More reasons not to buy GM

[fateexceeds]

This isn't exactly news, but is instead an excerpt from Gregg Easterbrook's weekly column for ESPN (he is a respected author and thinker and regularly discusses non-football topics in his football column):

"Creating Hummer, then structuring it as a separate marquee with all-new dealerships, rather than as something to be ordered from an existing General Motors showroom, has to number among the worst blunders in American corporate history. The separate Hummer division idea wasted $10 billion to $20 billion in GM capital, a cost now passed along to the taxpayer. Yet no one at General Motors was held accountable for this blunder. Rick Wagoner, who left General Motors last year as CEO, was the one who backed the Hummer plan, and he left with an $11 million exit bonus, provided by the federal government -- and paid for by deficit spending (that is, billed to young people). TMQ doesn't understand why there was no public outrage that Wagoner, who performed extremely poorly as GM boss, left holding an $11 million public gift, while countless average Americans are in dire financial straits.

Speaking of excesses at General Motors -- the public owns 80 percent of the company, making General Motors executive handouts a public matter -- another former CEO, Fritz Henderson, has been hired as a "consultant" at $700,0000 a year. So that he can give more of the same bad advice that drove General Motors to insolvency? That $700,000 a year is being forcibly seized from taxpayers whose median household income is about $50,000 a year. And the $700,000 a year is not for round-the-clock effort but for three days of work a month. As Viknesh Vijayenthiran notes, Henderson's deal works out to $3,000 a hour, funded by taxpayers fortunate to earn $20 an hour. Why is there no outrage?"

Here's the link to the article from which this is quoted: http://sports.espn.go.com/espn/page2/story?page=easterbrook/100420&sportCat=nfl



I, for one, am outraged and refuse to buy any GM vehicle. I also find it ironic that many Americans are frightened by socialism yet care little about the fact that we now have 2 state-owned automakers!

 

[Flash5]

thats business though, yea i hate it but theres really only so much you can do about it. GM is just one of many companies that were saved like that and itll happen again somewhere down the road. i just tell myself that this saved a bunch of factory workers jobs which is better than them being unemployed and struggling.

 

[1sty]

I also find it ironic that many Americans are frightened by socialism yet care little about the fact that we now have 2 state-owned automakers!

The people that don't like the socialist stream of government intervention are outraged by this. Its called the Tea Party, perhaps you have heard of it.

 

[Rogue]

It's my understanding, that even though the US government does own a majority of the GM's stocks, it has paid back the money that was lent to them well ahead of schedule. So that $700K isn't coming out of taxpayer pockets, but out of GM's.

 

[Dermen]

funded by taxpayers fortunate to earn $20 an hour

I find it interesting that the article makes it sound like only middle class pays taxes when people who make more than the national average pay like 90+% of personal income taxes.

 

[1sty]

Here is the way the loan works and no it is in no wa paid back. Just robbed from one coffer to fill another:
From Forbes
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, "The GM Bailout: Paid Back in Full," most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate--a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company--arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)

But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion--the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.

But wait! Even that's not the full story given that GM, which has not yet broken even, much less turned a profit, can't pay even this puny amount from its own earnings.

 

[fateexceeds]

Here is the way the loan works and no it is in no wa paid back. Just robbed from one coffer to fill another:
From Forbes
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, "The GM Bailout: Paid Back in Full," most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate--a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company--arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)

But when Mr. Whitacre says GM has paid back the bailout money in full, he means not the entire $49.5 billion--the loan and the equity. In fact, he avoids all mention of that figure in his column. He means only the $6.7 billion loan amount.

But wait! Even that's not the full story given that GM, which has not yet broken even, much less turned a profit, can't pay even this puny amount from its own earnings.

Very enlightening. I wondered how they could claim they paid the loan off early when I saw their B.S. commercial the other day.

 

[1sty]

Very enlightening. I wondered how they could claim they paid the loan off early when I saw their B.S. commercial the other day.

Same reasons their cars suck.
Marketing > Engineering / Reality.

 

[fateexceeds]

I find it interesting that the article makes it sound like only middle class pays taxes when people who make more than the national average pay like 90+% of personal income taxes.

Your estimate is fairly accurate. According to Intuit, makers of TurboTax: "The top 10% as a whole pays 71.22%, while the bottom 50% of taxpayers account for only 2.89% of all income taxes."

http://blog.turbotax.intuit.com/tax-tips/how-america-pays-taxes-vs-other-wealthy-countries/


However, regardless of your political views regarding taxation, I think everyone can agree that the wealthiest 10% of Americans can more readily afford their tax burden, while taxes place a heavier strain on the middle and lower classes; hence, progressive tax brackets.

Anyway, it is ridiculous that taxpayers are funding the bailouts of GM, et al., regardless of their respective tax brackets. I agree with the person that said it's good that the factory workers kept their jobs, but keep in mind the UAW is partially to blame for the insolvency of the automakers (for example, the extremely high legacy costs). The government should have let the market decide the fate of GM and Chrysler rather than saddling future generations with even more unnecessary debt.

 

[Kymerik]

Your estimate is fairly accurate. According to Intuit, makers of TurboTax: "The top 10% as a whole pays 71.22%, while the bottom 50% of taxpayers account for only 2.89% of all income taxes."

http://blog.turbotax.intuit.com/tax-tips/how-america-pays-taxes-vs-other-wealthy-countries/


However, regardless of your political views regarding taxation, I think everyone can agree that the wealthiest 10% of Americans can more readily afford their tax burden, while taxes place a heavier strain on the middle and lower classes; hence, progressive tax brackets.

I'll start with that final sentence then get back on point...When people think like that...the system comes to a screeching halt...which causes recessions and depressions. You cannot put that much of the tax burden on those who create the jobs. If so and so makes 10 million and you tax them to the point where they lose half their income (take fed, state and local into account) thats 5 million dollars they DONT have to put either back into the business (which arguably would earn them more money and thus earn them the pleasure of paying even more taxes) or to spend on luxury items which keeps thousands of people employed. Are multimillion dollar yachts and jets necessary? no...but that's not the point. If you flatten the tax slopes a bit, stop giving people at the bottom money they didnt earn, and STOP taxing corporations to the point that they cannot expand, hire more employees and continue to do business without raising prices through the roof to compensate, things would run alot smoother. Also, people at the bottom end, such as myself, would actually start to give a s*** where the tax dollars are going because we'd actually have a stake in the game, however minescule.

Now, back on topic...if you think about it from a purely neutral standpoint, you'd actually see the brilliance in the move by both GM and the media. You can argue that the media is being paid off to say good things about GM, but in the end, since we now own more than 50% of the company, we kinda want them to do well. Does that mean i'd go buy one, **** no...there isnt a vehicle GM sells that i'd buy...and it'd be a tough sell even if they did. But the pure brilliance of twisting facts and spewing rainbows and butterflies is enough to send shivers down my spine. Well played, but can't wait to see this house of cards fall...

 

[ForceFed]

<----Proud GM owner here.
I haveseveral GM cars and they continue to treat me right.

But I am confused on the topic here...are you upset because people who were forced out got bonus' to leave?
Lots of companies, not just automakers, give a severence Package...which is what I would consider that IMO.

 

[ForceFed]

Same reasons their cars suck.
Marketing > Engineering / Reality.

I beg to differ...In the last few years, I would gladly drive most of what GM produces. They have gotten much better styling, fit and finish....Nearly on par with their Asian counterparts, and the fuel milage has definately gone way up.
I think GM has taken Great leaps and bounds to come back as a profitable company which is only good for our economy for the number of people and companies here with ties to them.

 

[Dermen]

I don't think I would buy any GM car our right now. The Cruze looks very interesting though.

As for the taxes I wasn't trying to start a debate about how taxes are paid, just that the article makes it sound like GM is taking all this money from people just barely scraping by when that is not true.

 

[keymaster]

I'll start with that final sentence then get back on point...When people think like that...the system comes to a screeching halt...which causes recessions and depressions. You cannot put that much of the tax burden on those who create the jobs. If so and so makes 10 million and you tax them to the point where they lose half their income (take fed, state and local into account) thats 5 million dollars they DONT have to put either back into the business (which arguably would earn them more money and thus earn them the pleasure of paying even more taxes) or to spend on luxury items which keeps thousands of people employed. Are multimillion dollar yachts and jets necessary? no...but that's not the point. If you flatten the tax slopes a bit, stop giving people at the bottom money they didnt earn, and STOP taxing corporations to the point that they cannot expand, hire more employees and continue to do business without raising prices through the roof to compensate, things would run alot smoother. Also, people at the bottom end, such as myself, would actually start to give a s*** where the tax dollars are going because we'd actually have a stake in the game, however minescule.

The only flaw in your reasoning is that what was arguably the most profitable period of American history, when the economic and technological power of the US expanded greatly, was also the same time when the upper income tax bracket was taxed at 75-90%: the '50s and '60s. This was also a time when business owners only made 30-40 times the wage of the lowest employee in the company, where it's 300 or more times that now. The rich have gone from getting rich as a side product of doing business to getting rich being the only product that matters. And, their money and influence is all out of proportion to the rest of us...the rich can get Congress to put things into laws that give them an advantage.

But, the rich in the 50's and 60's fought WW2, while the rich now are their greedy children...too bad those kids took the wrong lessons to heart from their parents.

As to GM, there are a couple of interesting things they are doing now, and it seems like they got the message that they have to do better. The question is if quality will remain important to them, but we'll just have to wait and see about that.

 

[fateexceeds]

If you flatten the tax slopes a bit, stop giving people at the bottom money they didnt earn, and STOP taxing corporations to the point that they cannot expand, hire more employees

Those are some points I can agree with.

Also, while we in the US have some of the lowest income tax rates in the world (regardless of bracket), we do have one of the higher corporate tax rates in the world (thus why many American businesses head overseas, in addition to cheaper labor).

 

[1sty]

two other factors need to be tossed into that mix.
1. What is the least amount someone makes in a country before they are not taxed at all.
2. What percentage of people in that country fall into this category of not paying income taxes.

In the US, its over 50%.....we're screwed.

 

[fateexceeds]

<----Proud GM owner here.
I haveseveral GM cars and they continue to treat me right.

But I am confused on the topic here...are you upset because people who were forced out got bonus' to leave?
Lots of companies, not just automakers, give a severence Package...which is what I would consider that IMO.

I understand the concept of a severance package. The point is, companies, especially publicly owned companies like GM, should not be giving millions of dollars to executives who drove their companies into financial ruin by making disastrous business decisions. GM wasted millions of tax-payer dollars paying bonuses to the very people who created the problems! It's the same situation as with AIG and other financial companies that received bailouts.

The other source of ire is the fact that the US is essentially becoming socialist in its practices; state ownership of major industries, like banking and auto manufacturing, is a hallmark of socialism and will only continue to open the door for more big government, excessive deficit spending, and the resulting problems. We're mortgaging the future, and no one is being held accountable. Our children and grandchildren will be the ones to feel the brunt of these mistakes.

 

[Mallard]

I understand the concept of a severance package. The point is, companies, especially publicly owned companies like GM, should not be giving millions of dollars to executives who drove their companies into financial ruin by making disastrous business decisions. GM wasted millions of tax-payer dollars paying bonuses to the very people who created the problems! It's the same situation as with AIG and other financial companies that received bailouts.

The other source of ire is the fact that the US is essentially becoming socialist in its practices; state ownership of major industries, like banking and auto manufacturing, is a hallmark of socialism and will only continue to open the door for more big government, excessive deficit spending, and the resulting problems. We're mortgaging the future, and no one is being held accountable. Our children and grandchildren will be the ones to feel the brunt of these mistakes.

The thing is, this 'government ownership of major industries' is only a stop-gap measure that was used in order to prevent a complete collapse of the US ecomony. The governemet has no intention of retaining ownership of these companies and they are staying out of their day-to-day operations. After seeing the analysis of how many job's would have been lost due to a collapse of the auto industry alone, you would have done the same thing. Same thing if the banks went under, no small business would be able to operate, millions of jobs would be lost, <insert cascading effect here>.

Politically it's a lose-lose situation. If you bail them out you could save millions of jobs and prevent a massive depression, but critics will call it socialism. If you let them fail there will be massive unemployment and people will look to the governemet for help, and ask why they didn't do anything to prevent what they saw coming.

 

[1sty]

<insert cascading="" effect="" here="">


The problem is that pushing debts of dieing company back to the federal level which is incredibly inefficient and slow to act; takes a bad problem and can make it epic. After all the money the US government doesn't have that it is spending makes GM debts look like my credit card statement.

Do you happen to know the estimated time frame in which the US will sell off its shares in GM and at what profit/costs?
Or what the interest payments on the US bonds/loans will be to generate the capitol to have bought this stock in the first place?
Remember that the loan amount is a small fraction of the total capitol spent to bail out GM, the majority of it was in stock.

Realistically, that sell off could be years to decades as if GM doesn't show it can make it, selling shares will tank their stocks even more and will cause the company to go under all over again. So the only way this will work out is if GM can drastically alter its cost structure and start competing with not only Honda, Toyota, and VW; but they have Hyundai to catch up to as they are starting to kick everyone's ass in profitability. Now if you think they can make those changes without paying the best engineer and executive what they are worth, including bonuses, then you are delusional. People who are worth millions to a company dont work for free. Structure of bonuses is another issue altogether but if a VP is in charge of a prodject that save the campany money and makes cars better, why should they not get a bonus just because union benefits, previous model recalls, and intrest owed on loans makes the company lose money overall?

Sheer volume of units sold is a worthless number if you are giving things away with rebates and then having to recall them as well. Investors need to see profits.


In my honest opinion, the US having to buy GM means it should be killed, cut up, and parts sold to the highest bidder. So if you can get Honda or Hyundai to want a plant or two then so be it.
If the union wants to keep their labor rates and benefits which stops the deal then they dug their own grave, so screw them. The work can instead move to people in a non union captive area.
It better to get the works income taxes then the non existent company taxes as the company isn't making any money anyways.


</insert>

 

[fateexceeds]

Now if you think they can make those changes without paying the best engineer and executive what they are worth, including bonuses, then you are delusional. People who are worth millions to a company dont work for free. Structure of bonuses is another issue altogether but if a VP is in charge of a prodject that save the campany money and makes cars better, why should they not get a bonus just because union benefits, previous model recalls, and intrest owed on loans makes the company lose money overall?

I have no problem with executives getting bonuses they deserve. My problem is with the fact that these particular GM executives that are getting bonuses are the very executives who made the terrible business decisions that helped necessitate a government takeover. They've been rewarded handsomely for their ineptitude at tax-payers' expense.

Sheer volume of units sold is a worthless number if you are giving things away with rebates and then having to recall them as well. Investors need to see profits.


In my honest opinion, the US having to buy GM means it should be killed, cut up, and parts sold to the highest bidder. So if you can get Honda or Hyundai to want a plant or two then so be it.
If the union wants to keep their labor rates and benefits which stops the deal then they dug their own grave, so screw them. The work can instead move to people in a non union captive area.
It better to get the works income taxes then the non existent company taxes as the company isn't making any money anyways.

All this I agree with. Allowing other automakers to buy up the parts of GM could also preserve many of the jobs.




Also, I don't know if everyone realizes that the US government isn't the only government that owns part of GM - Canada also gave GM a (much smaller) bailout via loan and stock purchase. I believe the US owns 61% of GM, and Canada owns 12%.