The Obama administration, and its media backers, have seized upon news that General Motors made a $3.2 billion profit in the first quarter of 2011 as proof positive that its auto bailout is a success. President Obama is so buoyed that he is reportedly planning to make the bailout a major part of his reelection campaign.
But by this standard, Charlie Sheen's comedy tour ought to be declared a smash hit. Sheen's backers will lose relatively less money on him than taxpayers will on the bailout.
No sooner had GM made its announcement than Washington Post columnist E.J. Dionne dashed off a stinging rebuke to naysayers (like me) who had dared doubt the wisdom of the bailout. Likewise, the auto czar Ron Bloom credited the turnaround to the president's "tough love" approach.
No doubt, $3.2 billion is a big number. But an even bigger number is $60 billion. That's what this administration and the last one together sank into GM (not to mention another $20 billion or so they dumped into Chrysler). When President Obama gave GM this money, he insisted that it was not a handout but an "investment" that would cost taxpayers "not a dime."
But if there was ever any doubt that this wasn't going to happen, this earning report dispels it.
For starters, included in the $3.2 billion figure is the net $1.5 billion that the company generated from the one-time sale of Delphi, its auto parts supplier, and Ally Financial, its financial arm. Subtract that, and its performance looks much less impressive, especially compared to its rival Ford that really didn't receive a dime from taxpayers yet made $2.6 billion last quarter"”or nearly a billion more than GM.
But cold, hard cash is not the only help that GM got. Usually when companies declare bankruptcy, their tax liabilities increase since they have no more losses to write off. But GM got Uncle Sam's special bankruptcy package that allows it write off up to $45 billion of old losses going forward. That puts its total bailout at up to $105 billion. Even that's not all. The Treasury gave GM $10 billion of the $60 billion as a loan; the rest was through the purchase of equity. (It has more or less paid back the loan.)
The equity means two things: One, GM has zero interest payments, something that gives it a distinct advantage over competitors. Ford, by contrast, had to pay $251 million in debt-service costs. Despite this, GM's real per vehicle margin was over $1,000 less than Ford's, thanks to the heavy incentives it was forced to give buyers. (If the administration can call this success, can it please call me the next American Idol?)
And two, taxpayers have no guaranteed return as they would have with a loan. Therefore, market valuation of GM's stock will determine what they will recover. They got back $20 billion when the Treasury sold half of its equity when GM floated its first post-bankruptcy IPO in December. But that still leaves a $30 billion shortfall (excluding the $45 billion tax break). To get this back, the federal government would have to sell its remaining 365 million shares"”about 26.5 percent of company equity"”for about $55 per share. But after GM posted its latest earnings report, its stock price dropped to $31, a few dollars below even its IPO price of $33.
Nor are things going to look up for taxpayers going forward. One reason GM's first-quarter profits were even as high as they were was that low gas prices boosted the sale of SUVs and trucks, GM's (as Ford's) most profitable products. But with gas prices rising, customer demand is expected to shift to smaller, more fuel-efficient cars. GM's small cars such as Chevy Cruz and Malibu have certainly done well in recent months, but their profit margins are small because GM's labor costs are still too high.
GM slashed these costs during bankruptcy to $58 per hour, comparable to Toyota's $56. But the problem, notes Henry Payne, editor of Michigan View, is that Toyota is not the industry cost leader anymore; smaller Asian transplants such as Hyundai and Kia with $40-per-hour labor costs are. To compete with them, GM needs to extract more concessions from its labor unions during contract negotiations this September. But United Auto Workers President Bob King has declared that workers have already sacrificed enough to keep GM solvent and now expect givebacks.
Given such realities, Bloomberg's survey of 21 auto analysts put the average projected price for GM at $42.85 per share a year from now. This means that, outside of miracle, taxpayers will lose anywhere from $13 to $19 billion on their principal and another $45 billion on taxes for a grand total of up to $58 to $64 billion in losses. And that's just for GM. Chrysler is whole different"”and equally sordid"”story. Even Treasury Secretary Timothy Geithner acknowledged last month: "We're going to lose money in the auto industry."
Let's hope that next time this administration decides to rescue someone, it's Charlie Sheen. He might be less high maintenance than GM for taxpayers.
Reason Foundation Senior Analyst Shikha Dalmia is a columnist at The Daily, America's first iPad newspaper, where this column originally appeared.
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I don't think the bailout is at all popular. I'm beginning to worry about the president. Do you think he got brain damage when he accepted that Peace Prize? Maybe some Viking knocked him on the head or something.
I'm beginning to worry about the president.
Probably all the fundraising he's doing. There's no way I'd give a nickel to that Kenyan.
OK, OK, I get it... but I did kill bin Laden, didn't I? That's pretty cool, right? Isn't that worth a vote or two?
That was definitely a Gusty Call®.
I believe the NAVY seals killed Bin Laden. All you did, Obama, was give the go ahead to the military and CIA to do a job that needed your approval. Even a retarded president would have given the go-ahead.
Even Carter would have given the go-ahead. And he might not rise to the level of "a retarded president".
Half retarded...Carter is only half retarded.
Those medals are heavier than they look. The weight is probably cutting off bloodflow to his brain.
Brain????? LOL
He's doing another European victory lap in his clown car, right now. Maybe he'll find a nice place in the south of France and decide to stay there.
And, yeah, every fucking paperboy, unlike our Constitutional-Scholar-in-Chief, knows the money you get on "collection day" isn't free and clear profit.
Two dollars!
"My little brother got his arm stuck in the microwave. So my mom had to take him to the hospital. My grandma dropped acid this morning, and she freaked out. She hijacked a busload of penguins. So it's sort of a family crisis. Bye! "
Two dollars!
"Greendale is a bodaciously small town, Lane. A fly speck on the map - a rest stop on the way to the ski slope. I can't even get real drugs here!"
Lane, this is a bit awkward. But I've heard a few things, and I was wondering if you would mind if I took out Beth?
I think it's time for a montage.
Hang on, lemme queue up To The Limit....ok, ready.
Even Rocky had a montage.
Real Genius has three montages. Which might be the record for non-montage-spoofing films.
I'd kill someone for a new laser-themed coming-of-age teen-comedy.
I think we effectively killed that genre.
I can remember the one where Val Kilmer finally gets serious and builds the death laser... It's been a while, care to enlighten me on the other two?
jee Ricky, I'm sorry your mom blew up.
The bailout would have been a bad idea even if--hell, especially if--it had worked as well as the Obama fellaters claim it has. See "moral hazard".
Luke: Are there any volcanoes in Hazzard County? Bo: Well, not since Mr. Puckett blew his stack when I brought his daughter home two days late from the hayride.
Reason: your spam filters sucks almost as bad as GM cars.
I was gonna post an URL from consumer reports that whoses that 16 of the 28 "worst of the Worst" used cars are made by GM. That is another reason why they won't ever repay the loan, no one wants buy their shitty cars.
These models, listed alphabetically, have multiple years of reliability that's much worse than average among 2001 to 2010 models. Audi A6 (2.7T, 3.0T) GMC Acadia (AWD) BMW 535i (AWD) GMC Canyon (4WD) BMW X5 GMC S-15 Sonoma (4WD) Cadillac SRX (AWD) GMC Safari Chevrolet Astro Hummer H3 Chevrolet Aveo Jaguar S-Type, XF Chevrolet Blazer Kia Sedona Chevrolet Colorado (4WD) Mercedes-Benz R-Class Chevrolet Impala (V8) Mini Cooper Convertible Chevrolet S-10 Pickup (4WD) Pontiac G6 Coupe & Convertible Chevrolet Uplander Saturn Outlook (FWD) Chrysler PT Cruiser (turbo) Saturn Relay Chrysler Town & Country Volkswagen New Beetle Convertible Dodge Caravan Volkswagen Passat (V6, FWD) Dodge Grand Caravan
What's this list exactly? If it's about shitty vehicles, I don't understand why there is not a single Ford on there. I do not know of a single car they make that is not a piece of crap.
I've had two Ford Rangers, a Ford Escape, and am now driving a Ford Fusion.
Between the first three vehicles I put about 250K miles on them combined. I've had absolutely zero issues with those three besides normal wear and tear. No major mechanical or electrical issues with any of them.
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