No UAW Bailout

Jim Manzi has done some of the best analysis of the proposed bailout of GM, Ford and Chrysler–or, one should more properly say, bailout of the United Auto Workers, otherwise slated for extinction. Here, he addresses the theory that the Big Three are in the midst of a turnaround, and if we only keep them afloat a while longer, they’ll be profitable again.

This chart pretty much says it all:


Bob Cunningham, meanwhile, does some basic arithmetic:

As of the close of business on Friday the market cap for General Motors was about $1.9 billion, Ford about 4.3 billion….Chrysler is privately held but it’s a safe bet that their FMV is less than $2 billion…probably a LOT less….so for approximately a lousy $7 billion….a rounding error for the federal budget…the government could simply BUY the entire U.S. auto “industry” — actually, of course, it’s just the U.S. nameplate manufacturers, but that’s another story — for what amounts to a pittance.

So if these geniuses in the government, especially the best and the brightest coming in with The One, think they know better what to do…that they can defy the market’s judgment….why don’t they just cut to the chase and buy the companies, replace their boards and management and run the companies….can you imagine how disastrous that would be?….but that’s in effect what they’ll be doing…almost as much fun as Fannie and Freddie!

The numbers are literally absurd….Ford has $160 billion in debt!….with NEGATIVE book value of equity….GM has about $60 billion in debt…and a HUGE negative net worth on a book basis of $56 billion!….Essentially, the market is valuing the companies — well above their (negative) book values — but at what amounts to scrap value!…so $50 billion more from forced tax exactions should be thrown at them?….and that’s NOT absurd?

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