Rewind: GM, Bailout and Share Prices (yup this again)

**Alundil** · 05-17-11, 04:57 PM

For the primer on much of this discussion I direct you to the following thread(s):
http://www.teamplayergaming.com/news...s-history.html
http://www.teamplayergaming.com/news...ke-worked.html

Fast forward two years:
Treasury Said to Decide Against GM Stock Sale Before August as Shares Fall - Bloomberg

GM management and the Obama administration want to end the nearly two-year period of government ownership, the people said. The Treasury Department doesn’t expect to get the $44 average share price needed to break even on the $49.5 billion investment, they said. Further share sales need to average $53 a share to make up for the $33 per-share IPO price.

GM | Auto bailout | GM's profits: Nothing to gloat about | The Daily Caller

Those profits speak only to the fact that politicians committed over $50 billion to the task of rescuing a single company. With debts expunged, cash infused, inefficiencies severed, ownership reconstituted, sales rebates underwritten, and political obstacles steamrolled — all in the midst of a cyclical U.S. recovery and structural global expansion in auto demand — only the most incompetent operation could fail to make big profits. To that point, it’s worth noting that more than half of GM’s reported profit — $1.8 billion of $3.2 billion — is attributable to the one-time sales of shares in Ally Financial and Delphi, which says nothing about whether GM can make and sell automobiles profitably going forward.

To net $50 billion, those 500 million public shares must be sold at an average price of just over $53 — a virtual impossibility anytime soon. Why? The most significant factor suppressing the stock value is the market’s knowledge that the largest single holder of GM stock wants to unload about 500 million shares in the short term. That fact will continue to trump any positive news about GM and its profit potential, not that such news should be expected.

Projections about gasoline prices vary, but as long as prices at the pump remain in the $4 range, GM is going to suffer. Among major automakers, GM is most exposed to the downside of high gasoline prices. Despite all of the subsidies and all of the hoopla over the Chevy Volt (only 1,700 units have been sold through April 2011) and the Chevy Cruse (now subject to a steering column recall that won’t help repair negative quality perceptions), GM does not have much of a competitive presence in the small car market. Though GM held the largest overall U.S. market share in 2010, it had the smallest share (8.4%) of the small car market, which is where the demand will be if high gas prices persist. GM will certainly have to do better in that segment once the federally mandated average fleet fuel efficiency standard rise to 35.5 miles per gallon in 2016.

General Motors’ Debt | FactCheck.org
FactCheck.org: Would 3 million jobs be lost if U.S. automakers go under?

It would appear that the "Water" is muddier than ever and continues to be so. I still am of the opinion that the Tax Payer (read the government) had no business propping up a company which had proven, for years, incapable of properly managing its own assets.

**deathgodusmc** · 05-17-11, 05:02 PM

But but we cant let big business fall it would be the end of this country.

**CivilWars** · 05-17-11, 05:03 PM

But Barry told us it was a success...

**Alundil** · 05-18-11, 09:58 AM

According to many here in this forum, there was a very real and very definite need to bailout several companies. With one of the top priorities being GM. I recall posts along the lines of "...disastrous to the country and cost millions of jobs...." (paraphrased)

But there are more than a few well-reasoned discussions about just why that was unlikely and overblown.

We find two sources for the 3 million figure, one with ties to the auto industry and the other with ties to labor unions. Both are based on dubious assumptions.

To start, the "Big Three" U.S. automakers (General Motors, Ford and Chrysler) directly employed 239,341 persons in the U.S. at the end of last year, according to the Michigan-based Center for Automotive Research. The Big Three's suppliers employed an additional 732,800. Those jobs add to less than 1 million.

Jobs also are at risk at GM, Chrysler and Ford dealerships around the country, and at such places as the newspapers and TV stations where they advertise and the stores where auto industry employees shop. But how many depends on a fair amount of guesswork about which firms would fail and what the ripple effects would actually turn out to be, both inside and outside the auto industry.

Getting to 3 million requires us to assume that all of the Big Three fail, that all their suppliers fail as well, and a lot else besides – including an assumption that Toyota, Honda and other foreign manufacturers also shut down all their U.S. production. Some independent economists say these extreme assumptions are improbable.

**BrockSamson** · 05-18-11, 10:07 AM

It never makes sense to keep bad business afloat. When you artificially tamper with the natural flows of the economy you are going to causes problems (bailouts, subsidies, I can go on forever but I won't haha). I was never a fan of ANY bailouts by the government for any business. Unfortunately those bailout discussion were before my time at TPG. It would have been good fun

**reject_wolf** · 05-19-11, 12:06 PM

Let Ford and Chrysler remain, GM hasn't been a well run company since the 80s. The last important thing they did for the auto industry was the R&D into robots for making cars. GM thinks they'll last a while though, they just installed a brand new LED lighting system on their headquarters in Detroit at the very top of the RenCen. Looks neat but it definitely cost some bucks to do it, changes colours and even had pictures/crappy video feed on it. had to have cost quite a bit of money.

**deathgodusmc** · 05-19-11, 02:05 PM

Chrysler was right there with gm looking to be saved from certain death. Ford was the only one not to take bail out money.

On a side note crhysler hasn't produced a car worth a shit since the early 70's. They have always been plagued with transmission issues of one kind or another. Some may count the new chargers, challengers, and the cobras but really think about there product line for the last 30 years. It doesn't come as a surprise to me at all that they were in financial trouble.