Today?s WSJ contained an article in the ?Opinion? section concerning a claim President Obama made in?Cincinnati on Monday. The President was happy to announce the roaring return of the American auto industry. He was also proud that the $50 Billion Federal Bailout has played such a meaningful role in GM?s resurgence. One Problem: GM is not a roaring success, and the bailout has not saved GM long-term. If the Government were to sell their 27% ownership of the company today, they would lose 15 billion dollars.
Here?s the bigger problem: Is GM a success? No. Is the Federal Bailout GM?s savior? No.?Why is anyone getting away with these claims?
While some might agree, the federal ownership of GM is shameful, what?s worse is the fact that there is no forum to have that kind of discussion. While business in America has been getting lambasted for being ?crony capitalism? there has been very little mention as to why a deal like this gets done. It?s the lack of the discussion that?s increasingly worrisome. Please read the article and join the discussion!
The following is a Review and Outlook article found in the Opinion section of the September 18th, 2012 Wallstreet Journal.
Treasury Motors
If GM is ?roaring back,? why won?t Obama sell our shares?
Perhaps you?ve heard that General Motors is ?alive? and that President Obama is more or less solely responsible. But if his $50 billion federal bailout is why ?the American auto industry has come roaring back,? as he put it in Cincinnati Monday, why not formalize the achievement by unwinding the taxpayer stake in GM?
Er, because that would mean exposing the bailout?s ongoing damage. The Journal?s Jeff Bennett and Sharon Terlep reported Monday that the GM brass is importuning the Treasury to offload at least some of its 500 million shares, or 26.5% of the company. Their complaints include the Government Motors stigma and compensation ceilings that make it difficult to recruit talent?and though they don?t mention it, probably the political mediation over business decisions as well.
But the Administration is refusing GM?s stock buyback because it would mean losing billions of dollars on this ?investment.? The auto maker?s shares are trading around $24, which is not merely a tumble from the November 2010 IPO price of $33 but means the government would lose $15 billion if it sold today.
GM?s share price needs to hit $53 for the U.S. to break even. Treasury may be waiting until after the election, when losses on any sale won?t affect electoral votes in Michigan or Ohio. Such a sale might be financially wise, because while GM may have come back from bankruptcy with the help of your tax dollars, its future profitability is far from guaranteed. The company?s government-financed bankruptcy failed to rationalize longstanding problems like union liabilities and especially fleet-mileage rules that will force Detroit to make cars it can?t sell profitably for years to come.
Speaking of government help for Detroit, on Monday the U.S. filed a World Trade Organization complaint accusing China of illegally subsidizing exports of automobiles and car parts to the tune of $1 billion between 2009 and 2011. ?It is not right, it is against the rules, and we will not let it stand,? said the President, who owns a quarter of an auto maker. The trade action came a couple of days after Mitt Romney began running an ad saying Mr. Obama was soft on China trade.
To view this article directly from WSJ, Click Here.
Source: http://www.cfcbe.com/2012/09/18/4283/
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