Obamanomics
The Devil is in the Details

So, now we have the “new GM”: Government Motors. The largest industrial manufacturer in the history of the US is in bankruptcy. And, when it emerges from Chp 11 reorganization, you and me, the American taxpayers will be the largest shareholders. Next will be the UAW. To get the “new GM” out of bankruptcy will cost another [conservatively] $50B and if one adds up all the cash poured into GM by all parties there will be a $100B price tag!

In its heyday, the “old GM” had a max capitalization of around $60 B. So, it appears that it will have to be fantastically successful for you and me to get our investment back. The POTUS says he wants to begin having the “government” [you and me] get out of its investment in 18 months. Good luck! The government has never run any venture successfully [Say: USPS]. And, the union has never been interested in business ownership because that is at cross purpose with their vision: labor, not ownership, should benefit from the business. As I have written before in this space…it will be interesting to see how this unfolds.

While there have been some hard decisions made that management and labor failed to do over the past twenty years, as my mother used to say “the devil is in the details.” First detail, the UAW has no change to current wages, benefits or pension plans. The “new contract” they negotiated with the US Treasury is re-negotiated in two years just in time for the re-election bid of the POTUS. Do you think that renegotiation will benefit the government owners [you and me] or the union owners and workers?

Second detail, part of the reorg plan is to sell Opel. But, it is a sale with a condition that the buyer cannot compete with the small Opel cars in the US or China. It is sort of the opposite of Chrysler/Fiat where Fiat was needed to provide Chrysler with needed small car technology. Detail three, closely connected with detail one and two, the cars now manufactured by GM overseas, the little green ones, cannot be imported to the US. The upshot of the whole matter is that the “new GM” will have to retool what factories are left to build new little green cars in the US without benefiting from already available little green overseas produced cars and without competition from Opel. How convenient for the workers…they will be guaranteed jobs to build the “new GM’s” new fleet! [Repeat Q. at the end of the forgoing paragraph.]

While the administration says it is not interested in managing the “new GM”, it has already fired the previous CEO and has guaranteed the head quarters will remain in Detroit. Not exactly passive ownership positions. This whole matter of “to big to fail” has lead us to a debacle of enormous scale. Debt owners all over the world have had their “priority claims” crammed down their throats. This includes small potato investors worth less than a million dollars who had $ in GM debt as a “safe, non risk investment”. Thousands of dealers have been shut down affecting thousands of jobs in towns and cities, small and large, throughout the land. There is a push to reformulate the auto business in the US moving the country to manufacturing of little green cars that we are not sure the consumer even wants.

All that is left of the old GM is…well…the UMW. The workforce, albeit smaller, soldiers on knowing it will have jobs at least for a while longer. As long as the taxpayers do not revolt and the administration needs to be re-elected, the “new GM” will be the poster child of a planned economy. Keep your eyes and ears open about the next big program to keep the “new GM” operating even if it cannot compete in the market place. The devil will be in the details.