Against my better judgement, I actually went to the link and read the entire Forbes piece. I don’t know what GM’s future holds, but this story doesn’t say much.

First, it tells us that the government is underwater on the stock price, which obviously means that, like Facebook, it was over-hyped in the IPO. That has nothing to do with whether the company faces future financial distress.

Second, the story tells us that GM’s U.S. market share is way down from the 1960′s. Well, duh! That’s when there were the Big 3 and not much else.

Third, the rest of the story dwells on the Malibu and its weaknesses (real or not) compared with VW. I came away with the impression the author must either have a VW fetish or own stock in that company. The article says nothing about other GM products — you know, Buick, Cadillac, GMC, trucks etc.

“The dirty little secret is that the new revenues are needed to backfill the insolvent teachers pension fund.”

http://tinyurl.com/9aetquj

http://www.forbes.com/sites/louiswoodhill/2012/08/15/general-motors-is-headed-for-bankruptcy-again/

Nooo! The guvmint spent $12.5 billion to save Chrysler and recouped $11.2 billion of it. Sold government interest to Fiat to get it off the governmnent’s books. That took Fiat from minority investor to majority owner. U.S. sucked up a $1.3 billion loss. Saved a lot of U.S.-based jobs at both the manufacturer and local retail levels, with employment now above pre-2009 levels. More jobs added in 2012 to build the Dodge Dart. And Fiat now planning to expand manufacture and sales of Fiat models in the U.S. In terms of economic impact, sounds like a pretty good deal to me. Love the Clint Eastwood commercials! The Chryslers and Jeeps are great products. So’s the Dodge Durango.

So our tax dollars are going to bail out a foreign company.

So, in your opinion, the junk bond holders should have been made whole, while every other stakeholder, including retirees, should have been hosed? Even though the bondholders knew full well the risks they were taking in owning the bonds and were repeatedly warned by the financial community. Workers took a huge haircut on wages. The bondholders did not come up empty, but they took a haircut along with everybody else. They got a lot more than they would have had the rescue not occurred. They got bailed.

UAW is a collective bargaining organization. VEBA is a health benefits trust fund, with its own board and fiduciary accountability to the fund, not to the bargaining organization.

Chrysler is owned by Fiat. So?

Chrysler is owned by Fiat.

And what would you expect the CEO of Ford to say? The O’bummer administration probably made him an offer he couldn’t refuse.

First, the auto rescue was not just about GM. It was about GM, Chrysler and Ford. The latter didn’t need the rescue, because they had previously borrowed huge amounts to provide a cushion. However, the CEO of Ford strongly supported the bailout of his competitors and stated that if GM and Chrysler went down, so would Ford, due to the impact on suppliers.

In a strong economy, we might have been able to absorb the “creative destruction” of these companies going down the tubes. However, under the circumstances, many people believe that, without both TARP and the auto rescue, we were headed for another Great Depression. I strongly share that view.

What about the bondholders? Rightly or wrongly, they got rescued too. Had the companies liquidated, the value of those bonds would have been zip. Those bondholders knew for years that the bonds were very high risk. The bought and held them anyway to get the high yields and on the “moral hazard” assumption that bondholders would get paid before anybody else. Everybody took a haircut, including labor. In the airline bankruptcies, bondholders were first in line and labor got screwed in terms of pensions (both employees and people already retired). And the taxpayers got screwed, because of reduced pensions paid by the PBGC. This time, there was more of a balance among stakeholders — including taxpayers not getting stuck with the bill for the pensions.

Elwood correctly notes that there would still be an auto industry in the U.S. had these companies gone out of business — Toyota, Honda, etc. Those companies would have picked up market share, and there would still be 14 million cars sold. However, the local dealerships and the supplier networks that served GM/Chrysler/Ford would not have survived. These are not small, mom and pop businesses. The average dealership employs 50 high wage people, sells 800+ new cars a year, generates about $31 million revenue per year from new and used car sales and leasing, parts and service.

By the way, Elwood, UAW does not own GM or control the board. As part of the bailout and restructuring, responsibility for retiree health benefits was transferred from the company to a special trust, VEBA. VEBA got cash and stock and has to manage those assets to fund the retiree health benefits without further assistance from GM. As a significant shareholder, it got a representative on the board. But it’s fiduciary responsibility is to the trust fund, not to give away the store in labor contracts (which would contradict its fiduciary responsibility by hurting the value of GM stock and the trust fund’s ability to pay retiree health benefits).

I stand by my bailout “costs and benefits” numbers and analysis.