What’s good for General Motors

Once upon a time it could plausibly be said, as it was by Charles Wilson, what’s good for the country is good for General Motors, and vice versa. A traditional bankruptcy would have been good for GM and maybe for the country, but GM certainly does not look to be good for the country in the Age of Obama.

As American taxpayers continue to pour hundreds of billions of dollars into GM, the government is expected to take 70 percent of GM equity in return. I find that almost unbelievable and difficult to understand. Will GM ever turn a profit again when it is restructured along politically acceptable lines? Or will it just become another ward of the state?

Valuing GM as an ongoing concern, what is 70 percent of the equity in GM worth? One looks in vain in stories such as this one by Michelle Maynard and David Sanger in the New York Times earlier this week for any thoughts on that question. Time’s David von Drehle imputes the question regarding GM’s profitability to “skeptics of the Administration’s action” and addresses it this way:

Is it feasible now for GM and Chrysler, which made money on pickups, SUVs and minivans, to small-car their way to prosperity? U.S. carmakers have not earned a dime selling automobiles in a decade. “There’s no question it’s a challenge,” a task-force official allowed. “It’s something the domestic car companies haven’t done successfully in the past.” Whether it will work in the future is “a fundamentally significant question.”

So it’s a good question, worth digging into. Von Drehle contemplates the future of GM psot-bankruptcy and wonders if taxpayers will see a return on their “investment.” Von Drehle writes:

In other words, for all the number-crunching and all the brute financial haircuts involved in these bankruptcies, at heart they are animated by the audacity of hope. The hope that Fiat’s Sergio Marchionne can translate his turnaround mojo into a language Chrysler can understand. The hope that, having poured at least $1 billion into the innovative but commercially suspect Chevy Volt plug-in, GM can pivot into less costly hybrid and high-efficiency diesel technologies. (Perversely, the Administration might hope for $4-a-gallon gasoline to aid that quest.)

And these hopes float on the audacity of deficit spending. By the time taxpayers are done cleaning up the books of the two companies and refilling their tanks with enough cash to keep them going — along with their finance arm, GMAC, and their key suppliers — the public price tag will exceed $100 billion. Add billions more in subsidies for researching and developing green technology and still more billions in tax credits to motivate buyers to go green. If someday GM and Chrysler become consistently profitable, the government loans will be repaid and both companies restored to total private control. The operative word being if.

In other words, the answer to the question whether GM will ever become “consistently profitable” is no. How about occasionally profitable? I thnk the answer is no. How about profitable? I think the answer is no. If a reporter for Time can say it (almost), surely it’s past time to point out that the Emperor is wearing no clothes rather than celebrating the Emperor’s wife.

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