I HEAR SISYPHUS IS LOOKING FOR A JOB

11/11/09

A friend asked my opinion on GM’s ever being able to repay its federal bailout money, especially in light of Chairman Ed Whitacres’s discomfort with committing to any timetables for an IPO or for repayment of the government’s loans to GM. My answer got sufficiently detailed to merit posting:

The article on Whitacre's comments in this (Wednesday) morning's Journal was especially confusing. Apparently, "only" about $6.7b of the bailout money remains in the form of loans; of the rest, about $29.9b is in stock and $13.4b in some kind of half-hindquartered "escrow" fund, at least as far as I can tell from this very poorly written article. If the General doesn’t use the $13.4b by June, it can ask for a 12 month “extension” to keep the cash on hand in case something “unexpected” comes up. I suspect 12 months will become 24, 36, 48, 72….months.

It will be hard enough to pay back the $6.7 billion in loans when we are dealing with a company that pats itself on the back when it achieves a cash flow positive month. But one can conceive of a situation in which the loan will be paid back, rather than being converted into more equity. If the economists are right about the economy (You know how I feel about that!) and if GM continues to make the remarkable progress it is making on the product front, we’ll get that $6.7 billion back. However, for the government to break even on its stock investment, market cap would have to reach $67 billion. The highest GM’s market cap has ever been was $60 billion in the halcyon days of 2000. No, we’re never going to see at least a substantial chunk of this money again. But the Bush/Obama administration doubtless feels it was a good investment—heck, it wasn’t their money!

The Opel situation is an odd one that I visited in my blog a few posts ago. It seems like the German bridge loan was contingent on the Magna/Sberbank deal getting done and might be called if GM keeps Opel. But GM has figured out a way (using your money—it’s all your money now) to pay back the bridge loan. Further European (German, British, Spanish, Polish) financing was put in place envisioning Magna/Sberbank (and more union friendly) ownership. But GM feels that it might be able to replace that financing with, you guessed it, your money, if it keeps Opel. However, should GM need to use any of the European money, and it looks like it will, such money will be contingent on refraining from asking for the kind of concessions in Europe that it has achieved in the U.S. This would make Opel a conduit for channeling American taxpayer dollars to European unions. Yet another reason to thank George and Barack.

The Bush/Obama administration has apparently concluded that it will not let GM die, that it will shovel in unlimited amounts of money if necessary. (One wonders if even the federal government has enough money to save Chrysler, but I suspect the Bush/Obamacrats will strive mightily to effect this rescue; again, it’s not their money.) So the oft suggested strategy of buying a GM car in order to get our money back probably won’t achieve its stated ends. The question then becomes whether we buy Chevys, Buicks, and Cadillacs in hopes of stopping GM from becoming a bottomless pit or buy Fords, Hondas, Toyotas, etc. in support of free enterprise. I still say we should buy the car that represents the best value, however we define that as individuals, and I might also add that we probably should be at least somewhat mindful of domestic content, regardless of the nameplate a car carries. While for people who think like we do, it’s hard to forsake a spunky free enterpriser for a ward of the state, GM has some great product out there. Further, despite my goal of owning one of every nameplate available in the U.S. before I die, I’ve never owned a Chevy, a Buick, a GMC, or a Caddy. Though I can’t see ever owning a GMC, it looks like at least one GM car is in my future!