| The Government's Bailout Of General Motors Is Strangling GM [message #184531] |
Mon, 18 November 2013 11:53 |
CyberkNight
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Registered: July 2012
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News that the federal government is nearly $10 billion in the hole on its $49.5 billion bailout of General Motors Co. is a painful reminder of the U.S government's takeover of the automaker several years later.
Unfortunately, the outlook is not good for GM as a new consumer survey shows that lingering resentment of the bailout may be hurting sales.
The survey, sponsored by the National Legal and Policy Center, was conducted in Texas, the leading state by far for pickup truck sales. Pickups are important because they are one of the most lucrative segments of the automakers' lines, meaning strong sales are essential to overall profitability.
More than 60 percent of respondents said the fact that GM had taken bailout money would influence their decision on what brand of truck to buy. This news comes as GM says it hopes to send 40 percent of new Chevrolet Silverados to dealerships in Texas.
If the bailout was such a big success that President Obama could use it as a major issue in his reelection campaign last year, why isn't GM's stock isn't worth more? Why is it increasingly unlikely that Obama's prediction that taxpayers will make money on the bailout will come true?
After all, when the government used our money to "buy" GM stock, it was because the company was in such dire straits that it was about to collapse. Now, it's supposedly back on its feet and making a profit. One would think it would have outperformed the market, but it's selling for just about the same price as the 2010 IPO for the "new" GM, around $35 a share when the rest of the market is up 40 percent.
The significant government stake in the company has hindered recovery. The White House forced policies on GM's management that were oriented toward its own ideology rather than market factors. Obama himself bragged about it at a town hall meeting in Minnesota in 2011: "What we said was, if we're going to help you, then you've also got to change your ways. You can't just make money on SUV's and trucks....And so what we've now seen is an investment in electric vehicles."
That "investment" gave us the money-losing Chevy Volt, and political control of the company led to a series of other policy decisions that sapped the energy out of GM's rebirth. These decisions including everything from union pension policies to advertising campaigns that did more for Obama's reelection than GM's market share.
We'll never know where GM would be today if it had been allowed to go through bankruptcy in the ordinary way. But there's no reason to believe the current management, appointed by Washington politicians, has been more competent than the executives who might have taken over following a Chapter 11 reorganization. Remember, the Dow Jones Industrial Average is up 40% since the GM bailout, and the 30 companies in the index are being run by executives hired without Washington's help.
Megalextoria
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