By on September 17, 2012

GM wants the Treasury to sell its GM shares at a huge loss, says the Wall Street Journal.  Nothing doing, says the Department of the Treasury. It does not appear to need the cash (it can have it printed if needed) and is holding out for a slightly smaller loss.

Reportedly, GM offered to repurchase 200 million of the roughly 500 million shares the U.S. holds. The remaining shares would have been sold through a public stock offering.

According to the report, GM’s attempt to talk DC into dumping its stock is driven by image reasons. U.S. taxpayers kept GM afloat with a $50 billion bailout in 2009 and now own 26.5% of the Detroit company, says the WSJ, and it continues:

“But GM executives have grown increasingly frustrated with that ownership, and the stigma of being known as “Government Motors.” Executives have said the U.S.’s shadow is a drag on its reputation and hurts the company’s ability to recruit talent because of pay restrictions. Privately, executives are also irked at the continued curbs on corporate jet use.”

The folks at the RenCen will have to fly commercial and wait for pay raises a little longer. According to the Journal’s information, Washington has written off breaking even at $53 a share, but “Treasury officials would consider selling at a price in the $30s.”

At around the time the plan was floated, the GM share traded at around  $20. Selling then would have incurred a loss of around $16 billion. Selling at above $30 would bring the loss into single digit billion territory.

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57 Comments on “GM Execs Want Their Jets Back, Want Taxpayers Take A Bath...”


  • avatar
    Detroit-X

    Interesting choice of irritation. GM Executives haven’t become frustrated with the stigma of being the industry’s arrogant buffoons a lot of the time. Let them suffer, I say. The GM Bankruptcy didn’t go far enough, wasn’t scary enough, didn’t fix enough.

    • 0 avatar
      Volts On Fire

      Keep ‘em on commercial flights, and force them to wear large signs on their backs whenever walking through crowded airports stating “I work for General Motors. Thank you for your money, taxpayers!”

      Eh, that’s probably too wordy, so “KICK ME!” will have to suffice. Perhaps over the GM insignia or, even better, the Barry “O” logo.

  • avatar
    KixStart

    It’s not necessarily the stigma of “Government Motors,” it’s the weight of Treasury’s shares on the price. Would you buy in, knowing that 25% of the company could be unloaded and depress the price?

    That’s the price of being in business, I guess.

    Maybe there is another way. Convert all or part Treasury’s stock to interest-paying long-term bonds with an net present value of someting agreeable, maybe something that would work out to $30-35/share (as a taxpayer, I favor a higher value). It switches price depression for a long-term obligation that’s probably more suited to Treasury, anyway. Of course, it puts GM on the hook for the bond payments.

    I didn’t do the math on this, though, and it might not be practical.

    • 0 avatar
      KixStart

      As for the jet thing… Let ‘em fly coach. That’s what I do and I’m grateful when I do because I don’t have to drive.

      • 0 avatar
        Lorenzo

        It’s not the “coach” part that rankles the execs, it the fact that private jets use executive airports or private terminals that bypass TSA’s stripsearch/feel-your-junk process, and have more accommodating schedules.

    • 0 avatar
      dejal1

      If GM needs another bailout, does the Treasury screw itself over the bonds, or will this time be different?

      • 0 avatar
        CJinSD

        Treasury has the printing presses going full time now, so they’re really screwing people with savings and people on fixed incomes.

        http://www.marketoracle.co.uk/Article36546.html

      • 0 avatar
        dejal1

        “Treasury has the printing presses going full time now, so they’re really screwing people with savings and people on fixed incomes.”

        Yeah, your right. Still, the spin would be interesting if it happened and bondholders (which would include the Treasury) decided things differently (and correctly) this time.

      • 0 avatar
        KixStart

        “so they’re really screwing people with savings and people on fixed incomes.”

        Yields are down but inflation is low. Not too much screwing in that.

      • 0 avatar
        CJinSD

        Inflation is only low when you exclude food costs, energy costs, commodities, transportation, health care, education, cost of government… Low inflation is pretty much a triumph of manipulated statistics, like our falling unemployment rate that’s the result of people giving up looking for work.

      • 0 avatar
        28-Cars-Later

        Its been said by people wiser than I, the savers are being fleeced and the spenders rewarded, which very much sends the wrong message.

    • 0 avatar
      Pch101

      “I didn’t do the math on this, though, and it might not be practical.”

      The reason that the government ended up with a large equity stake is because GM’s balance sheet couldn’t support that much debt.

      (This is yet another reason why a bankruptcy without government involvement was impossible; no private investor would have wanted to put in that much cash for equity.)

      I’m opposed to Treasury selling the stock until Treasury can break even on it. The stock ownership imposes a form of moral hazard; it’s the price that GM pays for getting bailout money.

      If GM wants the government out of its hair, then the solution is obvious: make the stock more valuable so that we can sell it at breakeven. Since the stock price is driven by earnings and long-term growth prospects, the answer lies in improving those, not in kicking the gift horse in the mouth after he has already given you a ride.

      • 0 avatar
        George B

        The problem is not that GM’s balance sheet before the bailout wouldn’t support private financing. The problem is GM was never sufficiently restructured in bankruptcy to be profitable enough to meet your target stock price. Instead, taxpayer money was used to keep GM alive as a host for the UAW for a couple election cycles.

        Alternate universe proposal. Suppose the federal government had taken over providing retiree benefits for former GM employees over some age. Make them into retired government workers. The government sticks with mailing out checks over time and GM, sans huge retiree benefit overhang and fully restructured under Chapter 11 rules, focuses on making a profit building cars. That would be a cleaner win-win for the company, the former employees, and probably the taxpayers too. However, this would be lose-lose for the UAW because labor contracts would be renegotiated and the UAW would be cut out of managing part of the retiree benefits.

      • 0 avatar
        Pch101

        “The problem is not that GM’s balance sheet before the bailout wouldn’t support private financing.”

        Incorrect. GM’s balance sheet would look far more unattractive if it had another $25 billion in LT debt parked on it.

        “The problem is GM was never sufficiently restructured in bankruptcy to be profitable enough to meet your target stock price”

        Wrong again. If GM generated the sort of margins that are typical in the industry, then the stock price would probably be about twice what it is now, given that its net income as a percentage of revenues is about half of what is produced by its rivals.

        “Instead, taxpayer money was used to keep GM alive as a host for the UAW for a couple election cycles.”

        Strike three. You have it exactly backwards.

        If the Old GM had failed and liquidated, then the pension liabilities would have transferred to the PBGC. Since the PBGC is arguably already close to insolvent, the feds would have been stuck with propping it up. And that would have been taxpayer money that would not be recovered under any circumstances.

        The bailout didn’t save the UAW. The bailout saved us from paying for the UAW. One would hope that you guys would have figured this out after three years of this stuff, but apparently not.

        “Suppose the federal government had taken over providing retiree benefits for former GM employees over some age.”

        That would have been complete madness. Why would I want to directly pay for a company’s pension plan? I’m glad that we don’t live in your alternative universe — it would be too expensive.

    • 0 avatar
      bd2

      It’s more the general depression of auto stocks in the US due to the world financial climate; Ford has seen a similar drop in its share price since its high in 2011.

      Basically, selling now would be really stupid (of course GM execs want the govt. to do that so that can start awarding themselves fatter paychecks and all the other perks).

  • avatar
    KixStart

    By the way, does GM want Treasury asking, in public, “Why? Isn’t GM stock a good value at this price?”

  • avatar
    el scotto

    The Treasury Department needs to tell GM executives to sit down and STFU (Shut Up). Maybe a little PowerPoint is in order to remind the suits of the special bankruptcy GM got and Treasury intervention prevented them from being on the streets. Throw in a couple of slides showing how GM routinely grabs defeat out of the jaws of victory. Whining about the jet, pay, and perks? What a bunch of asshats.

  • avatar

    let’s not go too far overboard. there are many, many hard working and diligent professionals at GM. the incompetence and short sightedness of a few shouldn’t cause us to accuse and abandon an otherwise good company.

  • avatar
    el scotto

    No. We bailed them out and gave them a sweetheart, some might say illegal, bankruptcy. Now GM executives show gratitude by whining. But hey, It would only be a 15-16 billion (or worse) loss if the GM shares were sold on the open market.

  • avatar
    Omnifan

    GM has never sold the old executive jet terminal at Detroit Metro Airport.

  • avatar
    stryker1

    “Executives have said the U.S.’s shadow is a drag on its reputation and hurts the company’s ability to recruit talent because of pay restrictions. Privately, executives are also irked at the continued curbs on corporate jet use.”

    Know what else would be a drag on reputation? Going out of business and firing everyone. But at least then we wouldn’t have incompetent overpaid executives bitching about still having jobs.

  • avatar
    billfrombuckhead

    WSJ=Murdoch=Faux News

  • avatar
    tjh8402

    1.) They do have the point about the stigma of government motors. I know plenty of people who won’t buy GM as a result of the bailout. Last time I rented a car I requested anything other than a GM vehicle. I don’t know of any firm surveys but there are sales they are losing over this.

    2.) It probably does hurt their recruiting. Why would an executive want to work there? Pay restrictions, government overlords, a company with one of the worst public images in the country, uncertain future, and none of the typical white collar perks?

    3.) Are corporate jets a privilege that execs abuse? yes. But they are also critical tools for business. If I was a GM shareholder, I’d be cringing at the thought of all the time my company’s leaders waste flying around commercially where they can’t get much work done, versus how much more productive their time (which I’m paying for whether they are working or standing in a security line) would be if they were on the company plane, where they can have meetings, conferences, and get other work done, and not dealing with typical airport delays.

    4.) The Gulfstream interior shot you show is somewhat misleading as representative of corporate aircraft. While yes that was What GM had before (and I don’t know what they’re looking at again), the vast majority of business aircraft in this county are far smaller, more cramped, and less opulent than that, with many having a cabin that you can’t even stand up in. That being said, considering that GM has operations all over the world, I’d have to imagine a plane the size of and with the range of a Gulfstream would probably be useful to them.

    • 0 avatar
      danio3834

      I agree with your assessment of corporate jet use. In an industry where time is money, corporate jets are time machines. Using them in a Mark Fields fashion is surely a waste, but where appropriate can be essential tools in a past paced business.

    • 0 avatar
      morbo

      I’ll agree with points 1, 2, and 4. Executives rarely do anything but approve other people work or shout amongst themselves. The average executive I’ve known got into their position by

      1. Riding the coattails of a bigger dog.
      2. Being a bigger BS school alpha male then the competition.
      3. Knowing someone up the food chain that gets you promoted
      4. Lying, cheating, distorting, or out and out stealing.

      They work 9-5 M-F, with nice long lunches, 6 weeks of vacation, and the occasional golf/conference/charity event. Maybe being in the engineering side of the house where we actually work long hours to meet unreasonable and sometimes physics defying deadlines has jaded me, but I do take exception to the idea that the average executive works hard. Just this morning we had one complain that we had to schedule a Friday afternoon meeting, after she volunteered our group for 7day a week / double shift work without our consultation or advisement. She was upset that she couldn’t leave early so as to beat traffic.

      Absolutley mind boggling stoopidity from the executives

      • 0 avatar
        Landcrusher

        Most VPs do work a lot of hours in my experience. The difference between the good ones and bad ones is the value produced and priorities.

        The good ones work short, really long or moderately long hours. The bad ones can’t usually get away with short hours and have to appear to work at least moderately long hours. Only at the very top and introductory levels do you generally find the good ones working seriously long hours week in and week out.

        Priorities can’t be explained. You get it or you don’t. Most don’t.

      • 0 avatar
        oldfatandrich

        Morbo, you appear to be sorely aggrieved and thus should seek out another employer. Or maybe enroll in envy suppression therapy.

    • 0 avatar
      dejal1

      They can have the jet if the interior is decked out like a C130 transport.

      http://en.wikipedia.org/wiki/File:Lockheed_Hercules_interior.jpg

      They could also save time, if they were airdropped whereever they needed to go.

      I’m generous, I’ll let them out with a parachute.

    • 0 avatar
      AKRonald

      the company plane, where they can have meetings, conferences, and get other work done, and not dealing with typical airport delays.
      If what they are doing is of a nature such that it can be done in the company
      plane, why can’t it be done in the office? How about doing internet conferencing rather than going on junkets?

      Operations all over the world. Take a commercial plane the first 90% of the way and charter a locally owned one for the last few hundred miles.

      Purchasing a Gulfstream is $45-70 Million-would pay for a lot of executive time. Flight time is $2300/hr. Annual costs – hangering, maintenace, crew costs and insurance about $600,000.

  • avatar
    jimboy

    Two things: If GM wants out of government ownership, then they should re-purchase their shares at a price that will cover the Treasury’s costs, and maybe even pay back the taxpayers a little interest on their investment, OK GM?

    And, I don’t see why the Executives can’t get any work done flying commercial.
    What about that 3 hr lead time you need at the airport, the hour you spend sitting on the runway, in addition to whatever your flight time is, plus waiting to land and for your baggage to finally appear. Sounds just about like 8 hours to me!
    Of course, you are required to put up with us coarse and smelly commoners, and put up with the same frustrations that we are forced to, but hey, that’s the cost of free government money, isn’t it?

  • avatar

    How about just giving the 500 millions shares to us?
    2 shares to everyone who files a return and 3 shares to everyone who actually pays Fed income tax?
    Eliminates the worries about a mass dumping depressing the stock.
    Turns around the Government Motors thing.
    Write off the bailout money,we’re not seeing it returned to the treasury anyway,but can be spun as a dividend for taxpayers.

  • avatar
    gearhead77

    Let’s not forget that when GM, Ford and Chrysler dismantled their flight departments, the people that flew, maintained and did many other ancillary jobs for the flight department lost their jobs too. Business and private aviation keep many people employed and even though I can’t afford to charter a jet, I currently make my living for those that can.

    Those jets were scapegoats for the greater ills of their respective companies and a poorly handled PR faux pas by the Big 3. Many companies much smaller than GM use private aircraft to help make the most of their peoples time.

    When Corporation A wants to visit the office or factory in “Wheretheairlinesdon’tgo, USA” (which is becoming more common) and not waste a day, pay for a hotel for 6 people,etc. the plane is a tool. Many of my trips allow for work to be done in the home office and away in the same day, which is almost doubly productive.

    Corporate aviation has a bad wrap and although these expensive aircraft are used for pleasure sometimes (which many execs pay for) they are used about 95% of the time for conducting business.

    • 0 avatar
      danio3834

      +1. It’s a level of business most of us are not on. When someone’s time and the decisions they make are worth more than a few thousand dollars an hour, corporate jets make perfect sense.

      It seems that most plebs who watch the news feel that it’s some sort of lavish luxury. Maybe they just feel it’s not fair they have to strip and go through a body scanner when most charter flights do not. I agree, it’s not fair to anyone to go through that nonsense.

    • 0 avatar
      tresmonos

      gearhead77,
      Let’s also remember the thousands of engineers who once flew economically and more efficiently lost a lot of family time when those jets disappeared.

      • 0 avatar
        gearhead77

        Sure, tresmonos, that’s the other side of the story that the media forgot( but don’t get me started on the media and aviation.) It’s not only the CEO, CFO or COO or just anyone with a C and O at the end of their title. It’s also upper management, lower management and occasionally rank and file employees that also use these aircraft.

        Again, if someone needs to be somewhere ( or some team of people) and the airlines don’t go there or isn’t convenient, it’s usually more beneficial to use the company jet or charter one from an outside vendor.

        Though it is possible to have weather and mechanical delays, we often use small airports off the beaten path. No TSA nonsense, no giant crowds or lines and personalized service are a big benefit, but mainly the savings is in time, which is big money too, especially as you move up the ladder.

      • 0 avatar
        silverkris

        Intel has a private plane or planes that run between Hillsboro, Oregon (about 20 minutes west of Portland) and San Jose (which is near their Santa Clara, CA headquarters. It is my understanding that any Intel employee with official business can ride it, space available basis.

        I’d agree that in many cases, private corporate aircraft actually is useful, provided that the organization can make good use of it (make enough trips to support the overhead), although it doesn’t look good in terms of public image.

    • 0 avatar
      AJ

      Thanks for sharing.

  • avatar
    areader

    I’m for making the life of Akerson, and the board that selected and keeps him, as miserable as possible while they’re GM employees. Given such shrewd recent calls as the tie up with PSA, and before that, keeping Opel, I’m surprised this crew has been able to decline the doubtless plethora of lucrative offers. Sacrificing by staying on at GM is due to patriotism is my guess. My hat’s off to them all.

    • 0 avatar

      point well taken as to the few. others, some of whom I know personally, could care less what kind of plane or seat they ride in. for those who are focused, determined, conscientious, and truly professional, it’s about getting the job done asap and returning home to family. in that scenario, time certainly is of the essence.

      elitism is one thing, performance another. there’s no more vocal GM critic than yours truly, still I must stand up for those who are unduly and unjustifiably lumped into an unwarranted category. the majority of GM folks are not guilty of anything except being subjected to unfounded negativity.

      • 0 avatar
        Volts On Fire

        It’s their decision to stay. Such as it is, even the lowliest RenCen janitor is complicit in the farce that is GM. If they don’t want to be lumped together with the rest of the GM dregs, they should find more honorable employment. I hear Wal-Mart is hiring…

  • avatar
    Robert Schwartz

    I have seen lots of situations where waiting for the stock to go up by $10, meant liquidating it after it gone down $10. Holding on doesn’t change the loss. It is real. And they will acknowledge it some day, probably after the election.

  • avatar
    Mike Kelley

    The ZIRP policy and its companion QE3 are just nuts. They help the government keep overspending, but they really put it to the thrifty. Inflation may be low, especially when you ignore food and fuel costs like the feds do, but the artificially low interest rate means that even a person with $1 million invested safely has to live like a pauper. This has resulted in many older folks staying in the workforce longer than usual. From a good article about the situation:

    “…what serious economists have always known easy money to be: a redistribution of wealth to debtors from savers. Or, as a general rule, from the more virtuous to the less virtuous. This is true when the headline inflation rate is high, but also when it’s merely higher than the predictable return on savings.”

    http://online.wsj.com/article/SB10000872396390443524904577651161572229598.html?mod=WSJ_Opinion_LEFTTopOpinion

  • avatar
    doctor olds

    2012 Calendar Year to date (9/17/12):
    GM stock is up 16% @ $24.43
    Ford stock is down 20%

    GM’s profit margins are low compared to VW, but not much lower than most and better than many. New GM’s profit margins are better than the best days for old GM.

    Time will tell what the stock price will go.


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