On the GM Bankruptcy

Jun 1st, 2009 by Taliesyn in American, Canadian, Economics, Politics

Here are a number of things wrong with the GM bankruptcy and bailout package:

  • The Canadian Taxpayer is putting in $10.5 Billion, which the government now admits we will likely never recover.
  • In return we get $1.7 Billion in GM debt (so they owe us MORE money), and 12% of the stock in the company (which is essentially worthless)
  • The deal is going to force GM to maintain 19% of it’s North American automobile production in Canada, regardless of whether that is the best business decision…  This sounds like a good way for an activist government to screw GM again later.
  • Governments (Canada and US) will select all but one of the board of directors.  And the UAW gets to pick the final one.  And none of those three groups has any clue how to run a business…
  • The deal that sold Opel to Magna (and Sberbank) prevents them from competing in North America – that sounds like a questionably legal cartel arrangement, but with government support it will survive.

One guy who has written some good stuff on this is Keith Hennessey.  His post today has some good ideas.  I don’t agree with everything he has written, but this was particularly good:

I urge the President to:

  • Enshrine the principles from today’s fact sheet in the term sheets for the taxpayer investments in GM (and other firms). We did this last December in the GM and Chrysler term sheets. Tie yourself to the mast. This will give you an easy excuse later when someone pressures you to vote those shares in a way that conflicts with the taxpayer’s interest.
  • Set clear rules for Administration contacts with GM – it’s probably best to funnel all contacts through specific Treasury or NEC officials on the autos task force.  No freelancing phone calls to the Administration-appointed directors or “informal chats” with them from White House staff, or from DOT, EPA, USTR, DOE, even State.  Put a firewall around interactions with GM.
  • Come out hard and quickly against the first proposal from a Member of Congress to leverage the ownership stake for a non-taxpayer goal.  Nip it in the bud, especially if the idea comes from a friend.

I would have let GM fail in spectacular fashion – because the government shouldn’t be in business at all.  And if GM had been allowed to collapse it might have taught the rest of business world a real lesson in caution.

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