Home > Uncategorized > Betcha Didn’t Know: How media spin about GM/Chrysler bailout fails to inform of inevitable, massive taxpayer ripoff.

Betcha Didn’t Know: How media spin about GM/Chrysler bailout fails to inform of inevitable, massive taxpayer ripoff.

Much of the mainstream media made frothy, optimistic pronouncements about the state of the auto bailout in November, when General Motors announced that it would be paying back $ 6.6 billion of the $53 billion loaned to it by the government by spring 2010. At the time, Fritz Henderson, Obama’s handpicked CEO for the new General Motors, pledged that repaying the taxpayer would be “a personal commitment.” A week later the personally committed Henderson resigned from his position, leaving most of the media puzzled about his reasons.

( Henderson’s daughter, Sarah, was not so puzzled however. She has emphatically stated her father was forced to step down, leaving the following eloquent message on GM’s Facebook Wall:

“HE FUCKING GOT ASKED TO STEP DOWN ALL OF YOU FUCKING IDIOTS. IM FRITZ’S FUCKING DAUGHTER, AND HE DID NOT FUCKING RESIGN. WHITACRE IS A SELFISH PIECE OF SHIFT, WHO CARES ABOUT HIMSELF AND NOT THE FUCKING COMPANY. HAVE FUN WITH GM, I HOPE TO NEVER BUY FROM THIS GOD FORESAKEN COMPANY EVERY AGAIN. FUCK ALL OF YOU.”)

The media hasn’t followed up on  whether Henderson stepped down himself or was forced to resign, because they were too busy putting positive spin on the repayment announcement. However, regardless of Henderson’s reasons, it is very liky that Henderson was leaving  a sinking ship and GM will inevitably fail unless the government continues to support and control the company, thus throwing more unrecoverable taxpayer funds into the company in order to keep it alive.

According to the  New York Times, any hope that GM would ever be able to repay American taxpayers the $52 billion it owes the government is “wildly optimistic. ” This is due to the fact that the New GM-as it is called after bankruptcy restructuring- would have to attract a market capitalization of $66.9 billion, allowing the government to sell its equity share so the taxpayers break even (sort of).

One problem: Even in good times,  GM has never been worth nearly that much.

GM was at its highest value in 2000, when it was worth $57 billion and was having its most success selling SUVs, pickup trucks, and luxury cars in the larger vehicle market; where it is most competitive.  With Congress imposing new, rigid CAFE standards that require  all fleets to have an average fleet efficiency of 35.5 miles per gallon by 2016, there is no way that GM will be able to sell enough larger vehicles again to outdo its former sales and regain its share of the auto market. Even a proposed gas tax, which would theoretically force consumers to buy smaller vehicles, would not work for GM because, according to a Cato Institute report, “small car purchasers prefer other brands…”  making it likely that such a measure would not only keep GM’s capitalization on the low end, but  may also  “expedite GM’s demise.”

This leaves the Obama Administration in a quagmire, as they have announced that they want to return both GM and Chrysler back to private investors as soon as possible, but they want to do so without gouging the taxpayer. So, unless there is a massive increase in demand for GM (and Chrysler) cars in the next few years, the taxpayer stands to lose tens of billions of dollars if the government decides to issue IPOs for GM and completely sell off the stock to private investors. Of course, if GM fails, and according to a recent GAO report, its prospects for long-term financial viablility remain unclear, the taxpayer will lose anyway on what amounted to an epic government overreach.

The alternative of allowing the government to retain control of GM is problematic. The actual total amount of the net auto bailout has been put around $79 billion. This includes the government owning 60% equity in GM, 10% equity in Chrysler, and $12 billion in subsidies to GMAC, GM’s financial arm. Even though the Treasury Department has stated that no additional U.S. taxpayer bailout  is anticipated for GM and Chrysler, the U.S. appears to be ready to grant at least $2 billion (possibly as much as $5.6 billion) to GMAC in order to keep it viable, opening the possibility that taxpayer bailouts may be on the table for the future. However, even without these new GMAC funds, it has been calculated by Professor Thomas D. Hopkins of the Rochester Institute of Technology, that for every car sold by both GM and Chrysler in 2009-2010, the taxpayer will be  providing a subsidy of $ 12, 200 per vehicle sold for GM and $7,600 for Chrysler.

Thus, it is entirely possible that unless the government takes measures to cripple its competitiors in the U.S. car industry (Ford, Honda, Toyota, BMW, Kia) allowing GM and Chrysler to take more market share, that the government subsidized companies will either fail or will require more taxpayer bailouts to survive.  After 2011, according to Professor Hopkins, if anymore taxpayer bailout money is used to keep GM and Chrysler in business, the taxpayer subsidy also increases thereby making any solution a political loser; as the taxpayer will never be able to recoup the loans and they will wonder why this was ever attempted at all.

Of course, I wonder if the media is so vested in Obama’s success that they will ever reveal the truth about this to the taxpayer. The GM and Chrysler are already on precarious ground for reasons this post couldn’t get to. Taxpayers are not being told the entire story. I hope this helps people to understand the entire picture a little bit better.

GAO Report on TARP and Recommendations for Divesting from GM and Chrysler

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Categories: Uncategorized
  1. December 5, 2009 at 11:47 pm

    Interesting article, thanks for posting

  2. December 6, 2009 at 12:46 am

    Interesting article, thanks for posting

  3. December 7, 2009 at 7:34 pm

    Viewed another way, these rescues were a payoff to the auto unions. How much did each union job saved cost the taxpayer? Unfortunately this and other parts of the current activist agenda will come with a very high cost. And as it appears so far, this is going to have a terrible impact on small businesses and their owners. Some may be better selling as quickly as possible depending on what their crystal ball predicts for the future of their own industry.

    • Jason
      December 7, 2009 at 11:40 pm

      I agree Martin. I will be writing a comprehensive posting on how Obama’s policies are using the government in order to “astroturf” for the labor unions. This is evident in the auto bailouts and in health care reform. Look for it soon.

      Thanks for the comment.

  4. January 25, 2010 at 7:57 pm

    Hello, just today discovered your blog but I have to say that it looks sweet. I fully agree with you. Have a good day, keep up the nice work and I’ll definitely follow it.

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