GM Bankruptcy Going Well Except for Congressional Effort to Ruin It
(wikimedia)
Despite the gloom and doom, the General Motors bankruptcy process actually went forward smoothly and swiftly and now the new GM is ready to emerge. Good work! But one problem as a majority of members of congress have decided to start undermining a potentially successful policy and “have signed onto a bill to reverse the closing of 789 Chrysler dealerships and block General Motors Corp. from closing more than 1,300.” Kevin Drum notes that we seem to have firm bipartisan support for this bad idea, with Democrats and Republicans alike working to do the bidding of their local car dealerships rather than advance the nation’s legitimate policy goals.
Felix Salmon hopes the Senate can fix this because Senators represent larger areas and thus are less under the thumb of individual dealers. I guess I’d say that it just seems that nothing whatsoever can pass the Senate (exceptions are made, of course, for Bush-sponsored tax cuts, Bush-sponsored health care bills, and Bush-sponsored wars) so probably this bad idea will die along with a half dozen good ideas.
29 Responses to “GM Bankruptcy Going Well Except for Congressional Effort to Ruin It”
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July 10th, 2009 at 10:06 am
Gee, a completely political process in which a Democratic Administration is using a bankruptcy (I mean “bankruptcy”) to benefit its major political donor in the UAW is now being ruined by politics? Shocking.
July 10th, 2009 at 10:13 am
I’d be interested in hearing how dealerships cost the parent company. The dealerships claim they take no resources from the manufacturer. If so, closing dealerships is shooting one’s own foot. Any explanations?
July 10th, 2009 at 10:21 am
Al Says:
July 10th, 2009 at 10:06 am
Gee, a completely political process in which a Democratic Administration…
Literacy FAIL.
July 10th, 2009 at 10:22 am
Felix Salmon hopes the Senate can fix this
Or, you know, the President?
July 10th, 2009 at 10:26 am
Can’t Obama veto this? Will he?
July 10th, 2009 at 10:37 am
God I hope this doesn’t go through. This is exactly why nationalization was a scary prospect to begin with. Once Congress gets used to this kind of meddling it’s not gonna want to stop….
Veto points are usually pretty sucky, but this is why they can be helpful – I sure hope you’re right and this manages to die in the senate.
July 10th, 2009 at 10:48 am
Maybe the conservative skeptics were right – one of their big criticisms of government purchase of GM was that Congress would try to micromanage the company, making profitability much more difficult.
This is an early bad sign.
shooter242 – I can’t find it, but there was a good explanation in the NYT a month or two ago explaining how the excessive number of dealerships hurts the auto manufacturers. I don’t remember it that well, but part of it is the cost of training and part of it is competition between dealers brings down prices.
July 10th, 2009 at 10:50 am
I think I’ll pull out one of the left’s catch phrases for this: “No one could have predicted….”
Had Bush and Obama just let GM go through Bankruptcy on its own, this would not be happening. Instead, we now get to watch as each GM dealer and plant gets handled just like military bases….
July 10th, 2009 at 10:56 am
Apocalypse Now
Willard: “Hey soldier, do you know who is in command here?….Who is in charge, here?”
Soldier: “In charge? I don’t know, man. I’m just doing what I’m told – I’m just a working girl.”
July 10th, 2009 at 11:08 am
So this is a really bad thing to have happening. Of course, having GM and Chrysler liquidate would have been an order of magnitude worse. I’m not sure what Al and James Roberston really wanted to see happen here. The government wasn’t going to just give a bunch of money to bondholders for nothing. And it wasn’t going to let the entire US auto industry (Ford included) disappear in smoke. This is the best of a bad set of options.
July 10th, 2009 at 11:15 am
What would I have wanted to happen? I’d have liked regular law to follow its course. The company I work for won’t get bailed out if it runs into trouble; why should GM get special treatment? The valuable assets would have been picked up and used – it’s not as if other car companies haven’t gone out of business in the past.
What you’ve bought yourself is a nationalized company, which will now operate as a wholly owned subsidiary of Congress. Dealer, Plant, and even design decisions will be driven just like military bases and contracts are – with all the attendant corruption.
Liquidation would have been much, much better than that.
July 10th, 2009 at 11:16 am
Proof that a one-party bill is bad, and a bi-partisan bill is a disaster.
July 10th, 2009 at 11:17 am
Literacy FAIL.
Huh. I thought Obama was a Democrat.
July 10th, 2009 at 11:30 am
As a Ford retiree I worry about Ford having to compete against a company supported by a shareholder with infinitely deep pockets. Having said that, it sure looks like the government support will come with so many strings that GM will be permanently crippled. On the third hand, the strings might lead to such lower prices that nobody will make money in the North American market, so I should be worried again.
I have approximately zero confidence that, in the event New GM isn’t viable, any future government of either party will be willing to pull the plug.
July 10th, 2009 at 12:20 pm
When did they repeal chapter 11?
July 10th, 2009 at 12:22 pm
For heavily unionized companies, Chapter 11 became inoperative the day Obama took office.
July 10th, 2009 at 12:31 pm
I think it would happen eventually. GM would have to be losing money while other car companies are doing well. At that point, other car companies could make use of GM’s assets, and would pay a better price for them some of them. There would also be less impact on employment if there was a likelihood of some of GM’s workers being hired by other car or parts makers.
In addition, even if GM makes money in good times but loses more money in bad times, they will shrink. The smaller they become, the easier it is to liquidate them.
July 10th, 2009 at 12:54 pm
One thing you forget though, is that a large number of dealerships expected to close, are in rural areas. In many cases they are the largest source of income (sales tax revenue) and employment in the towns they do business in. This will be devastating to those areas, both in loss of revenue and jobs.
July 10th, 2009 at 1:28 pm
Huh. I thought the story clearly pointed out that CONGRESS is doing this (both R and D), not Obama’s team.
It must suck to wake up every day and be you.
It’s simple: This auto industry got screwed because execs and designers at GM, Chrysler, and to some extent Ford, were so fucking stupid they couldn’t remember the 1970s. So they built a bunch of huge vehicles, convinced people their one trip to the Lake each year justified a 6,000 lb. SUV that got 11 MPG, and then seemed surprise when gas prices rose and their sales plummeted.
Bankruptcy would have led to more job losses and the dissolution of the entire American auto industry, so not sure this is any worse (yet).
There are no easy answers here, but this is simply a campaign move by numerous Congresscritters who want to claim they “saved jobs.” I doubt it makes it through the Senate or past President Hopey McChange’s veto pen.
July 10th, 2009 at 1:35 pm
How exactly does the nation have “legitimate policy goals” that are in any way related to the number of auto dealerships?
Please consider just how absurd that statement is.
Remember, the dealerships weren’t bailed out, the manufacturers were.
What are the nations “legitimate policy goals” with regards to the number of insurance agents, or the number of drugstores, or the location of restaurants?
Where exactly does this massively intrusive hand of “legitimate policy goals” stop?
July 10th, 2009 at 1:43 pm
Since there has been an asset sale to a new company, which has never had a contract with any of the dealers, it is hard to see what legislation can change. Make old GM, which is now in liquidation, perform under the franchise agreements?
July 10th, 2009 at 2:27 pm
Instead of trying to save the dealers, Congress should make GM bring back the Pontiac G8 (pictured).
July 10th, 2009 at 2:58 pm
Great. I was hoping the Democrats wouldn’t prove themselves to be just as crazy as the Republicans, but Congress seems determined to try. Obama managed to take admirable long-term steps to downsize GM and Chrysler, which makes sense in this era of a worldwide gar glut. The UAW had accepted concessions, and dealerships were ready to close, over a 12 to 18-month period. This was progress, and Obama deserves the credit. Now, it turns out Congress will work really hard to nullify that progress.
July 10th, 2009 at 4:19 pm
If they’re the only dealer in the area, and they have a good working relationship with the locals, they can sell another kind of car. If such situations really exist, Ford should be hovering over them like a vulture.
July 10th, 2009 at 4:23 pm
[...] Manzi, Kevin Drum, and Matt Yglesias are upset with the notion that the government might intervene to keep the automakers from [...]
July 10th, 2009 at 8:21 pm
One of the benefits of putting GM through bankruptcy was that it allowed GM to cancel all of its strict contracts with dealers (strictly regulated by state laws protecting those dealers) so that they could cheaply and quickly shed their extraneous marques. Getting rid of Oldsmobile was expensive and time consuming for GM because they just couldn’t cancel their relationships with those dealers. Without this ability to simply get rid of those unneeded marques and cut the dealers loose, there was no point to going through bankruptcy in the first place.
July 10th, 2009 at 11:53 pm
[...] thing’s are all happy in Detroit, right? Yep, until you read this headline from Matt Yglesias: “GM Bankruptcy Going Well Except for Congressional Effort to Ruin [...]
July 11th, 2009 at 12:55 am
I have read the reasons for the closures of dealerships and have to disagree with the reasoning, for they are only speaking about the cost to the main company, not the hundreds of thousands of lost jobs around the country. they have not considered the loss of taxes to local governments, etc. the reasoning would say that walmart is wasting money opening new stores, because they have to train workers. they assume that people who bought form a local dealership will automaticly go to another dealership in another town or another part of town. They will not, especially of they are single car owners. I have discussed this with economics professors, business men, and CPA’s and none have agreed with the reasoning. It might save money in the short term, but it will cost billions in the long term for the country. They assume that another car company will move into town, and they will not, especially of GM says it doesn’t pay. Short-sighted thinkers made this desicion to get out of bankrupcy, but it is short term savings. If GM had legally gone through bankrupcy, then these most of these closings would not have been required.
July 11th, 2009 at 12:13 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/