The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age
    Michael Maiello's picture

    GM Owes the Country an Apology and at least $11.2 Billion

    That GM is laying off 15,000 people and closing five plants in the US when it owes its very existence to the generosity of U.S. taxpayers is blatantly unforgivable.  The story here is really simple: GM got paid off, its US workers got laid off.

    GM's apologists are painting the move as a clever "leaning out" in advance of the next downturn. But there were better ways to do it. Steve Rattner's defense of GM today might be the most damning document against the company.

    First, Steve makes GM's recent stock repurchases seem like no big deal:

    "Some critics argue that workers should come ahead of G.M.’s robust profits and hefty share repurchases. However, the company’s stock price is only modestly higher than it was in 2010, when shares of the post-bankruptcy company began to be traded."

    GM has bought back $10 billion of its own shares -- double the amount it will save in the layoffs. Further, GM pays shareholders a 4.11% annual dividend.  That costs more than $2 billion a year. Rattner is worried about the share price but the total return to investors has been rather generous and it's being paid for by laying off employees.

    Then, Rattner makes this strange argument:

    Indeed, G.M. should be commended for its recent strategic decisions. Money-losing operations in Europe were sold. Its $581 million purchase of Cruise Automation was particularly prescient; that holding was recently valued at $14.6 billion after investments by SoftBank and Honda.

    Okay, so GM bought a self-driving car company and then brought in new investors who almost tripled the valuation. Meanwhile, GM feels like it has to put 15,000 people out of work.  There is an answer here.  Sell the Cruise stake, realize the capital gain, and simultaneously strike a deal to license its technology later on, should self driving cars ever actually, you know, "work." That would generate a lot of money that GM could use to upgrade its factories and retrain employees.

    Then there's the matter of GM continuing to operate overseas while closing plants here. Rattner doesn't see a problem with this.  The China plants, he says, make cars for sale in China, not for import to the US.  Fine.  Where was China when GM was teetering on the bridge of bankruptcy?  Where was Mexico? Meanwhile, the US funded backdoor bailouts of foreign firms throughout the crisis.  Without US largesse, there would be no Deutsche Bank today. Certainly, GM should be expected to curtail operations in China before cutting jobs in the US. It owes a debt of loyalty.

    It should owe much more than that.  As Rattner describes the deal he negotiated, he notes: 

    Having served as head of President Barack Obama’s Auto Task Force, I might be expected to be critical of G.M., which received more than $50 billion of government assistance. (All except $11.2 billion was ultimately repaid.)

    Rattner structured the bailout as a passive equity investment in the company, so the returns to the US depended greatly on when the government sold the stock.  As Americans can't stand the government owning shares in private corporations, there was a lot of pressure to sell quickly and the Treasury realized the 24% loss in December 2013. This never should have happened.  GM had no negotiating power during the Financial Crisis.  Rattner should have demanded a 10 year "put" deal where GM would be forced to buy back the government's stake at cost plus the accumulated risk free rate of return, in order to protect the Treasury from capital or opportunity costs.

    There's a good Knowledge@Wharton piece in defense of the auto bailouts that notes that the auto companies were Financial Crisis victims, rather than the cause of the crisis, and on that basis may deserve a bit more of our sympathy than other players.  I agree, to a point. GM had a financing arm (now Ally Financial) that gorged on subprime credit as much as anyone. Subprime auto loans did not fare well during the crisis.

    I know that His Fraudulency is blustering about this, but he really should be, for once. GM has a lot of liquidity and a lot of options that should be ahead of massive layoffs and plant closures. If Trump finds a way to punish GM by disqualifying it from electric car subsidies (while continuing to support the rest of the industry) I'm fine it with. GM's ingratitude deserves some negative consequences.



      3.2        25.0

    25.0        16.9

    10.0          7.8

    Top numbers:Hoover's Unemployment rate from   taking over until  4 years later

    Middle: FDR

    Bottom Obama.Should he have done differently? Nah, it worked .The bottom didn't drop out like Heber Hoover .Had it, , Michael would have had a reasonable case . But it didn't.

    The first objective of Presidents when employment is tanking surely is "don't make it worse". Obama  didn't . Instead the the Summers /Geithner / Obama policies turned 10% into  7.8 % .

    And 4.7% over the next 4.

    Maybe he " wasted" the crisis We'll never know . Or whether trying to capitalize on it

    would have moored  the economy in the  south. We do know that what Summers etc. and that

    guy in the White House resulted in 4.7% instead of 25%.



    Not saying we shouldn't have bailed out GM, necessarily.  Saying we should have protected ourselves.  Treasury shouldn't have sold at a loss and Gm shouldn't be laying off US workers now, as if nothing had happened.

    I'd expect that in summer of 2009 one of team- Obama's objectives was to induce "the market" to  take the wallet out of its pocket  and move some of into the hands of  ,say, auto companies.  For things like starting the line to build  chevys for the fall. Took cash.

    While TO was saying "go ahead buy GM bonds"   

     it would have been diluted if  combined with  warnings about the punishments awaiting Waggoner or whomever. Which would have been a message to "Capital"

    " No sense buying GM bonds tomorrow- might be

    cheaper next week". 

    "I used to think if there was reincarnation, I wanted to come back as the President, the Pope, or a .400 baseball hitter.

    But now I want to come back as the bond market. You can intimidate everybody." -- Presidential adviser James C. Carville, quoted in the book "The Agenda" by Bob Woodward


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