“GM sees China as a road to profit,” reports the Washington Post today. “GM last year sold more cars in China than in the United States,” ranging from “high-end Buicks” to “low-end Chevrolets.” It’s good that GM is expanding its markets overseas, because its current share of the U.S. auto market may not last.
Even GM’s own shareholders seem to recognize that, and the fact that its recent profits may only be temporary. As Mickey Kaus noted recently in the Daily Caller, General Motors’ “sales and prices are up recently in part only because competing Japanese car suppliers have been crippled by the earthquake and tsunami. GM’s stock fell today and is still below the initial IPO price” (that is, below the price of the stock when it was sold to shareholders by the U.S. government).
Before that, GM’s finances were temporarily buoyed by bad PR regarding Toyota’s alleged safety defects in its cars, which turned out to be largely bogus. (The Toyota crashes turned out to have been caused by driver error, not manufacturing defects).
These setbacks for Toyota temporarily drove buyers away from Toyota to GM, artificially propping up GM’s profitability. But devastating earthquakes like the one that hit Japan occur there only once or twice a century, and can’t keep GM profitable in the long-run.
General Motors raised more than $20 billion in an initial public offering (IPO) last fall, selling millions of shares owned by the federal government, and reducing the government’s ownership of GM from 61 percent to 33 percent — ownership that had led many to call it “Government Motors.”
GM stock was worth money partly because its government ownership stake allowed it to claim up to $45 billion in tax savings that it would otherwise have had to forfeit as a result of its bankruptcy. GM is also receiving lots of taxpayer subsidies for its Chevy Volt, despite revelations that it lied about that car, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.
GM still owes taxpayers at least $29.4 billion, and its finance arm owes taxpayers an additional $14.6 billion. In a sense, taxpayers lost money on the sale. (They got at least $9 billion less for the stock that was sold in last week’s IPO than they originally paid for that stock.) Yet liberal columnists like E.J. Dionne think the bailout was so successful that opponents of the bailout should have “fallen to their knees and begged forgiveness for their opposition” to it.
Mickey Kaus, who reluctantly supported the auto bailouts, nevertheless thinks that people who bought GM stock were “suckers,” since GM faces hidden perils, still has too much red tape and inefficiency, lacks “effective internal controls,” and is the beneficiary of accounting gimmicks and unrealistic assumptions about its future market share.
Earlier, GM lied about whether it had paid back taxpayers for its bailout, triggering an FTC complaint by CEI.
In addition to the $50 billion, GM received billions in additional handouts through programs like the incredibly wasteful Cash for Clunkers (which cost taxpayers and used-car and car-parts businesses billions), and $17 billion given to its finance arm, GMAC — which no one expects GM to really ever repay.
GM might never have needed a bailout if it had just received relief from costly regulations such as CAFE rules (which wipe out at least 50,000 jobs). That’s so despite GM’s self-inflicted wounds from mismanagement, excessive union wages and benefits (worth up to $70 an hour), and rigid union work rules.
The Obama administration left those wasteful work rules and excessive benefits largely intact, and gave the United Auto Workers Union (UAW) a big chunk of General Motors’ stock, even though the UAW helped bankrupt the company, and the company has value today only because the federal government pumped billions of taxpayer dollars into the company (and engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company).
Veteran political commentator Michael Barone called the Obama administration’s treatment of Chrysler and GM bondholders “gangster government.” In the Wall Street Journal, law professor Todd Zywicki called it an attack on “the rule of law.”
CEI’s John Berlau had a grim analysis of the long-run consequences of the GM bailout, saying that the arbitrary way that the Obama Administration handled the bailout set a negative precedent that made investment in American companies riskier, thus reducing investment (and new jobs) and increasing the cost of capital.