GM has its price
Anyone inclined to live for today without a care for tomorrow should go ahead and celebrate the resurrection of General Motors.
Its successful public offering Thursday stands as "a major milestone," as President Barack Obama put it, all the more impressive since it came so soon after the U.S. automaker faced a potential liquidation.
In the short run, the government bailout of GM worked. It saved many jobs that would have been lost, saved an icon of U.S. manufacturing and saved a lot of political fallout too.
Now comes the bill.
It's not enough merely to point out that Uncle Sam sold roughly half of its 61 percent stake at a loss Thursday. Barring a drastic and unexpected increase in GM profits, the nearly $50 billion that U.S. taxpayers poured into the company never will be recouped from selling off the remaining equity. True, the hit will be less than many analysts thought possible: To hear some tell it, a billion here and a billion there for good ol' GM amounts to peanuts in the context of $700 billion in TARP and $787 billion in stimulus spending.
The other costs, however, will be much greater, and more difficult to quantify.
Failure is supposed to be a fact of life in business. And although it gets scant appreciation these days, failure has its virtues. Like ecosystems, industries undergo cycles of loss and renewal that make them stronger in the long run, promoting efficient practices that meet the challenges of the future. We have a robust mechanism for dealing with failed companies and moving that cycle along: bankruptcy.
Instead of following the law that applies to less-favored companies, the government intervened in GM's bankruptcy and went on to pick winners and losers: GM bondholders, for instance, probably would have gotten a better deal if the Feds had let bankruptcy run its course. United Auto Workers have every reason to join hands with Wall Street traders and whoop it up: They were awarded a 17.5 percent stake that looks particularly sweet in the wake of Thursday's richly priced IPO.
The bill for taxpayers stands to keep growing. Because of special tax treatment connected to its bailout, GM can deduct its accumulated losses against future profits ? avoiding at least some obligations it otherwise would have owed had it emerged from a typical bankruptcy. That tax break reportedly could be worth as much as $45 billion over time.
It's a sweet deal for GM. Not so sweet for Ford, Volkswagen, Toyota and other rivals that stood to gain market share at GM's expense had the government let the chips fall. Normally, competitors benefit when a rival crashes. To a limited extent, the marketplace is providing a reward of its own.
In the aftermath of GM's bailout, consumer surveys show that Americans have favored Ford vehicles in part because of that company's perceived corporate self-reliance. It's a phenomenon that has not escaped the notice of manufacturing executives such as Daniel Ustian, the chief executive of Navistar International in Warrenville, which like Ford survived the downturn without a direct government bailout.
At a Tribune panel discussion Wednesday, Ustian said that car-shopper sentiment has helped level the playing field: "This has actually been a positive for Ford," he noted.
It's a small consolation from us simple taxpayers who keep getting stuck with the tab.