June 30th, 2009 • by Stephane Dumas
The US Treasury now owns 60% of General Motors, which the pundits quickly dubbed “Government Motors.” It seems to have become a sort of joke for some peoples as seen in clips on Youtube, going further by called it “Pelosi motors” while others called for a boycott of GM. It’s time to think about it.
Conrail emerged from bankrupt companies who made a profit after some regulated freedom. But there was other cases like Amtrak and British Leyland; the latter didn’t turn out as well as they wished.
Renault’s nationalization happened at the end of WWII. The French government nationalized Renault because they suspected the president of Renault (Louis Renault) to have collaborated with the enemy during the occupation.
I’m glad to see Penske owning now Saturn, if only he had bought Pontiac as well….
May 14th, 2009 • by Bill C
Abraham Lincoln once said, “Better to remain silent and be thought a fool, than to speak and remove all doubt.”
It’s become painfully obvious that no one at either Chrysler or General Motors is familiar with that particular pearl of wisdom. Either that, or they have already laid off the person whose job it was to prevent them from looking like fools in public.
First, Chrysler: Even as it plans to strip healthcare benefits from thousands of retired white-collar workers and force hundreds of dealers out of business, adding thousands of people to the unemployment rolls, the company announces it has found a way around the federal caps on executive compensation. What a public relations coup! Surely, nobody will view that as anything but good news.
Of course, as a member of the Obama auto task force told a representative for the retirees, Chrysler has only a moral obligation to provide healthcare to them. What’s a career’s worth of promises when you can pay your executives more money?
The $500,000 cap and other reductions in compensation for the company’s top 25 executives were a government-imposed condition on the billions of dollars in taxpayer-backed loans the company received at its own request. Admittedly, a half-million dollars per year is a far cry from the bloated levels of pay lavished on many American executives, but it’s a lot more than thousands of the people they have laid off are making and it’s seventeen times the $29,120 annual base pay for the new hires allowed under recent union contracts.
All Chrysler had to do to get out from under the government’s conditions was repay the loans. But even that’s too much: It’s fairly well accepted now that Chrysler won’t be repaying the initial loan it received from the Bush Administration and probably won’t be repaying the money it’s getting from the Obama Administration to fund its trip through bankruptcy. The plan now is for the company to repay the next pile of money the feds will give it when it emerges from bankruptcy as a new company. (In other words, the company is going to walk on two loans, but it promises to repay the third. You probably shouldn’t try this at your bank.)
So Chrysler has a nifty scheme to get around those pesky limits: it’s going to pretend senior Chrysler executives are really Fiat employees “on loan” to Chrysler. Fiat will pay the salaries (nudge, nudge, wink, wink) and the Chrysler brass won’t even have to learn Italian.
Ebeneezer Scrooge must be green with envy.
General Motors, on the other hand, is warning of the dangers of government involvement in its business. This is the company that has already received $15.4 billion in government loans and wants another $11.6 billion real soon. And maybe some more later. In return for our national generosity, GM’s own reorganization plan calls for giving the government a large stake in the “reformed” company in lieu of paying off the loans with actual money.
In a recent government filing, GM said that, as a majority owner, the U.S. government could make it difficult to compete and have a negative effect on its stock price.
In its report to the SEC, GM said it may “become subject to new and additional government regulations regarding various aspects of our business as a result of the U.S. government’s ownership in (and financing of) our business. These regulations could make it more difficult for us to compete with other companies that are not subject to similar regulations.”
While I know the government doesn’t exactly have a sterling record in the business world, it’s a bit hard to imagine it doing much worse than the gang currently occupying the Renaissance Center.
Is GM afraid the government will make it lose $82 billion in a matter of a few years? Will the feds use their controlling interest to demand another Pontiac Aztek? Perhaps they worry that President Obama will require them to try brand management again. Or any of the other blunders GM’s own management has made.
GM also said the government’s interests might conflict with those of other stakeholders. Would those other stakeholders be the United Auto Workers? Or the banks holding $27 billion in GM debt? Or the actual owners of GM’s current stock who will get to see their 610.5 million shares turn into one percent of the new company?
It’s difficult to comprehend the sheer arrogance of a corporation that argues against government involvement because the government might do to GM what GM already has done to itself. And they still want billions of additional dollars from the Treasury.
I wonder if they giggled when they sent the filing in?
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