Posted 9:42 pm Saturday, August 18, 2012
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GM could need another bailout
The General Motors bailout was — and remains — clearly a clunker. And no amount of spin can change the raw facts. President Barack Obama, of course, wants to take credit for a “revitalized” GM, and he wants to use this model for other segments of the economy.
“The American automobile industry has come roaring back,” he said at a Colorado campaign stop recently. “So now I want to say what we did with the auto industry, we can do it in manufacturing across America.”
But that would be a disaster, according to Louis Woodhill of Forbes magazine.
“Right now, the federal government owns 500,000,000 shares of GM, or about 26 percent of the company,” he reports. “It would need to get about $53.00 per share for these to break even on the bailout, but the stock closed at only $20.21 per share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.”
But it’s actually worse than those dismal numbers say.
“Right now, the government’s GM stock is worth about 39 percent less than it was on Nov. 17, 2010, when the company went public at $33.00 percent share,” he explains. “However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20 percent, so GM shares have lost 49 percent of their value relative to the Dow.”
In fact, GM is heading toward bankruptcy, he says.
“If President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again,” Woodhill says. “And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.”
John Rosevear of The Motley Fool says that much of the problem is in the car maker’s European division.
“Like rival Ford, GM is losing big bucks in Europe: $361 million in the second quarter alone, thanks to ongoing economic troubles that have clobbered car sales,” he writes. “A turnaround is coming, but it could take a few years. Meanwhile, losses could continue, and investors hate that.”
But the picture is bleak for car sales at home, too; GM is losing ground to other care makers.
“Right now, the federal government owns 500,000,000 shares of GM, or about 26 percent of the company,” he reports. “It would need to get about $53.00 per share for these to break even on the bailout, but the stock closed at only $20.21 per share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.”
But it’s actually worse than those dismal numbers say.
“Right now, the government’s GM stock is worth about 39 percent less than it was on Nov. 17, 2010, when the company went public at $33.00 percent share,” he explains. “However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20 percent, so GM shares have lost 49 percent of their value relative to the Dow.”
In fact, GM is heading toward bankruptcy, he says.
“If President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again,” Woodhill says. “And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.”
John Rosevear of The Motley Fool says that much of the problem is in the car maker’s European division.
“Like rival Ford, GM is losing big bucks in Europe: $361 million in the second quarter alone, thanks to ongoing economic troubles that have clobbered car sales,” he writes. “A turnaround is coming, but it could take a few years. Meanwhile, losses could continue, and investors hate that.”
But the picture is bleak for car sales at home, too; GM is losing ground to other care makers.
“GM’s share of its most important and profitable market — the USA — has fallen in recent months, a fact that might have contributed to the recent ouster of its global marketing chief,” Rosevear says. “Upcoming new cars and trucks should help, but they’re a year or two off. Meanwhile, discounts are up, sales are down, profits aren’t what they could be, and Wall Street remains concerned.”
What does this mean for taxpayers? It means the “investment” made in GM and its unions (but not in Ford) will likely end in a big loss.
If it’s all the same to Obama, we’d rather not use this as a model for government intervention in other industries.
What does this mean for taxpayers? It means the “investment” made in GM and its unions (but not in Ford) will likely end in a big loss.
If it’s all the same to Obama, we’d rather not use this as a model for government intervention in other industries.
