GM: Car-buncle On The Body Politic
Bailout: General Motors hopes to attract foreign cash at its IPO, set for November. That's not surprising, given low interest here in the U.S. - a result of government turning the once-mighty company into a political prop.
As GM readies its first IPO since its $49.5 billion federal bailout, one shudders to see the Chinese perhaps lining up to buy a stake. Not that there's anything wrong with foreign ownership in a company. But GM isn't really a company - it's a semi-government entity run by Washington. And its most important output now isn't cars, but political influence.
From China's point of view, letting SAIC, its government-owned partner of GM, buy GM stock makes some sense. From their foreign reserves of more than $2 trillion, they can earn 3% to 4% from Treasury bonds - or a comparable amount from GM, with the added kick of political influence in Washington.
It's a sad alternative to the bankruptcy that might have really freed the company through market means. For two years, the once-great U.S. automaker has been under the government's thumb. And, after all that, not a heck of a lot has changed.
The Wall Street Journal on Tuesday reported that after two years of government cash and stewardship by handpicked political operatives, the company would have to sell its stock at $134 just to break even and pay back its bailout. That's $39 higher than the stock's historic high, reached in 2000 at the top of the SUV and credit boom.
In short, don't count on it.
The Obama administration loudly touted that GM had paid back its loans a few months ago. In reality, it hasn't. It paid back only $6.7 billion in cash, $2.1 billion in shares, and $1 billion in GM liabilities. GM still owes $40 billion to the feds, making the U.S. government owners of at least that much in GM stock - and the clout that goes with it.
That's why the headlines coming out of GM haven't been about creating a superior product that customers want, but about creating products the government wants - like the $41,000 Chevy Volt.
Its high cost comes from the same wasteful government dynamic that brought $6,000 toilet seats and $200 hammers in the 1980s.
But the Volt's market cost is tellingly offset by a Made in Washington tax credit of $7,500, showing it's subsidies and tax breaks that make the company go - not market competitiveness.
Besides the artificially created winners, there have been some unjustified losers, too. Columnist Michelle Malkin pointed out this week that 20,000 white-collar workers at auto parts maker Delphi had their pensions, life insurance and health care benefits slashed as much as 70%. Why? Because they weren't hourly union workers, the one group the government designated as a protected class.
Incredibly, the federal Auto Task Force took the pensions these workers paid and left them to the mercy of the Pension Benefit Guaranty Corp., using their pension money and TARP funds instead to fill the pension coffers of the United Auto Workers.
GM shareholders, too, were wiped out in the GM bankruptcy while GM bondholders were robbed of their legal rights to be repaid first. Like the Delphi workers, the bondholders learned that when the government runs a company, unions come first because they are "politically sensitive," as former journalist Steve Rattner noted in his memoir of serving as Obama's first car czar.
Auto dealers also got stiffed for political reasons - with dealerships' fates based on their political loyalties or affirmative action considerations.
Bringing well-heeled foreign governments into the picture through GM's IPO might lead to even more meddling - and more trouble. This only shows that government involvement in a large automaker means undeserving winners, undeserving losers and the continued decline of our once-thriving auto market.
Government control ultimately leads to corruption. GM's disappointing fate, and that of its shareholders and workers, shows clearly that a meddling government's ends don't always justify its means.
