Old habits die hard. Whether it’s GM’s desire to slice-and-dice its fuel economy achievements to make them look better than they are, or our instinct to correct the record, it’s all just a little bit of history repeating.
Today’s Rasmussen poll results, which show that Americans are arguably less likely to buy from a bailed-out automaker, raise some interesting questions. Like, does receiving a bailout constitute an inviolable black mark on an automaker? Do the size of the bailout, and the amount the government recovers make a difference? With a presidential election looming, these factors are worth knowing: after all, the government still has the choice of when to divest its shares in GM. And with GM’s stock down over 40% from its $33 IPO price last November, the government is looking at a significantly larger loss than it would have endured had it divested immediately aftter the IPO. So, should the government dump now, anticipating larger losses in the near future, or should it hang on in hopes of a rebound, increasing the risk that “Government Motors” will become a political hot potato going into 2012? The latest clue, via CNBC, remains as cryptic as ever…
Mark Modica, a former Saturn dealer GM bondholder, has leveraged his financial loss at the hands of the government bailout into a blogging position at the National Legal and Policy Center, a conservative nonprofit that “promotes ethics in public life through research, investigation, education and legal action.” At the NLPC, Modica focuses on what he believes to be corruption surrounding the auto bailout, and has written a series of anti-GM posts that make TTAC look like a Detroit hometown newspaper (TTAC “bias police,” take note). Most recently, Modica has caught the attention of the auto media, including Automobile Magazine and Jalopnik, with a series of posts accusing Chevy dealers of “scamming” taxpayers by claiming the Volt’s $7,500 tax credit and then selling Volts as used cars. TTAC welcomes anyone seeking to cast more light on the bailout, but unfortunately, Modica’s attacks are too focused on making GM look bad and not focused enough on providing relevant information to the American people. Let’s take a look and see why…
This is the Memorial Day weekend, when we commemorate our fallen heroes and raise our cancer risk by burning chopped beef. Listening to the media, it looks and sounds like the fallen heroes of the year are not the ones who gave and give their lives in ceaseless wars, but the auto industry. It didn’t quite die. It was medevaced in a TARP and helped by the PTFOA to get over its PTSD.
Instead of thanking the nation’s heroes (he did so in an afterthought, asking for “single acts of kindness”) VP Biden thanked himself: Read More >
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.
Exactly a week ago, Fiat said it would up its stake in Chrysler “within weeks,” and according to the Detroit News, the deed is now done. Having earned 5% of Chrysler’s equity by building a FIRE-family engine in the US (for use in the Mexico-built Fiat 500), Chrysler had to confirm that it has brought in $1.5b in non-NAFTA foreign revenue, and (according to Chrysler’s LLC agreement [PDF])
[execute] one or more franchise agreements covering in the aggregate at least ninety percent (90%) of the total Fiat Group Automobiles S.p.A. dealers in Latin America pursuant to which such dealers will carry Company products
in order to bring its stake up from 25% to 30%. We already know that Fiat will achieve this goal by rebadging Chrysler vehicles as Fiats for Latin American markets, a move that is technically compliant with the letter (if not the spirit) of the LLC agreement. But, it turns out that Fiat still had to get the Treasury to amend its agreement in order to bend the rules just a little bit more.
Yesterday’s release of the Congressional Oversight Panel report on the auto bailout pointed out several fundamental problems with the government’s intervention in the auto industry, all of which stem from what the report termed the “mutually exclusive” goals of the Treasury in overseeing its investment in the industry. But that report focused entirely on the post-bailout management decisions by Treasury, ignoring the decisions made during the bailout itself. And though the White House has, in recent months, redefined its goals in bailing out GM and Chrysler to focus on the improved financial performance of the bailed-out automakers, this is clearly a recent recalibration of its political message. As I pointed out in my latest New York Time Op-Ed,
what Mr. Obama called his “one goal” — having Detroit “lead the world in building the next generation of clean cars” — is nowhere near being achieved.
And, as it turns out, the Administration’s actions in the bailout will inevitably come up well short of that goal in at least one important respect.
Read More >
The Congressional Oversight Panel, which oversees the TARP program on behalf of the legislative branch, has released an update on the auto bailout [full PDF here] acknowledging the successes of the government intervention, while airing a number of important concerns. As has been typical of mainstream media coverage of the auto bailout, the good news has already been well-reported. The report, for example, notes that the bailout brought GM and Chrysler’s capacity utilization up, labor costs down, and allowed them to “[start] to reverse” their decades-long declines in market share. Furthermore, estimated government losses on the bailout have been halved, from $40b to $19b. The report’s summary concludes
While it remains too early to tell whether Treasury‟s intervention in and reshaping of the U.S. automotive industry will prove to be a success, there can be no question that the government‟s ambitious actions have had a major impact and appear to be on a promising course. Even so, the companies that received automotive bailout funds continue to face uncertain futures, taxpayers remain at financial risk, concerns remain about the transparency and accountability of Treasury‟s efforts, and moral hazard lingers as a long-run threat to the automotive industry and the broader economy.
Which brings us to the concerns that have received considerably less media attention…
One of the more admirable qualities of the blogging culture is a relentless underdog streak. Anyone who mans the ramparts of a decent blog is forever scouring the worlds of business, media and opinion for an opportunity to attack the most prominent voices of the day. And TTAC is no exception: we certainly came up by attacking the apologists and Polyannas who are still massively overrepresented in the world of automotive commentary. But what a difference a bailout makes. While the mainstream automotive media spent much of the leadup to the auto bailout making apologies and excuses for Detroit’s decline, TTAC told the unpleasant truth, gaining us new readers and credibility every step of the way. Now that I find myself being asked to contribute to one of the most prestigious opinion outlets in the world (the NY Times op-ed page) on a regular basis, TTAC is no longer the underdog, and other blogs have stepped into the breach to attack us as the new status quo. Fair enough… let’s do this thing.