Is GM already on track to go bankrupt, again?
posted at 12:36 pm on August 16, 2012 by Erika Johnsen
And I quote:
“When the American auto industry was on the brink of collapse, more than one million jobs at stake, Gov. Romney said, ‘let’s let Detroit go bankrupt.’ I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back. And GM’s number one…”
That was just last week, during one of President Obama’s campaign stops in Colorado. President Obama can often be heard these days touting the ostensible success of his auto-industry bailouts in rescuing the industry, while scolding Mitt Romney for his oh-so-callous prescription to merely allow Detroit to go bankrupt. Yes, because quelle horreur that any company that employs a relatively large number of people should be forced to compete based on free-market signals rather than being coddled by the political whimsy of federal assistance. Federal bailouts are a product of short-term thinking that rewards and perpetuates poor decision-making — allowing a company to go bankrupt might cause pain in the short-term, but in the long-term leads to economic growth and efficiency.
President Obama claims he’d like to do the same in every manufacturing industry, not just the auto industry — because GM is number one again! …Apparently, under Obamanomics, this is what “success” looks like, reports Forbes:
President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.
Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion. …
In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market. For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011. With a loss of market share comes a loss of relative cost-competitiveness. There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.
And unexpectedly, of course, this is all costing the taxpayer quite a bit more than the Obama administration originally thought. Unusual, right?
But, in a report sent to Congress, the White House raised to $25.1 billion the amount it said it cannot now expect to recover – primarily by selling off the remaining 26% stake it still holds in GM. The previous quarterly estimate was $21.7 billion. On the other hand, the latest figure is about 45% less than the $44 billion the Obama Administration had once predicted.
But hey, who could’ve seen this coming? No, really, I mean it — who?
If General Motors, Ford and Chrysler get the bailout that their chief executives asked for on Tuesday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed. …
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course – the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check. …
The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs.
Breaking on Hot Air