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The GM bailout's ambiguous success

As if former Obama administration car bailout meister Steven Rattner didn’t have enough problems already, there are new indications that the federal rescue of General Motors may not be quite the “unambiguous success” Rattner touted in his insider's account.

I am not referring to the recent flap over the plug-in electric hybrid Chevy Volt’s technology, in which mechanics mavens are taking GM to task for neglecting to tell the public that the car uses its back-up gasoline engine to turn the wheels more often than previously implied. This is bad publicity, to be sure. And since the Volt is, in my view, basically a publicity stunt rather than a serious bid for market share, the kerfuffle doesn’t help GM. But it’s not fundamental.

No, the bad news for GM, and the taxpayers who own most of it, came in a little-noticed October 6 report from Fitch, the ratings agency, which highlighted the major unresolved issue of the bailout: pension obligations to its United Auto Workers employees. The union successfully resisted efforts to trim this long-term burden on the company through the bankruptcy process, and they continue to weigh heavily on the company’s future.

Specifically, GM’s relatively robust free cash position – one of its major selling points in its pending IPO – is being artificially propped up by the fact that it is not yet legally required to make multi-billion-dollar payments into its “heavily underfunded” U.S. pension funds. How underfunded are they? Well, the U.S. plans alone are $17 billion underfunded as of the end of 2009, Fitch says. When you include global operations, the total is $27 billion.

And that is a conservative estimate, Fitch notes, because interest rates and rates of return on the pension fund's assets are likely to remain low for quite a while. Factoring in lower interest rates that prevailed in the first half of 2010, GM’s pension obligations are actually $6 billion higher than they appeared at the end of 2009.

Oh, and did we mention market share? Long term, the bailout can't work unless the public buys GM’s cars. But the company's share of the U.S. market was 19 percent in September 2010, down from 19.6 percent at the beginning of the year.

Hence, Fitch says, GM’s bonds deserve a “junk” rating: BB-. That, too, is not a big surprise. But it does suggest that the success of the bailout is still, well, ambiguous. GM is not out of the woods yet, and neither are the taxpayers.

By Charles Lane;  | October 20, 2010; 12:03 PM ET
Categories:  Lane  | Tags:  Charles Lane;  
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Comments

I believe it is a very exciting time for automobiles. GM is sporting the next generation of automobiles.Ecologically cleaner, more efficient and and competitivly priced. What other car will give you the option of never using gas for your local trips and capable of longer trip driiving on a tankful of gas? I am looking forward to this industry leader.

Posted by: rlaviolette | October 20, 2010 3:56 PM | Report abuse

All I want is for GM to buy back the stock "we" own so our government gets out of the auto industry. GM can then live or die on its own. Every time we've had a gas crisis we hear all this PR about how electric cars are going to be our saviour, yet the technology isn't there - and it appears it still isn't there. Here in California I'm surprised they don't charge battery toxic disposal fees on electric cars - or maybe they do. I'm sticking with my nice reliable gas guzzler, made in America by a Japanese company. That way, I support US jobs, and still get a quality car.

Posted by: termiteavenger | October 21, 2010 1:11 AM | Report abuse

to all,

imVho, the US government should NOT have "bailed out" GM/Chrysler/the banks/brokerage houses/insurance companies/ANYBODY. period. end of story. - further, come January 2011, i expect the new Congress to pass a federal law to FORBID any such UNCONSTITUTIONAL acts in the future.
(to any LIBs/"progressives"/DIMocRATS, who may be reading these lines: WHERE in the Constitution does it say that the federal government can BUY/BAIL OUT any private concern? - IF you cannot find any such provision, the Congress & BHO have committed "high crimes & misdemanors" & should be REMOVED from their offices.)

since we now "own" GM, we should divest ourselves ASAP from owning any portion of their business & then get on with the REAL task, which is returning this nation to CONSTITUTIONAL GOVERNMENT.

just my opinion.= i do NOT & CANNOT speak for our county's TP group, absent a vote of the membership.

NOTE to all: IF you are as disgusted, as we TP folk are, with THE MESS that Congress & BHO have made of our government over the last almost two years, JOIN the TEA PARTY group in your home county NOW. you will be WARMLY received & "put to work" to return our government (at all levels) to THE PEOPLE.

yours, TN46
coordinator, CCTPP

Posted by: texasnative46 | October 21, 2010 10:48 AM | Report abuse

I'm sure Mr. Lane would rather have the U.S. pay the entire cost of these retirement plans, as the airlines did when they went into bankruptcy? For some folks the plain truth about gov't doing the right thing is just unthinkable. GM is making cars that people are buying! That means people in the US have jobs and with new plants ready to open that means more jobs here in the U.S.

Is easy to be disgusted as the TP folks are, they have no idea how to make jobs. Their backer only know how to ship them overseas and leave the American workers with low paying jobs and no future.

Support companies that keep jobs in the U.S. that pay a decent wage and you'll solve many of the problems we are facing as a country. We did it before after WWII when the ratio of debt to GNP was greater. Our problems lie not with government but with those business leaders who only see the short term goals of bonuses and not the long term goal of building a great nation. Until we, the people of the United States begin to work together to bring jobs back home where we can again manufacture what the world wants, we're doomed to be a banana republic to the business elite who make the top 2% of all value in this country.

We've seen over the past 10 years what this CEO mentality brings to our population and GNP and it just doesn't compute real value, that is except to Wall Street.

Posted by: mfontanella | October 21, 2010 11:15 AM | Report abuse

I really don't understand what Mr.Lane is talking about. I guess he relies on the ignorance of the reader to be as great as his own ignorance of the auto industry.

GM's underfunded liability of $27B is EASILY manageable, given the 'robust free cash position' that GM now enjoys, and will enjoy for as far as the eye can see. The pension plan will likely be fully funded in 5 years, sooner if the stock market continues to surge at the Sept/Oct pace.

The bankruptcy allowed GM to issue stock in exchange for all outstanding debt obligations. NO debt.

The health care liability was handed over to the UAW to manage before he bankruptcy. Salaried employees' retirement health care was slashed in bankruptcy. Health insurance obligations is now under control.

The high union labor wage was restructured in bankruptcy, and with each passing year, GM becomes more competitive as younger workers replace older ones. Costs are now under control.

Finally, the VOLT may not be the car for Mr. Lane, or others, but GM is preparing for the inevitability of $6/gal gasoline. Over 1 million Prius vehicles are on the road now, and in ten years, GM expects 1M Volts on the road.

The gasoline engine on the Volt NEVER drives the vehicle...it is used to charge the battery to drive the vehicle. It doesn't take an engineer to envision that a small battery charge gasoline engine is much smaller, cleaner and more efficient than an engine used to drive a car.

Sometimes I wonder if these columnists ever investigate an issue before writing about it.

Posted by: LeftGuy | October 21, 2010 11:51 AM | Report abuse

mfontanella; all,

fwiw, our county TP group has NO backers, other than ourselves, so you really shouldn't BLATHER ON about things about which you know NOTHING.
(show us proof of your claims of "backers" of the TP movement, please, from an INDEPENDENT source.- HATE-FILLED LIES told by the DIMocRATS & their friends of "the main-SLIME media" are NOT "independent sources", btw.)

our TEA PARTY "disorganization" (we are too rebellious to BE an "organization"; we don't even have "officers". = chuckle) is wholly supported by the free-will donations of our membership & you MUST be a county resident to belong to the group OR to contribute to "the kitty".
(the last time i ask our treasurer, we had about 100.oo in the bank, after paying all our bills.)

to all: IF you are as disgusted with THE MESS that BHO & the DIMocRATS have made of our government as we are, your local TEA PARTY group will welcome you warmly & "put you to work" to help us fix the mess.

yours, TN46
coordinator, CCTPP

Posted by: texasnative46 | October 21, 2010 12:54 PM | Report abuse

Actually Mr. Lane, we the taxpayers are about to be off the hook quite shortly. I seriously doubt that there will be ANY more money appropriated to this boondoggle.

Posted by: fmcdermott1 | October 22, 2010 8:00 AM | Report abuse

I will never, ever, buy a Government Motors car now or in the future. Once GM decided to get into bed with Obama they became a part of the Democratic party which is what the unions wanted.

Bye bye GM

Posted by: PerryM1 | October 22, 2010 8:16 AM | Report abuse

The gasoline engine of the Volt will power the drive train at some speeds around 70 mph, so, it is a hybrid, not a true Ev. At the price of 40k+ (minus the tax payer subsidy), it is out of reach of most americans. The Nissan Leaf is a true Ev, coming from a company that is much more financially sound, and sells for about half of the asking price of the Volt. A true no brainer.
The Government Motors Corporation will go under and the parasitic unions will have killed the host. We need to cut our losses with GM and let it die the death is should have years ago.

Posted by: yadid | October 22, 2010 8:29 AM | Report abuse

I see a lot of comments on here from GM SHILLS!!

The Volt is a unmitigated disaster, $40,000 for an electric car that only goes 30 MILES, what a joke!

wait until the next Union negotiations, where BO and the WH will give back ALL of the so-called UNION concessions.

Gov Motors will be a gigantic drain on the US public. just like Amtrak. Fannie and Freddie mac, forever!

Posted by: morphy | October 22, 2010 9:10 AM | Report abuse

So GM produces a $41K hybrid that gets 26 MPG highway and has a 40 mile electric-only range under ideal conditions (try this in Fargo in Feb.). This is what we paid for? Wow, thank you genius Obama! Your IQ must be at least 101!

Posted by: Sal_Minella | October 22, 2010 9:14 AM | Report abuse

The Washington Post has sat idly by as the administration flushed taxpayer money into the GM toilet.

Obama and the Dems sole purpose in the bailout was to steal the wealth of bondholders to give to the union, in the hopes that their unaffordable pensions could be paid (and to buy their votes). Most pension obligations would be wiped out in bankruptcy, or paid only after bondholders are paid....but not in Obamaworld.

Obama and Democrats realize that the Union will steal investors money (again) if we allow GM to become a public company. Until then GM and the Union are content to suckle at the taxpayer teat.

This episode demonstrates either Obama's complete lack of understanding of economics and business or simply his disdain for those who create jobs and wealth in this country. Now Dems and Obama act surprised that consumers are choosing not to buy GM cars and that investors regard an investment in GM as Junk!

Posted by: ELF2 | October 22, 2010 9:58 AM | Report abuse

As a retired AMERICAN MANUFACTURER, i can confidently say to my countrymen that the success of our automotive industry is not an option, it was/is an imperative.
Articles like this and the comments they produce (like the use of words such as boondoggle) indicate the lack of understanding our citizens have about the inestimable, inextricable nature of heavy industry to the economic and defensive survival of their nation.
The continued operations of the American automotive industry can never be measured 'in a vacuum;, but rather by the broad and strongly positive economic and social waves that wash down through the biggest cities and smallest towns across the land.
Suppliers of raw materials, of manufactured parts, engineers fresh out of college looking for work,all the way to the waitress who serves the employed spark plug maker in Des Moines.
In fact, maybe some of the great critics of this national economic life saving exercise could actually make a positive contribution by keeping that %50,000 IN the country when buying their next vehicle.

Posted by: newsy97 | October 22, 2010 10:11 AM | Report abuse

Oh, where to begin on this. Should we talk about all the donations Obama and the Democrats receive from unions, whose existence depends on federal regulations? Should we talk about "card check", which the unions intend to use to subvert certification elections such that they look like Saddam's last election?

No, let's talk about how taxpayer money is being used to bail out the union pensions through the bailout of GM, as pure and simple payola for the unions' support of Obama in the last election.

Bankruptcy was and still is the best route for GM, not corrupt insider deals between bought-and-paid-for politicians and their union clients. These companies have not been competitive for years on the international market - the only way to make them restructure such that they are competitive - and, ultimately, to save the workers' jobs in the process - is bankruptcy.

Posted by: pijacobsen | October 22, 2010 10:39 AM | Report abuse

It seems quite dangerous and fraudulent for a government owned business to be able to hide massive liabilities while attempting to secure private sector investors.

It seems equally unseemly for GM to use TARP funds in a dubious effort to appear to be 'repaying' taxpayer loans extended to keep them solvent.

Finally it seems inappropriate for a company sustained by taxpayer funds to be making political contributions in an effort to influence partisan politics.

The only justification to commit corporate resources to any endeavor is in return for expected benefits exceeding the contribution. If contributions result in federal favoritism it appears to me to be corrupting our belief in equal justice under law.

It is not surprising that a half-baked ecological 'solution' is rushed to market by Government Motors to give the administration something to crow about in their pursuit of supposed 'Green solutions': but it is stupid and requires the people to be stupid to overlook that roughly half our electric energy comes from coal that the Green Movement wants to terminate.

Posted by: fbanta | October 22, 2010 10:43 AM | Report abuse

@Newsy97: If the automobile industry is providing an effective, efficient, and necessary role in our economy it would be self-supporting: that is the beauty of the free market system as it weeds-out ineffective, inefficient, and unnecessary suppliers.

The reality is that the UAW has destroyed productivity and cost-effectiveness so completely that the tradutional US auto can no longer compete in the real world.

Government subsidies cannot sustain ineffective suppliers indefinitely. The fact that these companies still exist should not be confused with success.

BTW we are more likely to buy higher US content in "foreign" cars made in American factories than we are from formerly 'Big 3' products built in Mexico and Canada.

Posted by: fbanta | October 22, 2010 10:54 AM | Report abuse

The gasoline engine on the Volt NEVER drives the vehicle...it is used to charge the battery to drive the vehicle.
___________________________________

This was the original PR. The Sales Pitch. In actuality, the motors NOW drive the car. This is part of what's being exposed as the fraud that the VOLT is.

Posted by: daveschauer | October 22, 2010 10:56 AM | Report abuse

If the Volt was commercially viable, the government would not need to subsidize it. It seems to me the Prius was manufactured without any taxpayer money. Why should taxpayers have to pay for the Volt, too?

The same goes for all the so-called "green" technologies that our amateur aspiring industrialist President wants to purchase with taxpayer money. Get the government out of private industry, it's incompetent and involvement will always be inherently corrupt.

Posted by: pijacobsen | October 22, 2010 11:30 AM | Report abuse

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