By on October 28, 2008

Down the rabbit hole our tax money goes, as a “merger” has become a “rescue.” Reuters reports General Motors and Cerberus Capital Management have asked the U.S. government for roughly $10b in an “unprecedented rescue package” to support a merger between GM and Chrysler, according to “two sources with direct knowledge of the talks.” But don’t worry, because only $3b of that would buy Uncle Sam preferred stock in the merged automaker, “according to one of the sources, who was not authorized to discuss the matter publicly.” You may have qualms about government ownership of a large slice of the American auto industry, but Reuters writers are down with that. “It would… give U.S. taxpayers a large stake in the turnaround of a struggling auto industry that employs over 350,000 American workers and is credited with supporting employment for another 4.5 million in related fields.” So what of the remaining $7b?


“In addition to its equity stake, the U.S. government is also being asked to provide support for the GM-Chrysler merger by taking over some $3 billion in pension obligations under the terms of a proposal now before the government for review, the first source said.” A mere $3b? Hello? GM recently assumed $3.4b worth of pension obligations from Delphi. Is this some sort of union bribe? Breathe. Breathe. That still leaves a billion bucks on top of “our” stake and “pension obligations.” “The final component of the proposed support package would be a credit line that could include U.S. government purchases of commercial paper issued by GM to relieve short-term pressure on liquidity, the person said.”

GM’s burning through a billion dollars a month. A four billion dollar credit line buys them, what, enough time for the executives to float away on their golden parachutes before the taxpayer wakes-up to the fact that the new company is no more viable– actually a lot less– than the old one? You may want to write your senators and congressmen on this one.

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15 Comments on “Bailout Watch 128: GM Asks Feds for $10b for Chrysler Merger...”


  • avatar
    thalter

    So exactly how many Chrysler jobs are going to be lost in this “rescue?” Spending government money to facilitate layoffs is not going to sit well with the American people.

  • avatar
    menno

    What a total fiasco. I hope that Bush vetoes any such action as his last act. Let the new all Democrat gummint push it through and watch as 80% of the Chrysler jobs vaporize – including UAW.

    Let them take the heat.

    I want to see that happen because it will prove once again that the Democrats talk out of their anal orifice. And I’m not even a Republican.

  • avatar
    Orian

    menno,

    I think you’ve been asleep at the wheel – Bush and the Republicans have been pushing hard for these bailouts and government ownership of assets once they give them the supposed “loan”.

  • avatar
    windswords

    Orian,

    You got the first part of that right, Bush and the White House Administration have been pushing this. The House Republicans have been divided on it, and the base of the party is generally against it. There is a lot of anger out here that the White House and a good number in congress are not listening to the party base. I wrote my congressman opposing the bailout. He voted for it (as did many who are considered to be in “safe” districts), so he won’t get my vote this time.

  • avatar
    psarhjinian

    …$3b of that would buy Uncle Sam preferred stock in the merged automaker

    Fair enough. What does that buy the American public? If it’s a board of directors and a real change in management, then there’s a chance it’s worth it.

    As far as Chrysler is concerned, this is a buy-out and close-down, but government backing gives GM some legitimacy to potential buyers who would otherwise run from a bankrupt automaker’s leprous corpse. But if this is going to work, the public-backed GM cannot be allowed to continue doing business as usual: there must be a new, uncompromised (by either GM or the government) board of directors and a regime change in upper management, and both groups need to develop a comprehensive, fully-disclosed plan for the future.

    Big “if’s” here, I know.

    The question here is Ford: backing GM and Chrysler to the detriment of America’s (relatively) well-run automaker isn’t a good idea, for all sorts of reasons. Any offer to backstop GM needs to be made to Ford, possibly at a richer level for having actually taken steps to address their problems, rather than sit around for five years.

  • avatar
    taxman100

    I’d rather have $10 billion go to rescue the domestic auto industry than $10 billion be given to unwed mothers, drunks, lazy people, drug addicts, etc. that is the basis of the new Obama tax plan.

    Once we allow our manufacturing base to be gutted, and we are unable to produce our natural resources, we become a nation of borrowers who eventually have to pay the piper through a much lower standard of living in order to repay our debt.

    Oh wait, that is already happening…..

  • avatar
    Justin Berkowitz

    taxman100 :

    I’d rather have $10 billion go to rescue the domestic auto industry than $10 billion be given to unwed mothers, drunks, lazy people, drug addicts, etc. that is the basis of the new Obama tax plan.

    Not that I’m in favor of Obama’s tax plan (though I think it’s better to tax and spend than to borrow and spend, which has been our policy for the last 6 years), but … You do realize you’ve just described the entire Republican political community though, right? Bristol Palin is an unwed mother, George W. Bush a dry (hopefully) drunk and drug addict, and lazy people: well that’s pretty much the attitude of the entire executive cabinet!

  • avatar
    John Horner

    The Masters of Disaster in the Bush administration had better not do this deal. But then again, when has good judgment or common sense ever held sway with that gang?

    @taxman100: Do you really think that the only people in dire straights in our economy are those who “deserve it” by your description? You must not know the honest, hardworking people I know who are at whits end trying to get by.

  • avatar
    BuckD

    Very insightful, Justin. And let’s not forget that Palin’s home state of Alaska vacuums up more per-capita federal dollars than any other state (despite large tax revenues from oil drilling), making it the true welfare queen of the union.

  • avatar
    dean

    Justin: technically Bristol Palin is not yet a mother. Or did I miss something?

  • avatar
    Justin Berkowitz

    @dean:

    Good point. I think they aren’t planning to get married until after she gives birth, though.

    In any case, if we want to take the cheeky approach:
    Bristol Palin is 7 months pregnant, so going by the pro-choice definition (viability) she’s a mother, and by the pro-life definition (conception) she’s been a mother for quite a while.

  • avatar
    benedict

    Robert, just checking your math here: 10b, -3b for preferrred shares, – 3b for pensions leaves 4b for credit line. This should provide 3 more months of cash burn than your 1b calculated.

  • avatar

    benedict :

    Doh! Text amended. Thanks.

  • avatar
    Airhen

    Justin Berkowitz :
    October 28th, 2008 at 10:52 am

    Bristol Palin is 7 months pregnant, so going by the pro-choice definition (viability) she’s a mother…

    No, she has pretty much up until seconds before birth to decide. And even after a failed abortion in IL (for one), she can still deny that she’s a mother.

  • avatar
    Justin Berkowitz

    @Airhen:

    Wow. Luckily for Bristol, I don’t think IL travel plans are in her future. Russia, maybe, if she decides to leave the back yard.

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