GM has its price
11:36 AM CST, November 19, 2010
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
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.
"I have tried to live my life so that my family would love me and my
friends respect me. The others can do whatever they please."
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