GM Bankruptcy, review

I just saw in my post from April 30 that I thought GM's bankruptcy would get the government out of their management at last.

WRONG!

The US government now owns 60% of General Motors. (Or Government Motors, whatever.) And Canada gets 12.5%. The UAW (United Auto Workers union) gets 17.5%.

And the bondholders, the people who were originally guaranteed by bankruptcy law to get at least their principal back, those who didn't take risk, those who needed stable investments, like school, fire department and police department pension funds, will get the remaining 10%, mere pennies on the dollar.

Stockholders get zip. Preferred stockholders (retirees living on a fixed income from dividends) get zip. Common stockholders (holding them as they split and increase value over time) get zip.

GM Being Run by Inexperienced Dropout

GM is now being run by Brian Deese, a 31-year-old Yale drop-out.

He got his undergrad degree in Political Science from a small private school in Vermont, and has had no formal econonomics education. His only previous experience with the auto industry was sleeping in his car in a Pontiac plant parking lot.

He worked with several Democratic-financed think-tanks, and after the stint at Yale, went to Hilary Clinton's Presidential campaign as her economic advisor. When that folded, he went to the Obama campaign as deputy economic policy director, then with the transition team as an economic advisor. Then, despite having neither any economic or business education, nor any private-sector experience, he was the only full-time member of the auto task force between the election and mid-February.

He is now managing the government investment of $458,000 per day in GM. And that plant at which he slept in the parking lot? The entire brand is being closed under his management.

Reference for much of this, though I found it elsewhere citing this article.

GM Restructuring

GM's restructuring plan includes more jobs manufacturing cars. But those jobs will be in Mexico and China, because they are moving some of the manufacturing there.

But...I thought this bailout was to save the "American auto industry"? So we are now bailing out the Mexican and Chinese auto industry, while those who really make cars here, like Honda and Toyota, are on their own?

Chrysler bankruptcy

The company Cerberus owned 81% of the company, was owed $500M, and owned the Chrysler Building. They lose everything in the bankruptcy. They get repaid zero. They even lose the building.

The company Daimler that used to own Chrysler is owed another $1.5B. They get repaid zero.

Banks are owed $6.9B. They get $2B, 29 cents on the dollar.

The US government has put in $4.3B from the TARP bailout. They are also owed $300M in fees. This was supposed to be a great investment Chrysler would repay with interest. What do we get on our investment? Zero. No, worse than zero. We will give them another $3.2B in the restructuring and another $4.7B later.

The United Auto Workers has $10.6B in Chrysler debt. Remember from my last note that this is unsecured debt; they are only supposed to get what's left over after the secured debt is FULLY repaid. So, what do they get? A note for $4.6B (at 9% interest!), or 43 cents on the dollar, more than anybody else. Plus - and a big plus - they get 55% of the equity of the company. They went from not actually owning anything, and being last in line for repayment, to owning 55% of the company. Oh, and they also get $600M in "legacy costs", for stuff like pension and healthcare benefits, from Daimler.

Guess what? The "Car Czar", Steve Rattner, was Finance Chair for the Democratic National Committee. And guess what else? The UAW gives 99% of their political contributions to the DNC. Makes things clearer, doesn't it?

Auto industry bankruptcy

Well, Bush said that the "US auto industry" was too big to fail. (Never mind that Honda, Toyota, Volkswagen, BMW, and others make their stuff here, and frequently with more US-made parts than the "US" manufacturers...) We, meaning the taxpayers, have put billions into them.

Well, now Chrysler is failing anyway. YAY! We've been putting "good money after bad" for far too long, and I don't want the government running businesses anyway. And Fiat will get a good deal, because the tax payers and debtors (mostly small businesses) are covering the rest.

Now we just need to push GM over, so they go bankrupt too and get the government out of their management. And the unions too, while they're at it. Unions can be useful, but they've gotten to just be huge, political, and expensive bureaucracies of their own.