM.

        By the way,link to some statements by GM people expressing their gratitude to taxpayers for the bailout. I really want to see that. You can say all day long that they did but until it is proven that means nothing.

        Another thing, with wages stagnant and prices increasing, what gives you the idea sales are going to increase much? Or even stay where they are? You do realize that basically we have never recovered from 2008 and that the econmy may be weakening again don’t you?

      • 0 avatar
        doctor olds

        @MikeAR Bingo!!
        1-Now you are starting to get it! You jumped on the decline of GM stock along with the whole auto sector as proof that GM is going down. I tossed that out to see if you would take the bait! The truth is that most people, including many investors, think GM is unchanged and will lose money again if truck sales are weak. The market is still ignorant of the reality that GM can now make money on cars in NA, though trucks are still more profitable. Future profits will teach them the truth. 

        2- GM specifically released an ad thanking taxpayers for assisting the company, saying, “We all fall down. Thanks for helping us back up “. I suppose you will criticize them for spending the money on the ad now!
        http://media.gm.com/content/media/us/en/news/news_detail.brand_gm.html/content/Pages/news/us/en/2010/Nov/1123_thankyou

        3- Cars do not last for ever. Styudying actual data, I was amazed to learn that they actually are taken off the road due to theft and total loss incidents at a rate starting at 5% after the first year, with higher rates in out years as  losses continue and they begin to wear out. The latent demand for car sales in the U.S. has been estimated at 15M+. If you are actually interested in educating yourself, graph new vehicle sales over time and you will see just how substantial is the variation over time and how clear it is that the trend is upward over time.  

        The weak economy may cause delay new vehicle purchases, but the elasticity in that relationship is limited. People whose business it is to forecast sales volume expect 13M this year and over 14M in 2012. It is likely to rise even further in future years.

        GM posted an operating profit of $6.2B with 2010 volume of only 11.5M and over $5B of it was from NA. What do you think a 13M or 14M market will yield? 

  • avatar
    Da Coyote

    GM might have made it.

    Years ago.

    If we could have fired ALL of the managers.

    And most of the union “workers”.

    Today?

    Mehhhhhhhhh, you couldn’t give me one of their Obamacr*pmobiles.

  • avatar
    SP

    Why do you say, “its CEO offers little in the way of explanations”?

    He’s the CEO of a car company.  His job is to make and sell cars.  He doesn’t buy the stock, or price it.

    The shareholders are the ones buying and selling the stock.  It’s THEIR job to price it.  They shouldn’t have to ask why the stock is going up or down.

    I know the CEO is supposed to watch over “shareholder value”.  But I think the term “shareholder value” is usually misapplied.  Watching the short-term stock price in order to allow a stock flipping hedge fund (casino player) to make money by selling his stake is the wrong way to run a company.  I am not saying Wagoner is running GM this way, but you seem to imply that he should be.

    • 0 avatar
      MikeAR

      Don’t blame everything on hedge funds unless you do some research. The latest list of hedge fund holdings has 112 funds holding 4% of shares outstanding. From the looks of it hedge funds have very little to do with the share price. By the way, short interest is a measly 1% so it seems like the share price is moving according to the companies perceived value. Hedge funds are, if you know anything about the industry, not necessarily active traders, I would be willing to bet that most of the funds bought what they hold now on the initial allocation. You are blaming hedge funds when you really mean to blame high frequency trading firms. They trade by computer and often hold for minutes or less trying to a miniscule profit on each trade but have a lot of profitable trades. HFTs have almost no impact on share price except at the time they make their trades.

      • 0 avatar
        MikeAR

        I nned to amend the above paragraph, HFTs probably in a small way are positive for stocks because on many days recently they are a big portion of the volume of the market. Individual investors are almost completely out of the market now.

      • 0 avatar
        SP

        You’re right, I mixed metaphors there.  Don’t take it too literally, it was meant as a general example.

        But you get the point of the comment, right?  Why should you expect the CEO to explain the stock price?  Who should he be explaining it to?  The shareholders should either:

        A.) Know why

        B.) Not be shareholders

    • 0 avatar
      MikeAR

      You are right in that point.

  • avatar
    FreedMike

    “The Wall Street Journal figures taxpayers would lose $11b on its “investment” in GM equity if the government sold at today’s prices (the stock must hit $53 for break-even)…”

    And how much would We The People have been on the hook for had the company gone under? We’re talking a couple hundred thousand people who, all the sudden, will NOT be paying taxes, will draw unemployment for at least a year (unless someone wants to show me that the job market was clamoring for ex-GM workers in 2008 and 2009), and when those benefits run out, will then start drawing safety-net money (welfare, food stamps, Medicaid).

    And that’s just for the folks working directly for GM – God only knows what the closure would have done to all the workers depending on GM (car dealerships, finance outfits, parts suppliers). 

    Finally, what about the cities and states, and all the businesses in them, that would lose revenue? 

    If $11 billion is all it ended up costing, then hallelujah. It could have been worse – a LOT worse.

    • 0 avatar
      MikeAR

      This has been gone over so often that it’s no longer worth the time to tell you how wrong you are. You can’t play the “what if” game because any scenario but we are stuck with what happened. Hindsight is worthless and you waste our time with that post.

      • 0 avatar
        doctor olds

        @MikeAR- How is prognosticating the future any worse than asking “what if?” about the past.

        There is absolutely no doubt that saving 2/3 of the U.S. auto industry from collapse caused by external events would have been worth every cent invested, even if not a dime was repaid. Sideline chatterers like you and me(!) can say what we want, but leadership required evaluating the “what if’s” and the devastation to whole regions and the national economy that would have occurred is orders of magnitude worse than the minimal costs that may remain in the end.

    • 0 avatar
      69 stang

      You are assuming that car buyers would not have bought other makes, including Ford, Chrysler, and the foreign brands.  Virtually all of the potential buyers would have bought some other brand and those companies would have had to hire more people to build, repair, sell, and market them short term. Most of the suppliers also supply the other manufacturers, who would have had to increase orders because of their increased sales.

      Some group may have bought the company out of a legitimate bankruptcy and made it into a better company with new management.

      I guess you think everyone who has lost their job should get a government guarantee of their lost wages (not unemployment) for a few years?

    • 0 avatar
      Tommy Boy

      You can bet that the $11 billion figure doesn’t include the $45 billion tax loss carry-forwards that GM was gifted by the Obama administration (normally accumulated tax losses are washed out in bankruptcy).

      So we taxpayers are paying a very, very heavy price to bailout the UAW (which is really what this all was about) and so preserve a multi-million dollar donor to the Obamas / Democrat Party.

      • 0 avatar
        Steven02

        It doesn’t carry the tax loss carry-forwards, but that was money the gov’t didn’t have anyway to begin with.  So, it really isn’t a loss.  Also, tax loss carry-forwards are not wiped out during bankruptcy.  If a company goes into bankruptcy and is sold to another company, it depends on the ownership of those companies.  If more than 50% of the owners are the same before and after, there are limits imposed.  If there is new ownership, there are exemptions (this is the path that was taken). Carry forwards on buying one company outside of bankruptcy is different.  Some companies would use this to limit tax liabilities and that is why limits are imposed.  That is why congress imposed limits on this.

        http://taxation.lawyers.com/Carryforward-Limitation-on-Net-Operating-Losses.html

        Good link on this.

    • 0 avatar
      GS650G

      Nice try but I think we all would have been better off without GM. I’m calling 17 a share by the end of the year, about half the IPO. I think they really stretched that IPO price, twisted a few arms of big buyers to buy it initially, and now we are seeing the market vote. Just like they did before. This is what drove them from 40 a share to 0 inside of 4 years.

  • avatar

    innovate, or be crushed by the likes of smarter and more agile koreans.

  • avatar
    obbop

    I predict an ever-increasing amount of misery among the commoner scum of the USA.

    • 0 avatar
      mazder3

      Buck up, chum! Remember, if you ever are in need of three hots and a cot, our nation’s glorious prison industrial complex will take care of you! Just commit a non-violent felony. Give that high zoot car you’ve always wanted to try out an “extended test drive”. Heck, stealing a 12-pack of Bud and a Snickers bar is a guaranteed 3-5 year term!
       
      Don’t bother with white collar crime, though. They’ll give you time served and 40 hours of community service!

  • avatar
    Zackman

    11 billion is all? Well, I would suppose one could take solace in that we lost far, far more than 11 billion in all the wars this country has been involved in since 2001, so that should make the average taxpayer and auto enthusiast feel pretty good, huh?

    • 0 avatar
      MikeAR

      You’re kind of saying that if you don’t like the bailout then you must love war aren’t you? I hope it wasn’t intended to be like that. But you have apples and oranges there.

  • avatar
    mike978

    And you waste our time with your reply – I agree this has been discussed for a long time and we will never agree. You yourself say hindsight is worthless so you cannot completely disregard the argument that the bailout was a bad idea because of the inherent uncertainty.
     
    Interesting article but yet again any negative possibility is explored rather than being neutral – for example Will increased demand from institutional investors as a result of an S&P500 listing be enough to buoy GM’s stock? Maybe not. – why was “why not” written when quite possibly the extra demand does hel. Also some experts are saying gas has nearly reached its high for the year.

    • 0 avatar
      MikeAR

      Again do a little research, the index effect has been around for a while, but it doesn’t have any great effect on stock prices just because it is more pronounced when a stock is delisted from an index. When a stock is taken out of an index there is some slight downward pressure because funds that track that particular index have to see their holdings. Absent any other news the effect is small and short-lived. The same goes for adding to an index except it is less of a change.

      You just don’t want to hear anything negative about GM, that’s the whole problem. Anything bad is ignored and excused by attacking the author of the article or post. Notice that I did not forecast the stock price so saying that gas prices have peaked for the year is a non sequitur as well as grasping at straws for anything positive.

      • 0 avatar
        mike978

        Mike, calm down and do some research. I have criticized GM, as recently as yesterday with the Akerson comments and incentives on/off situation.

        The gas comment was related to another comment in the original post which was used to explain a potential drop in the share price.
        Bottom line I would like to know whether you want the Government to sell their minority stake as quickly as possible (almost regardless of price), or to keep it longer term to maximise the return? I know some on the right have a win-win on this – complain if the Govt stays too long, but then complain if sold for a loss – you can`t have it both ways.
        Personally I would keep it to maximise financial return and there has been no Government interference on the product development side – which some feared.

      • 0 avatar
        MikeAR

        Mike, as a matter of wrong and right, I want the government out as fast as possible because they shoudl have never been there in the first place. I think that you are wrong about product development, the Volt would have mostly likely been a show car without the government. Now GM loses money on every one sold.

        What I really want though is to see everyone involved in all the bailouts on trial, their wealth confiscated and in prison for life or worse. The politicians, the unions, management and the banks did untold damage to this country they ought to pay for it.

      • 0 avatar
        mike978

        GM loses money on the Volt – just as Nissan loses money on the Leaf and Toyota lost money on the first gen Prius. Its what comes from demonstrably new technology (or application of).
        Matter of research – the Volt development started well before either the Obama administration, the financial recession or the bailout. So not Govt induced and seems to have had a halo effect (maybe not with you but there are 300 million other people in the US, never mind Europe etc).

      • 0 avatar
        MikeAR

        Mike, the Volt program started well before the bailout but would it have been rushed to production and given a large share of GM’s development money without government encourgagement? I really don’t see much a halo effect for it but then again I’m not much for useless, symbolic gestures.

      • 0 avatar
        mike978

        I personally wouldn`t buy a Volt but I also wouldn`t call it useless and symbolic when to many people it isn`t that. Not everyone has your opinion and some are spending their own money.
        I expect when the first Gen Prius came out you thought it was useless and symbolic. I would stop casting around to try and just say negative stuff. It was an engineering accomplishment, other companies are following. But hey it is American so lets bash it.

    • 0 avatar
      MikeAR

      Mike, I don’t bash American, I bash GM. I wouldn’t buy anything but an American car if I were in the market. I would look at only Ford and Chrysler though and only their RWD cars. Sure it is a technical achievement but so was the space shuttle but neither are big sellers that a lot of people will get to ride around in.

      The Volt above all was probably a misallocation of corporate resources more than anything else. GM was and is a battle to survive, its limited dollars would have been better used for something else. When Toyota developed the Prius they could afford a loss leader for PR value, GM (taxpayers) can’t.

  • avatar
    vbofw

    Whenever a lockup period for a major holder approaches……..and that holder has telegraphed it wants to sell quickly…….its safe to say the stock is going to sell off in response. Part of this selloff is the fast money getting out.

  • avatar
    tparkit

    Don’t limit your thinking to the possibility of selling shares on the exchanges. The Obama administration’s “We will consider all of our options” includes block transfers to the UAW and (via intermediaries) to China.

    Where will the the UAW and other Friends of Washington get the money to buy the shares? From you and me, via government-guaranteed loans at almost zero interest. In the UAW’s point of view, the cheaper GM’s shares temporarily become, the better.

    • 0 avatar
      mike978

      Conspiracy theory. You also seem to hate the UAW lobbying but forget or gloss over all the other companies/financial institutions that “lobby” both parties. Also the bailout was under a Republican administration. If they had not bailed it out it would have been too late in January 2009 when Obama became President to do it.

      • 0 avatar
        MikeAR

        It has already been admitted that Bush continued bailing out on the request of the incoming Obama administration. Also, the bailouts were the perfect two wrongs don’t make a right situation. Bush with his Democrat Treasury Secretary Henry Paulson should never have started the bailouts. Crying Bush started it doesn’t excuse anything, everyone involved did wrong and hopefully they all will pay a price one day if we ever have an honest governmant again.

        I will say though that the greatest sin by far was the bailout and enrichment of the too big to fail banks. The size of the payout and who it has gone to was sheer evil.

      • 0 avatar
        tparkit

        Mike978, if you didn’t realize that the auto bailouts are a multi-faceted conspiracy, you (a) have a lot to catch up on, or (b) are a beneficiary of the conspiracy.

    • 0 avatar
      MikeAR

      Tparkit, you have a very valid point but it should be expanded to cover all stocks. Fed Chairman Benanke started and maintained the Quantitative Easing and Permanemt Open Market order programs to expressly support and stimulate the stock markets by printing money and zero interest loans for the financial sector.

  • avatar
    highdesertcat

    I cannot envision GM shares ever becoming ‘better’. Even the UAW cannot be that stupid. The UAW simply cannot control the buying behavior of the car-buying public. It’s just a matter of time before GM will also be foreign-owned, like Chrysler is now. Without the backing of the US Treasury, GM is doomed (again). There simply aren’t enough people in the world buying GM products, no matter how much the GM-fans tell us things have changed at GM. The end is nearer. Get ready for your Silverado to be made in China.

    • 0 avatar
      AJ

      As long as the UAW and it’s workers also go to China. A communist country fits them perfectly.

    • 0 avatar
      mike978

      There simply aren’t enough people in the world buying GM products - maybe I have missed something but they are the second largest manufacturer (and seller) in the world. Doing better than Toyota in Europe and China. How are there not enough people buying GM products?

      • 0 avatar
        highdesertcat

        Mike978, I should have added “for GM to ever be profitable” because even though millions of people buy GM products, GM will never be profitable again.  The fact that the Treasury wants to dump GM shares in a quick sale tells me that the future is even more dismal for GM. If the future was bright for GM, the Treasury would hold on to those shares to sell at a later date at a higher price. As soon as more people realize that GM is a lost cause, they will stop buying for fear of owning an orphan.  People are just now coming to realize that we lost more than $11Billion on ONE company, and that’s not counting the countless billions the tax payers forked over, and will fork over in the future, to keep the UAW enjoying their rich retirement and benefits (that very, very few other Americans enjoy in their industry).

    • 0 avatar
      doctor olds

      Amazing combination of presumption and ignorance in so many posts!
      GM has not received a dime from government since the bankruptcy, which only government had the means to finance.

      GM Company made $5.1B in in North America last year, pulled down to $4.8 by net overseas losses. Their net profit margin was just a fraction below Ford’s.

      GM will report strong income quarter after quarter and the stock price will rise to reflect the value of the company.

      GM stock was down yesterday 21% from the high of the year. Ford was down 22% and Toyota down 18%. Now is the time to buy GM stock, because it is down along with the whole auto sector. Investors are jittery about oil and world events, and do not yet understand the financial strength of the new GM.  

      • 0 avatar

        hey doc, I respect your admiration and defense of the new GM. wish I could share in your enthusiasm but cannot while witnessing the exodus of top talent, diminishing market share, and continued disastrous marketing. they say love is blind my friend.  jd

      • 0 avatar
        doctor olds

        @Buickman- who knows how it will turn out.
        With their product line up in the last days, I thought Olds would come back, too!  
        I take my motto from Churchill, Never, never, never give up!

        It is a fact that the new company has a very strong balance sheet and is likely to generate strong profits on an on-going basis, even with the share they capture today.

        When I came work for Oldsmobile in 1969, the Personnel manager that brought me in said, “We are up to our asses in talent.” It was true then, and is still true. They do need to get out from under the ridiculous compensation limits imposed by our socialist administration to attract and retain the best talent, though.

      • 0 avatar

        Olds was done once they abandoned their client base by going to floor shift only, removing the Oldsmobile emblems from the cars, and having the dumbest slogan in the industry. John Rock aside the divsion lacked direction and talent.

        your facts and figures are amazingly well organized and presented. makes me wonder if your true identity is Steve Harris, the master of PR.

        the balance sheet is stronger you’re right but what doesn’t show is the negativity that exists nationwide and across many, many demographics. add in the lack of knowledgeable marketing talent and the recipe is there for much further decline sorry to say.

        Ewanick should have stayed at Hyundai where he could have rode the wave. he doesn’t have the capability to swim upstream which is what is needed in Detroit.

      • 0 avatar
        doctor olds

        @Buickman- I agree with you. GM has an uphill climb, but March showed that a few hundred bucks can really move the needle.

        I remember, way back at a dealer announcement show, the General Sales Manager referring to the returned availability of column shifts as a great thing for some traditional Olds customers and an advantage over other divisions. No, I am not Steve Harris.

        With Ewanick coming relatively recently from Nissan a short time after they poached him from Hyundai, I wonder why you say GM has the same sales leadership. It seems to me that almost all the top seats have new people in them today.

      • 0 avatar

        my dear doctor…  this analysis from years ago might be of interest to you…

        The final (observed) straw was the “no front bench seat” for the last gen Aurora decision.  When that omission was questioned by the media, it became a “management decision” and nothing else.  Considering that many loyal Delta 88 customers were ready for new cars, with split bench front seats, they didn’t find what they wanted with Olds. 

        The super whiz bang marketing types tried to get them into a Buick or Pontiac, but what they did not comprehend was that if those loyal Olds customers had wanted to own and drive a Pontiac or Buick or Cadillac, they would have already been there.  Was that “management decision” due to some hidden agenda or just ignorance of some younger marketing types?  End result, those loyal owners kept their Oldsmobiles longer than planned and “stayed where they were”, vehicle-wise.

        If the beloved “Marketing 101″ says to give the customer what they want, where did the justified decision come from to not give loyal customers a product they would like to buy?  It became somewhat clear just “who” or “what” “Management” was and why that decision was made.  It was not made to specifically attract new customers, as few new Oldsmobile customers probably came into the fold back then, but to begin a chain of events that ultimately led to the demise of Olds. 

        Those same marketing types forgot that people of their parent’s demographics considered a “floor shift” as meaning a “cheap vehicle” (i.e., Chevrolet) rather than an upscale vehicle (i.e., Oldsmobile).  When column shifts were “high class” and “other” gear shifts were on the floor.  It was not for many years later that the “sporty” aspect of a floor shift was promoted.

        Chrysler was wise enough to build their LH cars both ways.  The LH car New Yorker came with a split bench and column shift, a seat that was highly similar in leather pattern to a ’69 Chrysler New Yorker split bench, or more Euro buckets and console for the LHS version of their LH car.  Base Intrepids also had column shifts and bench seats (for the fleet market).  Chrysler hit “both sides of the street” and GM/Olds didn’t.  Plain and simple.  No rocket science or brain surgery either!

        ___________

        as to Ewanick, he got lucky with the Assurance program, did nothing at Nissan, and has accomplished zero at GM other than signing Tim Allen and bringing in his own set of cronies. history will place him alongside Zarrella as to incompetence and Lopez as to disruptive influence. there’s really nothing that any different in continuing LaNeve’s Red Toe Tag sales and stair step incentives. we would have been just as well off keeping Docherty.

      • 0 avatar
        MikeAR

        Buickman, thanks for the history lesson. I had never heard of a floor-shifter stigma before.

      • 0 avatar
        doctor olds

        @Buickman- I agree whole heartedly with a lot of your criticisms of GM marketing, particularly Ron Zarella, and I claim no expertise in marketing and stay away from the details.

        I understood what they were trying to do with Olds, right or wrong, and bench seats were not in that vision. At one point, the decision was made to just skip a model year between dropping the Cutlass Ciera and releasing the Alero! Olds’ version of the P90 program fared poorly in consumer clinics so they decided to drop it. It was quite a while before someone finally realized that Ciera provided around 40% of Olds volume and the slap dash badge engineered P90 Malibu based Cutlass was the result.

        They made plenty of stupid mistakes, and my words should never be interpreted to hold leadership blameless! 

      • 0 avatar
        highdesertcat

        At the time of the original bail out in 2008 there was an enormous uproar from the masses, with emails flying to their representatives in Congress protesting the bail out the US auto industry.  Does anyone remember that far back?
         
        It is true that the entire global auto industry is down because of several different factors to include the Japan earthquake and tsunami.  But the key here is… which global auto manufacturers are best positioned to survive this down turn?  Folks, GM is not one of them.  Chrysler is Fiat’s problem and Ford, with Mulally at the helm, will come through it all battered and bruised. But they will come through it.  GM?  I see liquidation in its future.  The Treasury wants to lose ONLY $11Billion with this quick sale.  Hold on to the stock any longer and we, the people, would lose billions more.

  • avatar
    Robstar

    Since WHEN does Wall STreet take the 2nd half of August off?

    I’ve worked for a firm connected with the market for 5 years and we’ve never had more than a day or two off around labor day.

  • avatar
    Dr Lemming

    Another round of union and Obama bashing. Positions have apparently hardened to such a point that it seems a waste of time to argue — particularly with a commentator like MikeAR, who is completely dismissive of the pro-bailout perspective.  Wonder what’s up at Autoblog….

    • 0 avatar
      doctor olds

      @ Dr. Lemming- Great post!
      GM remains the the nation’s largest purchaser of steel, aluminum,glass, rubber, plastic, information technology, and more.

      GM is the leader in clean energy patents and was awarded 14% of the 1,881 such awarded to 700 companies in 2010. GM was awarded a total of 940 patents last year.

      Ignorance of the technical competence and intellectual capacity of GM is appalling and so glaring in comments about “where cars are made”.

      @MikeAr- as for Volt, It is selling as fast as GM can make them, and was never intended to be a profitable product line. Volt’s purpose, long before the GFC precipitated auto collapse, was to demonstrate technical competence and be the first to market with a usable EV. It has achieved both goals.

      GM will be the largest carmaker in the America and the World in 2011 and they will make a lot of money doing it.

      • 0 avatar
        MikeAR

        I can understand your love for your former employer, but don’t be a stock touter. You don’t know and no one else knows where GM stock will go. Your rosy scenario depends upon a lot of things going right: energy prices, a much stronger economy, higher employment and many of us forgetting about the bailout. There is good reason for doubt that GM management is up to the task too. For every reason you cite for GM stock to go up I can cite an equally good one that the stock goes down. It’s an endless game and we shouldn’t even play it.

        Reading comprehension is a big deal, I never said loss leaders should never happen, I just said that a struggling, broke company has no business playing the loss leader game. Toyota could afford it, GM without taxpayer help couldn’t. Your citing GM’s patents is interesting, now you should thank us, the taxpayers, for making it all possible. No one likes an ungrateful prick who, after getting bailed out of a jam, forgets those who helped him.
         
         

      • 0 avatar
        doctor olds

        @MikeAR- How exactly do you think I should remember “those who helped me”? I just try to enlighten those who are ignorant of the truth.  

        I do know for certain that neither your taxes, nor anyone else’s have gone up a dime to save the auto industry. Time will tell how much the direct costs will be. At least it is down out of the stratosphere in the worst case, with reasonable probability of being a few billion. I rarely agree with our President, but in this case he is surely right. Saving the industry was well worth it even if nothing more is recovered. 

        The very rich, the top 1% who pay 38% of taxes, may have a gripe. The rest of us will see at most a one time cost of a couple of dollars in the absolute worst case. If you would see me along with millions of your fellow American’s pushed in the ditch for a few bucks, shame on you! I will put the taxes my household has paid up against anyone on this blog.  

      • 0 avatar
        doctor olds

        @ HighDesertCat- Your comment betrays continuing profound ignorance of reality. Complain about the politics of the bailout all you want, but get your head out of the sand with regard to the company’s financial condition.

        GM has a balance sheet that is the envy of other car makers, nearly $100B less debt than Ford and $130B less than Toyota. Those are facts, not opinions.

        GM was solidly profitable in 2010, with $4.8B net profit. They made over $5B in North America last year with the market still barely 2/3 of its pre-collapse average of 17.1M a year from ’98-’07. Those are inarguable facts, not opinions.

        You may consider this opinon, but I say it is an impressive performance that proves GM is revitalized and capable of making very large profits when the inevitable market rebound occurs over the next few years.

        Fnally,
        The most the government could possibly lose on GM is around $26B,and that would be if the company suddenly disappeared with no residual value at all. That is an inarguable fact, not an opinion.

        My opinion, based on facts and reasonable conjecture: Actual worst case looks like $11B probably a lot less. That is less than 5 days interest on the current debt and insignificant as a factor in anyone’s taxes.

        I know you guys are wedded to GM being a “failing” company and don’t want to be proven wrong. I will be interested to see how you respond to the profits and sales they will produce in the remainder of the year.

      • 0 avatar

        doc,

        agree there is a lot of negativism here for GM but most of it is well founded by experience, present company included. you and I tend to harp on the issues we see as most noteworthy, me about marketing and you about the balance sheet. where we differ is that the effects of the bassakward marketing can be clearly seen in the resulting market share. the balance sheet and other financials though are not nearly as clean cut. for one we only most recently could avoid disclosing material weaknesses and still are not, I believe, able to proclaim accordance with GAAP. Liddell was making a difference, too bad he jumped. personally speaking, the confidence level goes nowhere until Deloitte gets the boot.

        there are other low hanging fruit improvements that could be easily implemented. first one should be a separate CEO and Chairman, that’s a no-brainer. rotating the audit firm every 3-5 years is another. after 75 years and more than enough inconsistencies, lawsuits, irregularities, etc…there is nothing resembling an arm’s length relationship. oh well enough for now. I’m sure you’ll inspire me and the rest of the gang to fire up further responses soon enough.

        Buickman

      • 0 avatar
        doctor olds

        @Buickman- Thanks for the civil comments!

        I don’t mind the negativism so much. It is factual errors that some opinions are based on that I find disturbing.
        Philosophically, I agree with those who question the government picking winners and losers. I agree with criticism that an intransigent union financially drained the U.S. companies and yet were the main reason Obama took action.

        I certainly do not support investing in an enterprise that is destined to fail anyway. I would remind that some of our Senators, among many others, said that GM would never be able to stand on its own again. They said even the first, $6.5B loan would never be repaid. The truth is they were repaid 5 years early and the company has not taken another single dime from government since they were re-capitalized in the bankruptcy.

        I find it hard to square the fact that GM far outsold every other company in America and tied Toyota globally last year, that Buick was the fastest growing brand in America last year and Chevrolet reported their largest quarter in history just now, with the opinon that people just don’t want to buy GM products and they are fading away. 

        I find it hard to square the reality that  the company began generating enough cash to repay the government $6.5B loan 5 years early and went on, in 2010, to make $6.2B operating profit, as much or more than they ever made in history, with the notion that they are steadily sliding toward financial failure again.

        GM commands the highest transaction prices, volumes are way up, year over year.
        We will see first quarter results in May. If I were a betting man, I would bet they will be very strong.

        It is not the negativism that bugs me, it is the ignorance of the truth behind it.

    • 0 avatar
      MikeAR

      First of all, I personalized the ungrateful prick statement way too much, I meant GM is the ungrateful prick, not any one person. Can you give me one statement from a GM representative that indicated any sense of shame or failure or any remorse for having to be bailed out by the taxpayers? I can’t think of one and any normal person or institution ought to be bowing and scraping in front of the country with graditude for being allowed to continue to live. Instead we get from GM’s defenders the attitude that we ought to be grateful that we were allowed to give our money to GM. GM is doing God’s work and we should support them, guess what they aren’t and we owe them nothing. They failed and it is the right of every person and business to fail.

      As far as taxes, do you think you pay too little or too much? You can guess what I think, that’s why it offends me to bail out a failed company and a failed union. I can make much better use of my money that I earn than the governement can. And guess what, I feel no sense of shame in that at all.

      There were plenty of warnings that GM was going to fail or could fail, why didn’t the people there start to make plans to get out while they could? He’s sometimes full of crap but Peter DeLorenzo at Autoextremist is right about GM. Any original thinking was punished until the only poeple who thrived there were the corporate drones who couldn’t think fot themselves. I’ve worked with those people and if they take over them the company is doomed. They still seem to be the majority at GM now too.

      • 0 avatar
        doctor olds

        @MikeAR- You really have not been paying attention. Lots of GM leaders have publicly proclaimed their appreciation for government assistance.

        But, I am not sure why anyone in GM should be ashamed of the company going down due to forces beyond its control in the Financial Crisis of October ’08. Do you also blame the Japanese for the earthquake and tsunami that devastated their country?

        Auto leaders did not cause car sales to stop in mid October and could do nothing to stop the huge cash drain that is a natural and unavoidable result of such a precipitous drop.
        Many in their presumption ignore the reality that just the last 2 1/2 months of ’08 U.S. market collapse took Toyota to their first global annual lose ever and that they went on to lose much more money than GM in Q1 of 2009. They even got assistance from the Japanese government.

        You presume to know the culture of GM, but by what means? Do you really think these blogs have the inside track?
        I know many of the people inside GM, including a lot of the top leaders. I worked with them and sat through quarterly business reviews for decades. DeLorenzo may be appealing because he plays to your pre-conceived notions, but I will put my 40 years inside the company up against his 22 year with an outside advertising concern.

        I am curious. What is your personal beef with GM? I proved to you that the worst case outcome is a few bucks out of your pocket. Why the hatred? Others, like Buickman, feel slighted for GM rejecting their ideas or  have had their livelihoods affected. What is it with you?

      • 0 avatar
        aspade

        But, I am not sure why anyone in GM should be ashamed of the company going down due to forces beyond its control in the Financial Crisis of October ’08. Do you also blame the Japanese for the earthquake and tsunami that devastated their country?
         
        Painting GM as a healthy company struck down out of left field by bank failures is ludicrous.
         
        GM had been bleeding market share for my entire lifetime.  Their business missteps post 1973 wouldn’t be credible in fiction.  They had enormous backloaded benefit obligations.  They knew as well as anyone that cheap oil wouldn’t last forever yet went all in on trucks – and lost tens of billions not in 2008 when the banks failed but in 2005, 2006, 2007 when gas wasn’t free anymore.
         
        Large companies have every advantage over small companies and GM was the largest company of all.  And they managed to fail in spite of that.
         

      • 0 avatar

        read up on history. the Rothschilds sent Jacob Schiff to Japan after he succeeded in the US like Belmont. the Central bank there has the same owners as the Fed. international banksters intentionally stripped and are now flipping GM. they bought off the UAW leadership and brought down wages and benfits. doesn’t matter where the share is they get theirs. transplants? they own them. Jobs Bank? did it to garner negative PR against US workers. its all a scam. I see it, can’t you? need some tin foil, I have extra…hurry the black helicopters will be here soon. (pre-emptive self criticism).

      • 0 avatar
        doctor olds

        @aspade-
        I did not say GM was healthy. If they had had deep pockets in early ’08, the double hit of the $4 gas spike followed by the market collapse due to the financial crisis might have allowed a different outcome. The gas spike alone could have been dealt with. Wagoner implemented a plan to raise $15B in liquidity to help with the weaker market conditions and the breakthrough ’07 UAW contract, which has lifted over $8B a year in structural costs off from GM’s bottom line (!) would have enabled sustained profitability after it was to be fully implemented in 2010. It is unknown and unknowable at this point.
         
        As a matter of fact, GM averaged $3.1B/year in profit from ’98 thru ’04. They lost $3.2B in ’05  but made $2.1B in ’06. In 2007 they virtually broke even with a tiny, for their scale, $23M loss.

        Your notion that they lost money year after year before the GFC is factually in error.
        Huge losses, $Billions for the VEBA and $30B for an accounting principle change were big contributors to the losses of ’08 and ’09, most of which were the result of depressed market sales levels.

        I said they were forced into bankruptcy by the financial crisis, and there is no doubt that the market collapse in mid October, ’08 with a nearly complete freeze on credit created the cash burn that gave them no choice but to reach out to the only entity capable of financing their bankruptcy, government.

        Your really do not understand the truth that the Americans did not simply make a bad decision to dominate the truck segment, they had little other choice. They had big losses on small cars on top of $Billions a year in legacy costs to pay for.

        The automakers did not have much choice in their labor contracts either,  under the power of the UAW with its monopoly on the three of them. Blaming the management of all three for agreeing to the contracts is like blaming a victim for being mugged.

  • avatar
    VanillaDude

    I don’t get that at all Dr.
    I have been rather impressed by MikeAR’s factual presentations on this page. He has also not bashed the President, when he could have. Overall, he has been rather balanced.

    The only thing you can bash the President on hasn’t yet occurred. If he sells short, then he could be bashed. He hasn’t. We can’t predict the future, so any bashing on that part is rather weak because an 11 billion loss is small potatoes compared to the 4 billion spent every day as per the Obama budget.

    The GM bankruptsy is a lose-lose situation. While it is technically true that GM buyers and productivity could have been transferred to other manufacturers, reality dictates that in the real world, letting the Market take GM’s scalp in this manner would have been catastrophic to millions of people in the short run. We can either euthanize GM slowly, or quickly, and I believe the best way is to do what we have done – slowly. Right now, GM has some hope and some time. Doing it the Market way would have been severe, even if ultimately the best way of handling it.

    $11 billion to back away from this car wreck? Considering that Obama is causing us to send over a billion every day to China as their 40% of our total daily debt costs, and that this cost will double in two years, makes $11 billion look insignificant by comparison.

    You are being oversensitive. The President will take it in the shorts regardless of what has happened, will happen, and is happening now. That is his job. If he wanted no criticisms over the disasters unfolding across the world after 2009, he should not have spent a billion dollars getting us to vote him into office. No president really needs protecting from criticism, it is our duty to do so. It helps to remind Oval Office occupants who is boss.

    • 0 avatar
      mike978

      I agree that it was best to wind down slowly, if necessary. Of course GM could stay profitable (which they are now) and learn the error of their ways (as some of the other articles on here around marketing and incentives clearly show). Some sense of stability would help – keeping brands and letting them have a clear direction (especially Cadillac and Buick).
      It is true we are running a deficit – hardly surprising after a major financial recession which started in December 2007.

  • avatar
    Mike Kelley

    The real threat to the US is from the absolutely insane spending by our federal government since 2008.  When the interest rate demanded by our creditors inevitably goes up, the federal budget will be a wasteland of debt service costs.  The recent announcement by the S and P on our failure to reduce debt is a clear trouble sign.  Scroll down to the last few years and see how bad it is:  http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php

  • avatar
    mike978

    I love it when the spending increases from 2001-2007 are quietly forgotten and year zero is deemed to be 2008 (which was still under Bush BTW)!

    • 0 avatar
      aspade

      The screwing we’re taking from the current administration is justifed by the screwing we took from the last one.  Leadership by successive reprisal.  I love it.
       
       


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