Government Motors, ctd.
Who says Congress is all talk and no action?
A majority of House Members have now co-sponsored a bill to reverse those components of the GM and Chrysler bankruptcies (or, as is increasingly obvious, “bankruptcies”) that apply to dealers. The practical effect would be to reverse or prevent the vast majority of dealer closings that were a key component of the auto restructuring plans. This seems only fair, as the dealers paid good money for these politicians.
This is more evidence of how stupid it is to get the government into running a business. Next Congress will vote that GM can only hire registered Democrats in future.
— Fred Beloit · Jul 10, 02:18 PM · #
Fred you ignorant slut, there are Ds and Rs there. And to further show your idiocy, why do you think who owns GM or Chrylser has any bearing on Congress’s ability to pass crap like this?
Also, the reason most of these dealers still exist is state franchise laws protecting them. There is more than enough blame to go around.
— crack · Jul 10, 02:41 PM · #
I’m not a fan of unnecessarily harsh and bilious retorts, but I am especially not a fan of unnecessarily harsh and bilious retorts that also completely miss the point.
— Blar · Jul 10, 04:47 PM · #
Even if the New GM works as a company it won’t work as an investment for the 300 Million US shareholders. Here is the scary math behind our little investment.
The government effectively will get 60% of General Motors in exchange for $50 Billion in aid.
This, using standard investor math, means that GM has an implied value of:
50 Billion/.60 = $83.3 Billion
Currently (just prior to bankruptcy) GM had 610 million shares outstanding.
That means that for the taxpayer to break-even GM shares (in the pre-bankruptcy world) would need to be worth $136.55 PER SHARE (83.3 Billion/610 Million)
The lifetime HIGH for GM is $93.62 back in April 2000 when the going was good. So good luck with that.
Oh and to complicate matters the government will see its holdings diluted if the bondholders take the extra 10% that they were promised as part of setting up the bankruptcy filing. If GM is doing well one would assume they would exercise these options and taxpayer shareholders would get diluted.
In that case the taxpayer stake goes to 54% which means an assumed market cap of $89.3 Billion or a per share price of $146.39
So even if GM were to return to its lifetime high of $93.62 the taxpayer would only get back $34 Billion 0r 68% of its investment if GM got as BIG as it ever was.
This of course is impossible based on the Government’s own admission that they are structuring GM to compete in an economy where car sales are 33% less than they are now.
Sure these numbers are approximations and some of the debt might be repaid like a normal loan (and I hope most of it is) but you can tell that there is no way that the taxpayers will see even HALF of their money returned even if all the right things happened (in a short-period of time as President Obama doesn’t want to hold on for long).
Well look on the bright side. We got rust-protection and under-coating free with the deal and we know how important those are.
http://watchingmarcitz.com/2009/06/01/the-scary-math-behind-the-gm-taxpayer-bailout/
— Marc Itzkowitz · Jul 11, 04:17 PM · #
Marc:
While I agree with the basic conclusion that we’re not getting our money back, the porblem with the analysis is that the bankruptcy wiped out most of the debt that had been part of the capital sturcture. Think of it like a house. When somebody says “what’s it worth?”, and you answer “$300k”, this normally is the combination of $250k (mortgage) and $50k (equity). When you go through a bankruptcy the $250K of debt is wiped out and the requity in the house is $300K (it’s juts held by the bank now). even if it is worth a lot less, say $200K on the market, the equity is still way higher than $50K.
This is the essential math when thinking of GM. Even so, as I said at the start, it will be hard to ever get our money back out.
— Jim Manzi · Jul 12, 03:06 AM · #