The progressive U.S. Government now owns 60% of GM thanks to a taxpayer funded $50 billion assault begun by George Bush and finished by Barack Obama. After less than 50 days in Chapter 11, GM is 89.5% owned by a combination of the U.S. Government, the United Auto Workers union (17.5%) and Canada (12%). GM holds onto its #1 market share position beating Ford, Toyota, Honda, Chrysler and Nissan, no thanks to a long list of groups that carried the risk and have lost everything.
GM was bankrupted by its unmanageable and unrealistic healthcare, pension and union costs. The costs should have been re-negotiated privately and in a rational manner, long ago. Instead, the US government, led by George W. Bush, opened the floodgates by loaning GM and Chrysler $17.4 billion in December 2008 to help them make it until March, followed by Obama’s New GM.
In her book The Forgotten Man, Amity Shlaes writes about philosopher William Graham Sumner who warned against the progressives of his own day. “‘As soon as A [Bush Administration] observes something which seems to him to be wrong, from which X[GM] is suffering, A talks it over with B[Obama Administration], and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine…what A, B, and C shall do for X.’ But what about C [see below]? There was nothing wrong with A and B helping X. What was wrong was the law, and the indenturing of C to the cause. C was the forgotten man, the man who paid, ‘the man who never is thought of.'”
In the case of GM, the forgotten man is the investing class that put up the risk capital that now owns 10.5%. It is the dealerships that took the risk to partner with GM and have been forced into closure. It is the auto companies left to compete against a taxpayer funded GM not knowing what policies and regulations are coming next (Ford, suppliers etc). It is the public and private investors that do not know if the rules will be changed again (look at how weak the S&P 500 and Dow are). It is the taxpayer burdened with in all likelihood higher taxes (the government didn’t make the $50 billion). All have incurred costs that can be measured in dollar terms today, and many that cannot be measured, that is, until it is too late. The damage of making rushed irrational decisions with other peoples’ money cannot be undone.
It concerns me how little regard Washington seems to have for the above mentioned group. New policies and regulations are already moving full steam ahead. The Wall Street Journal reports, “GM is still going to be looking for help in Washington, though. The company said earlier this year that it was seeking $7.7 billion in Energy Department loans to push ahead on more energy-efficient cars. To qualify for the money, it must be certified as ‘economically viable’ by the U.S. government, a step that could happen within weeks.” This is just the beginning. We have a new administration, fearful of failure, running a subsidized New GM that can undercut and outlast competitors, and create policy to push its progressive movement to the forefront. Stay tuned.
E.J. Smith is Managing Director of Richard C. Young & Co., Ltd. an investment advisory firm managing portfolios for investors with over $1,000,000 in investable assets.