GM Gives Taxpayers a False Sense of Hope
January 1st, 2010
As the current recession began to make its impact on the United States, one of the industries that got hit hard was the automobile industry. United States auto makers, such as General Motors, were having a tough time keeping up as people began to cut back on their spending. As a result, the company was left filing for bankruptcy, but was soon saved by a superhero, also known as United States tax dollars. Many people were skeptical about using tax dollars to bail out all of the large corporations that had fallen into financial troubles during the recession. Many individuals felt that the bail out money should have been given back to the individual tax payers to help with common struggles, but that is not the direction that the government decided to head in.
General Motors recently stirred up a lot of commotion when the company announced its plans to repay $6.7 billion of outstanding loans with money in an escrow account that it had received from the United States government. Although the loan is going to be paid off early, as it is expected to be paid off by 2011 instead of 2015, people are still not comfortable with this move. According to the New York Times, in the last 12 months GM has been given $52 billion in cash, loans, and the purchase of 60 percent of the company’s post bankruptcy equity. This does not even include the money that was used to bailout GMAC, GM’s auto financing program, and the three billion dollars that was spent on the “cash for clunkers program.” GM has reported losses of $1.2 billion since July, when GM got out of bankruptcy, and its fourth quarter losses are expected to be even worse. Many people are left wondering whether this bailout was even worth the trouble.
Although much of the information regarding the international car manufacturer has been negative, there is some light at the end of the tunnel. According to the Wall Street Journal, GM has increased its market share in China from 12 percent a year ago to 13.4 percent right now and this trend is expected to continue. This has helped to cover up some of the holes that have been caused by the market in the United States as well as the slowdown in Europe.
With that good news in mind, GM has also announced that they have a plan to try and payback the public. Then CEO, Fritz Henderson, offered up the idea of having an initial public offering of GM equity. This would also allow the government to get rid of its majority stake in GM stock, but it is a long shot for this method to raise enough to pay back the public’s tax money. Henderson stated that the company would have to attract a market rate of about $66.9 billion for taxpayers to recover all of the money that was invested by the US government. According to the New York Times, General Motors has never been worth more than $57 billion and this was back when the market was on the rise. With conditions the way they are today, GM would be extremely lucky to even see this sum of money.
Many taxpayers are worried with an initial public offering that the government is just trying to get rid of its stake in the failing General Motors Company at the expense of federal tax money, and this could be true. President Barack Obama is feeling pressure, from several different sources, to try and get rid of the shares that the government currently has in General Motors. One of these pressures is the fact that a lot of voters believe that President Obama may have political weaknesses in regards to government spending and the economy. So the closer it gets to reelection, if Obama is still holding on to the floundering General Motors, he is going to look weak in the eyes of voters. Many people feel that these pressures will force the president to sell the government shares for less than the amount that is required to pay back the taxpayers money. It does not appear that General Motors will be able to pay back the general public anytime soon, and Obama does not really have time to sit and wait for the right conditions to come around. So it looks like tax payers are going to lose a great deal of money on this investment unless people suddenly decide to go out and purchase GM vehicles to help stimulate GM’s US auto market.
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