Barack and Joe have been all over the fruited plains, purple mountains majesty, and sea to shining sea proclaiming that Barack, a man who has never held a job before becoming our nation's chief executive, single handedly saved the entire auto industry. This is a statement that is every bit as silly as it is offensive.
It is offensive because of the flat out shenanigans that went on to facilitate the sale of GM to the American taxpayer and subsequently the gifting of a sizable portion of the company to the UAW. The laws that determine debt subordination, which have existed since before the founding of our nation, were thrown out the window. When the GM bond holders balked, they were labeled as greedy and unpatriotic, and then screwed completely by the Obama Administration. Tax Payers suddenly found themselves holding a controlling interest in an industry which they knew very little about, and not a single proxy vote took place in which we had the opportunity to pick suitable leadership to run the new company. Decisions were made for running our illegally bought business not upon what would make it successful, but upon what would be politically expedient for the current group of White House occupants. The effects of the GM bailout are still being felt today. American Corporations are flush with cash, as are many investors. Both groups are reluctant to invest that cash. This is not a political decision as the lefty crowd has been claiming since early in 2010, but self preservation. Why would anyone with two nickles to rub together wish to put their capital at risk knowing that if their chosen industry were to become the subject of political fancy, their investment would simply be stolen away, and they would then be labeled as greedy should they complain? Individual property rights you see are the backbone of any successful economy. Why invest or work if the government will simply rob you blind the moment they notice you have succeeded?
The claim that Barack Obama saved GM is silly because it is simply not true. For years, the auto industry in the U.S. has been fighting a malevolent federal government hell bent on its destruction. Cafe standards forced the industry to sell not the vehicles that customers wanted, but rather the vehicles that our liberal friends wished everyone would drive. So, a Ford Escort for example, was sold at a sufficient loss so as to sell sufficient numbers to keep the average mpg ratings for ford within federal guidelines, while the people who bought Town Cars were forced to pay a much higher price than what Ford would have sold the car for initially. That folly has been put on steroids by current GM management, which is Barack Obama and the UAW. Rather than selling cars that people would actually want, a fortune was wasted on convincing people that they wanted slow moving goofy looking hybrid vehicles that appealed on no level. Chevy Volt sales to date still number less than 10,000, and that is for all of its production years combined. What does that mean for us, the reluctant owners of GM?
Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.
Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.
In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market. For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011. With a loss of market share comes a loss of relative cost-competitiveness. There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.
We have been told that one of the possible campaign memes for the upcoming general election in November would be, "Osama Bin Laden is dead, and General Motors is alive." So what have we learned within the last two weeks? Barack Obama actually served to hinder the efforts to take out Osama Bin Laden. Those of us with actual knowledge of economics or with actual business acumen could also have told you that GM would have not only survived a bankruptcy, but would have emerged as a stronger company than what it is today.
Something else to consider, There are currently 19 major auto manufacturers building cars in America today. 17 of those companies are not called GM, Ford, or Chrysler. What GM does prove however is that it is the production of wealth which drives our economy, and not some magical jump start of spending. GM builds cars no one wants because the government has graciously forked over $200,000 per Chevy Volt sold. GM collects its $35,000 from some lucky consumer who has purchased a crap car that spontaneously combusts, and yet that is not enough for the company to remain profitable.
General Motors will probably not survive for four more years. Had the established system of handling corporate bankruptcy and our free enterprise system of individual property rights been respected, General Motors would just now be emerging from bankruptcy as a stronger and much more viable company, selling cars that people actually wanted. The bad news in all of this is that Barack Obama now wishes to, "bail out," more American businesses in the same manner. The good news is that we will have the ability to file our restraining order in just, 81 days.