The Washington Post reminds us that Uncle Sam’s chance of recouping taxpayers’ $50 billion “investment” in New GM shares are somewhere between slim and none. To recover the money poured down the GM rathole so far, not including “extraneous” bailouts to lender cum banks, suppliers, dealers and car buyers, the automaker’s stock must rise to the point where it’s worth $68 billion. And remain at the level as the feds attempt to off-load their/our 60 percent share. As we like to say in these parts, good luck with that. Or, as the WaPo puts it, “Even at its recent 2000 peak, GM’s stock was worth only $56 billion.”
Forgetting to add “if ever,” analyst Maryann “Where’s the sense of urgency” Keller puts that into perspective: “I don’t see GM hitting those benchmarks in a very long time.” And here’s the really galling thing: as, previously stated, one the main guys behind/within the Presidential Task Force on Automobiles isn’t mad as hell and will take it some more. On your behalf.
“We have certainly looked at scenarios where, over time, a very substantial portion and potentially all of the taxpayer investment in General Motors will be returned,” Ron Bloom, a senior adviser to the administration’s auto task force, told a Senate committee earlier this month. “But I certainly by no means would say that I am highly confident that that will occur.”
Is Ron trying to say that he’s somewhat confident GM won’t pay back a “substantial portion” of US tax dollars? Normally, when I invest $50 billion in something, I want to know when I might see my money again. You know: plans, timelines, benchmarks, deadlines. Just sayin’.
Anyway, if you’re looking for an analyst sufficiently delusional to believe that New GM’s stock price will soar to previously unattainable heights, triggering a happily-ever-after come-to-Jesus-type moment, look no further than the company’s CEO. Of course.
“Can a company with $100 [billion] to $140 billion of revenue have $70 billion of market cap?” Henderson said in an interview last week at the company’s headquarters. “Yeah.”
Yeah? Well, there’s only possible justification for this bridge loan into bailout into equity mishegos, as performed by rapper 2Big2Fail: the cost of letting GM go under would have been greater than $50 billion (and the rest). As the feds march down the road of nationalization, it’s about time someone other than the ridiculously biased CAR statisticians actually MADE that calculation.
The car market isn’t big enough for GM to hit those numbers, even if they had 100% of the market. We are talking about a cap bigger than all three currently combined and a few others thrown in.
Here is the part where even the stupid people realize the government just set fire to their money for political reasons. We would have been better off giving 100K to each worker as a parting gift, at least they would have spent it back in the economy instead of it disappearing overseas and down some rat hole.
I think that the chances our investment will be paid back is slightly more likely then that.
First, I think the WaPo article is including all of the money that we’ve used to bailout GM, but I believe that we received the equity stake in GM in exchange for $30M. I’m not sure where the other $11M comes from (to get to their $41M total), but I think that it should be thought of as a sunk cost – we put that money in to GM to try and avoid a bankruptcy, it didn’t work. So we invest another $30M, and take a stake in the company so we can get paid back by hopefully selling the shares in the future.
Second, the whole point of putting all this money into GM is to keep the company afloat, in one way or another, still employing people, and still producing cars. Assuming it works, and GM doesn’t go away, we need to include all the benefits to the economy this causes. One of the major benefits being that everyone employed will still be paying taxes.
“We have certainly looked at scenarios where, over time, a very substantial portion and potentially all of the taxpayer investment in General Motors will be returned.”
I have looked at scenarios in which I date Charlize Theron.
We have to consider opportunities cost.
You cannot just say “hey, let’s bailout company X for $1M in 1929 and let it pay back $1M in 2029 and call it fair.”
During the GM bailout, the stock market has recovered by more than 20%, and my local McDonald’s breakfast has gone up more than 20% in price. It’s only fair to expect GM to repay $50B plus 20% opportunities cost.
trlstanc :
June 30th, 2009 at 10:55 am
Second, the whole point of putting all this money into GM is to keep the company afloat, in one way or another, still employing people, and still producing cars. Assuming it works, and GM doesn’t go away, we need to include all the benefits to the economy this causes. One of the major benefits being that everyone employed will still be paying taxes.
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No, the bailout of GM doesn’t help employing people. It actually reduces total jobs.
Every $1M used to save a GM job is a $1M that could otherwise save 10 jobs in another sector.
Maryann Keller has been speaking the truth for a long time. She would make a great guest columnist or interviewee for a podcast.
A successful GM could easily have a market cap of $100 billion. Toyota’s is well north of $100 billion, and that’s despite recent losses.
But of course, GM would have to be successful. If the company can’t be turned around, then the stock will be worth next to nothing.
She would make a great guest columnist or interviewee for a podcast.
Agree 100%.
This administration looks at things a bit differently. They’re convinced that if GM and Chrysler slip quietly beneath the waves, then the cost of lifeboats to support all their former employees would be far greater, over the long-term, than the cost of writing multi-billion dollar checks in the present.
What they’re saying, at least how I interpret it, is that “If you’re an auto worker, then you’re too stupid to figure out what to do with the rest of your life.” They’re also saying, “And yes, you’re stupid enough to continue to support us in the next election.”
It’s not the “tough love” scenario that millions of people, employed in other industries, got in this collapse, such as construction, housing, banking, etc.
There is no intention of recovering the money invested in GM, at least not by the current regime in D.C. The Dems have bought political control of a car company, and have now constructed what they want out of it:
GM is now a financial middleman between the taxpayer and the two biggest contributors to Democrats: Trial lawyers and unions. With tort claims now still holding against the “new” GM, liability lawsuits/payouts will ultimately be funded by the US taxpayer.
I imagine there will at least be one more cash handout (loan, investment, whatever they label the transfer of monies…it’s just words) before the mid-term elections if the current regime gauges it politically feasible to “get away with.”
The mid-term elections are an important barometer of how the Democrats move on this. No captive car company = no union = no money/phonebanks/”foot-soldiers” for the Democrats. Card-check notwithstanding, the next cash handout for these outfits may very well be timed to motivate these interests to go all out in 2010 for the Donkeys.
Timing is everything, make the fat kid jump extra high for the twinkie-on-a-string.
If GM is losing money, and it is, then the $100 to $140 billion in revenue is exceeded by what GM spends. That’s money spent on labor and suppliers. The employees, suppliers and their employees and suppliers pay taxes and buy good and services. If GM would have gone under, the government would have had to spend at least as much to keep communities and even states from utter disfunctionality. It doesn’t take much of a multiplier to see that just in terms of tax revenue, the $50 billion will be returned quickly.
This was not a pure economic investment. It was a social investment. At worst it will allow an auto industry “soft landing”. At best it will allow the preservation of an industry.
Yes, in theory every dollar spent to preserve a job could have been used to preserve/create another job in a different sector. The problem is that the government didn’t have the plans in place to create those jobs, and it’s not that easy. It would have been nice if we would have had, for example, a plan in place to use redundant factory capacity to make solar cells for every house in the United States. We don’t. You do the best you can with what you’ve got.
Fritz said: “It’s a function of how we execute, and do we get the margins out of the business that we need?”
This is true.
Let’s look at the pieces related to ‘execution’ and ‘margin’:
* The UAW contracts apply downward pressure to margins.
* The Volt has already been declared a money-loser for the foreseeable future, so how does this fit in with getting the margins you need?
* Badge engineering is demonstrably poor execution, so why does GM keep doing it (why Converj)?
* Dealer culling should help, but how does the political pressure to retain dealers sync with ‘execution’ and ‘margin’ improvements?
* What if people don’t buy GM’s greener, low-margin vehicles, and just buy high-margin trucks? So when GM’s CAFE numbers suffer, how will you explain this to your circus masters in Washington, DC?
* How does the endless stream of rebates, discounts, and funny money improve margins?
* Finally, and in summary – What will GM do differently?
If GM is losing money, and it is, then the $100 to $140 billion in revenue is exceeded by what GM spends. That’s money spent on labor and suppliers
If you crunch the numbers, you will see that GM has fewer employees, lower operating expenses and lower parts costs than Toyota. The idea of trying to save the company through additional cost reductions is an absurd lie told by Wagoner et. al. to Wall Street, when that was never achievable.
The problem is not rooted in expenses but in revenues. When GM tries to compete with the Fit and Yaris, it can’t sell as many Aveos, even though it offers a lower price tag and more incentives. Even when economy car sales were rising, Cobalt sales were stuck in the fleet zone and could only sell a fraction of the Civic’s and Corolla’s volume. The only way that Cadillac can compete with Lexus, Mercedes and BMW is by offering more cylinders and features for less money, yet it still can’t gain the sales numbers.
If GM is to succeed, people need to be willing to pay Accord prices for Malibus and 3-series prices for CTS’s. Their brands need to be repaired and the cars improved to the point that buying domestic isn’t viewed as a price-driven compromise that earns snickers around the water cooler or is undertaken for alleged patriotic reasons.
At this point, the expense cutting shtick needs to be punted into a dark corner. A successful GM may need to increase costs, so that it gets better parts, provides better services and maintains a well-trained, stable work force. Blood, meet turnip.
If GM is to succeed, people need to be willing to pay Accord prices for Malibus and 3-series prices for CTS’s.
And therein lies the biggest problem for GM. How do they sell their vehicles for more money while in bankruptcy? If it is true that people will be hesitant to purchase from a bankrupt automaker, than the only way to sell their vehicles is to offer more incentives.
At this point, Americans are conditioned to simply wait for a big sale from GM before buying one of their vehicles. It has been going on for years and it will take years for it to stop. GM has tried in the past to stop the practice, only to see that their sales tank and go back to offering big incentives.
@ Pch101
A successful GM could easily have a market cap of $100 billion. Toyota’s is well north of $100 billion, and that’s despite recent losses.
….but their debt (and almost every other) structure are no-where near comparable, pre- or post-bailout.
The problem is not rooted in expenses but in revenues. When GM tries to compete with the Fit and Yaris, it can’t sell as many Aveos, even though it offers a lower price tag and more incentives.
I think as a single model the Aveo has outsold the Yaris and the Fit. In so much as investing in an “American” car company etc., the Aveo is about as bad an example as you can make, given its a Daewoo from Korea and all.
American voters don’t build Aveos. GM’s future plans include more overseas production, how’s that for thanks to the American taxpayer?
We should be grateful to the transplants for employing Americans who also pay taxes, money now being forked over to the competition. How fair is that?
How about all the people that got thrown out of their jobs into a job market that is the worst in 30 years? Well, they still get to vote and vote they will next year.
I think as a single model the Aveo has outsold the Yaris and the Fit.
Here are the US sales figures for the 2008 calendar year:
Yaris: 102,328
Fit: 79,794
Aveo: 55,360
The fleet percentages for the 2008 model year (the model year is not the same as a calendar year, but these are probably close enough for the sake of this discussion):
Yaris: 10.6%
Fit: 0.5%
Aveo: 22.1%
Even with its status as being one of the cheapest cars sold in the US, the Aveo still doesn’t quite cut it. Playing the role of K-Mart of the auto industry is not a winning position to be in, and being the low cost leader does not guarantee profits or market share.
In so much as investing in an “American” car company etc., the Aveo is about as bad an example as you can make, given its a Daewoo from Korea and all.
It’s part of the GM lineup. Since this discussion is about GM, it makes sense to discuss whatever it is that the company will use to generate earnings.
Whether the car comes from South Korea or South Dakota, the car nonetheless remains uncompetitive in comparison to the rival offerings. The fact that it isn’t built by UAW labor doesn’t make it one iota more attractive to the average American car buyer, who will happily pay more for a competing Honda or Toyota, and buy more of them.
If anything, the Aveo proves the point that low cost does not automatically result in making money. Cost cutting will not save GM, as there just aren’t enough costs to cut and some costs may need to be increased in order to make more appealing vehicles. If there is a way out, it will be found only with competitive offerings that create loyalty and that don’t use discounts to give away every ounce of profit potential.
Americans are conditioned to simply wait for a big sale from GM before buying one of their vehicles. It has been going on for years and it will take years for it to stop. GM has tried in the past to stop the practice, only to see that their sales tank and go back to offering big incentives.
My guess is that if they were completely on their game, a GM turnaround could take 5-10 years (a full cycle or two of model refreshes.) It would take awhile to get away from fleet sales and raise prices. The process would have to begin with better vehicles and service, which would be used to gradually move the real world price point higher. That’s the strategy that the winners have used, and GM is going need to learn how to be profitable by selling fewer cars if it wants to go the distance.
their debt (and almost every other) structure are no-where near comparable, pre- or post-bailout.
Not true. The bankruptcy should give GM a healthy balance sheet, with more than reasonable levels of long-term, low-cost debt. What are still lacking are the product portfolio needed to impress buyers and a management team that could shake things up. If Nissan doesn’t come riding in to the rescue, then the PTFOA had better get the new board in place, so that they can boot the management and get a fresh start.
The bankruptcy should give GM a healthy balance sheet, with more than reasonable levels of long-term, low-cost debt.
Balance sheet? Assets as well then. Is “new GM” a Going Concern? No-one else other than the Government is proposing a value above near-zero.
I bet my first born, that if GM hit a market cap of $100b it will be inflation adjusted 2030 dollars, and Toyota will be worth $2,000b.
Is “new GM” a Going Concern?
It should be following a bankruptcy, in that it should have manageable debt and ongoing sources of capital. A going concern does not necessarily equate to it being a great business, but yes, it should certainly qualify as a going concern.
No-one else other than the Government is proposing a value above near-zero.
The value of the stock out of the gate will obviously be low. The operations would need to improve, of course.