Archive for the ‘Bailouts’ Category

Sweetheart deal: Board member gets a premium priced buyback

December 20, 2012

In the private sector, this would be be grounds for a perp-walk.

But, not in government world, I guess.

The headline: GM to Buy Back Stock From Treasury

The story:

General Motors (aka. Government Motors) announced that it will purchase 200 million shares of stock held by the U.S. Treasury Department.

The auto maker will pay $5.5 billion for the shares.

The repurchase price of $27.50 a share represents a 7.9% premium over the closing price on Dec. 18.

After the repurchase, the U.S. Treasury will continue to own approximately 300 million shares of GM common stock, or approximately 19% of the outstanding shares on a fully-diluted basis.

GM expects to take a charge of approximately $400 million in the fourth quarter, which will be treated as a special item.

OK, let work through the pieces …

Even at the inflated price, since the Feds bought i at the $33 IPO   taxpayers will incur a trading loss of $5.50 per share … totaling to $1.1 billion.

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GM’s largesse in premium pricing the deal “saved” taxpayers about $400 million.

Keep in mind, this is hardly an arm’s length transaction.

And, we the people still own 300 million shares … representing a paper loss of another $2 billion.

Gentlemen start your engines …

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What did Mitt say about the auto bailout? … “Check the record”

October 23, 2012

In the last debate , Obama challenged folks to “check the record” re: what Romney said about the auto bailouts.

Ok, we did … and it’s very interesting.

Obama was talking about a 2008 op-ed in the NY Times.

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Yeah, the op-ed was titled “Let Detroit Go Bankrupt”.

That’s inflammatory since most folks think that “bankrupt” and “go out of business” are synonymous.

They’re not.

Bankruptcy is a process for stabilizing a failing company … not necessarily – and not usually – a liquidation (think practically every airline).

Romney was arguing that GM should go through the process and follow the in-place bankruptcy laws … rather than having the Feds dictate the terms for winners & losers.

What Romney opposed was dishing bailout checks … and letting taxpayers pick up the tab.

Specifically, he said “Detroit needs a turnaround, not a check. “

His plan had a couple of basic components:

  1. New labor agreements to neutralize the $2,000 per car cost disadvantage
  2. New management from best of breed non-automotive industries (think Alan Mulally – the turnaround guy that Ford got from Boeing)
  3. A new labor-management relationship … “Getting more and more pay for less and less work is a dead-end street.”
  4. A strong dealer network … “When sales are down, you don’t want to lose the only people who can get them to grow. “
  5. $20 billion in gov’t funded research … “done at universities, at research labs and even through public-private collaboration.”
  6. “The federal government should also rectify the imbedded tax penalties that favor foreign carmakers. “
  7. “The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.”

In short, “a managed bankruptcy … not a bailout check.”

No mention of letting the industry die.

Obama better hope that nobody in Ohio or Michigan takes his advice and checks the record.

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While we’re at it … yes, there were winners – mostly members of the UAW.

And there were losers like:

  • GM bondholders (think retirees and widows) whose secured loans were subordinated to the UAW
  • The 20,000 non-union Delphi salaried retirees, who lost their pensions and benefits programs as they were headed into retirement
  • The profitable GM dealerships that were closed because they spoke out against the Fed’s bailout process (I personally know the principles of one such dealership in Baltimore).
  • US taxpayers who are still holding the bag for the $25 billion bailout Source

Again, Obama better hope that nobody in Ohio or Michigan takes his advice and checks the record.

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Remember GMAC? … GM going sub-prime (again)

July 31, 2012

According to IBD

Near the end of 2010, GM acquired a new captive lending arm, subprime specialist AmeriCredit.

Renamed GM Financial, it has played a significant role in GM’s growth.

Ken’s Note: Approximately 20% of GM revenues go thru GM Financial

The automaker is relying increasingly on subprime loans.

Potential borrowers of car loans are rated on FICO scores that range from 300 to 850.

Anything under 660 is generally deemed subprime.

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So, lots of fleet sales to the Federal & Blue state governments … lots of self-financed sub-prime loans to move the metal

Cue the repo man … for the deadbeats’ cars … and the stock-sliding company.

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Note: GM shares are now about half of the IPO price.

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About that GM success story ….

May 2, 2012

Team Obama is touting the rousing success of GM. 

You know, Bin Laden is dead; the UAW is alive.

Oops, Imeant GM is alive.

Hmmm.  Let’s see …

The original GM stockholders — you know, your grandma and the pension funds — got completely wiped out.

The secured creditors got about 65% of their principal wiped out.

And privileged folks got the opportunity to buy stock in the new GM.

Those share have declined by 30% from the $33 IPO price ,,, a 50 point spread vs, the S&P 500 which increased  20% over the same period.

That’s a loss of about $16 Billion in market cap in about 18 months.

Now, that’s what I call a roaring success … many more successes and we really will be bankrupt.

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