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Tag Archives: General Motors

Good Reasons Why the GM Bailout Was Not a Good Thing

I came across an opinion piece that reminded me of the reasons why the GM bailout was not a good thing.  Shikha Dalmia explains why in an article at Reason.com called “Driving to Delusionville.” He mentions many reasons that have been stated before, but here is my favorite:

It gave Chrysler’s secured creditors, who would have had priority in a normal bankruptcy, 29 cents on the dollar. Chrysler’s unions, on the other hand, got more than 40 cents, even though they are equivalent to low-priority lenders. This made a mockery of longstanding bankruptcy law, something that will make credit markets wary of lending to political sacred cows in the future.

The administration favored union workers not only over creditors, but also other workers. All United Auto Workers retirees at Delphi, GM’s auto supplier, got 100 percent of their pension and retirement benefits. But 21,000 nonunion, salaried employees lost up to 70 percent of their pensions, and all of their life and health insurance. The Treasury could have covered 93 percent of the benefits of all employees for the same funds it spent on full union benefits, testified Bruce Gump, a representative of the Delphi Salaried Retirees Association.

So, not only did the government meddle when it wasn’t necessary, they managed to make sure union workers (who tend to vote Democrat) got good deals, while pretty much sticking it to the non-union employees and creditors. I would love for someone (anyone!) to get the White House to explain why the unions should get special treatment. The way the non-union Delphi employees were treated is absurd and indefensible.

Guest Writer: OCD3 on the GM bailout and IPO

My Thoughts on the GM bailout and recent IPO

While, I’m very happy that the American automotive icon GM is still in business, I initially had mixed feelings regarding the bailout and spending taxpayer dollars to shore up what appeared to be a dying company.

But first understand that I’m a fan. I’ve driven and owned only American cars my entire life. From my first car, a ‘83 Pontiac Firebird (black of course), to my mom’s ‘85 Chrysler Reliant which I drive for a short time in college I’ve been a fan. From the used ’87 Chevy Celebrity that I bought for $700 upon graduation to the ’98 Pontiac Grand Prix which I still drive today…I’ve been a fan. What many people don’t always understand is that GM DOES build high quality products…and they have done so for a long time now. The issues of the 80s are long gone. The focus on quality has been evident since the 90s but a bad reputation is difficult to shake.

I’m not happy for GM for nostalgia’s sake. I’m not even happy for GM because I drive one of their cars. The Pontiac brand which I’ve come to love has been retired…for the time being anyway. I’m happy for the people who build cars and feed their families because of it. I’m happy for the automotive suppliers and parts suppliers and the suppliers to those suppliers. This was not just about GM. It was about an industry that supports a significant part of our economy and the people who rely on that industry to survive. You see, I was once one of them.

I used to work for GM. I started as a young engineer fresh out of college. I felt lucky because GM was one of those big companies that so many engineers wanted to be part of. I enjoyed my time there. But I also saw things that made me feel concerned. I saw some employees who took their jobs for granted. I would tell them that some of their actions were leading to jobs being sent to Mexico. Some responses were to the effect of: I don’t care, my job is union guaranteed. I saw some who took advantage of union agreements in ways that scream lunacy.

For example: a material mover fell asleep in a closet. A foreman grabbed a box of parts to keep the line from shutting down while the mover was missing. When the mover later learned that a non-union worker did union work, he filed a grievance and was awarded time-and-a-half for the day.

The problems were not just employee based or union-based. I strongly support the unions. I’m just against the abuse of them. I saw management making decisions and putting policies in place that had no practicality. I saw a lack of innovation in product design to capture a new market. I saw a failure to understand the buying habits of a new generation. Gone were the days of brand loyalty where one would buy a Pontiac Sunfire as a teenager, a Pontiac Grand Am as a young adult, a Pontiac Firebird as a young professional, a Pontiac Grand Prix as a middle class family man, and a Pontiac Bonneville as a middle-aged man set in his ways who just “loves his Pontiacs”.

There were things happening that I didn’t see as well…such as the aging work force, the rising cost of healthcare for employees and retirees, and no plan to deal with it all.

I say all of this because I believe I have a personal view of the company as a former employee and a long-time customer. When the bailouts were announced, I thought it was a big mistake. I don’t believe in throwing good money after bad. I left the company because I saw a plan to move most of the operations in my area to Mexico as soon as natural matriculation allowed. There wasn’t much of a future for me there. I felt that the failure of GM to get its house in order is not the taxpayer’s problem. Furthermore I felt that the effort was futile. I did not believe GM could be saved. I felt they needed an overhaul of management, both at the company and the unions. I felt employees needed a change of attitude. Their union contracts may be guaranteed but their jobs are not. They forgot about the free market’s right to decide that they don’t have a job regardless of their contracts.

Then the bailouts passed and I was…not angry. I was relieved. They have a chance. The industry has a chance. An American icon has a chance. The justification was not just saving the company, but the cumulative effect it would have on the industry and our economy.

This week GM issued stock in a new IPO that was one of the biggest ever. Bush 43 started the automotive bailout and Obama continued it. From all accounts it worked and they both deserve the credit. Taxpayers will get their money back and then some. Jobs were saved. The economy did not slip into depression. Some say they could have gone into bankruptcy and might have come back a stronger, leaner company. They could have also gone into bankruptcy and disappeared forever.

Our government interfered with free market forces. I hope it never does so again. This along with TARP, healthcare reform, and other policies caused the Democrats the majority in the House. Politicians choice to ignore the will of the people and they were punished for it. But in this case, their actions have proven to be a success. I grade on performance and outcome, not on whether or not my ideology won or loss. Their actions save an important piece of Americana and likely kept us from entering a depression. To criticize it by saying that it might have been fixed another way is foolish. If you could go back in time and risk the economic health of the country by changing the decision while knowing that the decision as is did indeed work, would you?

To our government let me say: well done! This was $50B well spent. Please don’t do it again.

OCD3

*Note:  OCD3 will be making frequent appearances here at F&C so show him some love!  –Hal

The left says the GM bailout is a success. The right disagrees. Who is correct?

Logo of General Motors Corporation. Source: 20...

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This week, GM launched an IPO, moving forward in a turnaround that many thought unlikely a few years ago.  Just a couple of years ago, GM was losing a ton of money, closing dealerships, and about to go into serious bankruptcy.  Bush 43 began the bailout process with over $17 billion in loans.  Obama and Co continued the bailout, but with a caveat that many still consider controversial to say the least:  the United Auto Workers came out with a larger stake in GM than the shareholders and bondholders, even though the amount GM owed the union was less than that owed to the shareholders.  Many feel that letting GM go into bankruptcy and emerge leaner and profitable would’ve been better and allowed the pain to be shared more equally.  Many also felt that allowing the unions to end up with a larger share that seemed out of proportion was an obvious example of the Dems giving special treatment to their union supporters.

Sidenote:  many of the left leaning sources that are celebrating the IPO are saying the company would’ve died without the bailout.  This isn’t necessarily true.  A large number of companies that go into bankruptcy eventually come out.

So my good friend Ocie asked me this morning:  “GM IPO, we’re making American cars, people are employed, was the $50B bailout of GM worth it?”  My immediate answer to him was that it would be worth it once the US breaks even on its investment at least (the US Treasury owns a 33-35% stake in GM, that it took instead of money payback).  Having thought more about it, I would say that it has its positives and negatives.  I agree jobs were saved, but there is no guarantee jobs would not have been saved via bankruptcy.  I will say that bankruptcy may have had more of a negative impact “down the line,” as in the vendors that do business with GM.  But it can’t be denied that politics played a part in the end result–the union ended up with a larger stake than stock and bond holders.  And it will be years before the US is fully divested and paid back on their “investment.”

So let’s declare that it was worth it, but should’ve been done differently.