The GM bankruptcy plan typifies what Rush Limbaugh is calling Obama’s socialist trifecta: Socialism, protectionism, cronyism. Obama insists the US government has no interest in taking over or running the auto industry…yet he keeps doing it:
- 60% of equity goes to the U.S. Government. USG also gets $8.8B in debt and preferred stock.
- UAW’s retiree pension/health plan (the “Voluntary Employee Beneficiary Association”) gets 17.5% of equity, plus:
- warrants to buy another 2.5% of equity;
- a $2.5 B note (three installments, ending in 2017); and
- $6.5 B in perpetual preferred stock (9% coupon).
- Approximately 12% of equity goes to the Canadian (and Ontario?) governments. They also get about $1.7 B in debt and preferred stock.
- Bondholders of old GM get about 10% of the equity, for giving up $27.1 B in unsecured debt. This was approved by bondholders representing 54% of unsecured debt. The other 46% are the biggest risk for the bankruptcy filing. (CNBC, WSJ)
- “Bondholders could take up to 25 percent of GM if it recovers to be worth what it was in 2004, before it began round after round of cost-cutting in what proved to be a failed bid to make up for lost sales.” (I need to understand this better.)
- Secured bondholders expect to be paid face value. (WSJ)
The GM (now known as Government Motors) bankruptcy mirrors the one that Chrysler just went through; once again, as Ed Morrissey notes:
Obama is penalizing the people who invested in GM by devaluing their stake based on whim, not legal or financial rules. They want to skew the result to favor the union and themselves. It’s another political bankruptcy, rather than a legal dissolution of a private firm according to well-established contract law.
Hugh Hewitt suggests a long-term solution to such blatantly political interference in business law:
I won’t buy a socialist car, which means I won’t be buying a GM or Chrysler car for as long as the U.S. government owns huge blocks of the companies.
Today’s bankruptcy filing by GM will see the end of a once-great car company and the birth of a federal government-union partnership dressed up as a business. It won’t work, even with the $50 billion federal tax dollars plowed into the new entity past and present, and not even with the UAW’s “concessions.” …
Buy Ford. Buy Toyota. Buy anything that isn’t owned and operated by the federal government. There are plenty of great cars out there. You don’t have to buy one that costs not just your cash, but also your commitment to free enterprise and all the benefits that flow from it.
The US Government needs to get out of the car business.
I wanted to make a joke about Obama’s plan for GM…
Step 1: Dump a ton of cash into failed company
Step 2: ?
Step 3: Profit!
Unfortunately, the government does have a Step 2 in mind. Force US car buyers into smaller cars through a combination of business decisions and regulations. Alas, that’s unlike to lead to Step 3 but some people see continued government ownership of a large industrial corporation as a feature not a bug.
MORE:
The Foundry: The Government and GM: How Reluctant a Shareholder?
Will the new majority owner of General Motors — the United States Government — take an active role in managing the firm as it struggles for viability? In a statement earlier today, President Obama insisted that the government wouldn’t impose it’s own political agenda on GM.
“What we are not doing, what I have no interest in doing, is running GM,” he declared. Calling the government a “reluctant shareholder”, he declared that “GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality…They and not the government will call the shots and make the decisions about how to turn this company around… When a difficult decision has to be made like where to open a new plant or what type of new car to make, the new GM, not the US government will make that decision”.
This sounds reassuring, but in fact this non-interference pledge was broken even before he started speaking, as the White House was already trumpeting a pledge extracted from GM to “build a new small car in an idled UAW factory”, furthering the President’s environmental goals as well as pleasing his labor allies.
EGAD:
Gateway Pundit: Far Left Blowhard Michael Moore “Joyful” Over GM’s Demise
HOLY GOD IN HEAVEN…
Hot Air: The Best and Brightest?
Imagine you had to pick someone to shepherd a gigantic multinational corporation through a bankruptcy in order to salvage it. Would you look for someone with extensive experience in the firm’s industry, or would you prefer someone with demonstrated savvy on Wall Street in turning around troubled firms? If the firm made cars, perhaps you could think of it as a choice between a Lee Iacocca or a Mitt Romney.
Or, maybe, you’d just pick someone from the mail room, as Barack Obama apparently has in the GM bankruptcy:
A law student/campaign worker who’s never worked in private business, let alone the auto industry?
We are so screwed.
Nice Deb 