Cash For Clunkers 2.0; General Motors – A Federal Government and TARP Success Story?

December 26, 2010

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By Pete the Banker

The Administration and Treasury have been promoting GM as an amazing success story due to the Federal Government’s involvement and TARP. Yet prompting GM’s “success” is nothing more than the Federal Government’s acting as owner, manager, financier, and biggest consumer.

GM was reputed to have paid off all their debt in record time, in April, 2010 or at least according to Media headlines. Others including Inspector General Barofsky suggested the assertion was premature.

More recently with the approaching of the initial public offering (IPO), we were suddenly informed through the same Media that the Government was still due some $50 Billion through their GM stock and debt holdings. Was the disclosure last Spring simply a minor oversight by the Media and then GM CEO Ed Whitacre?

And GM is now profitable with its latest quarter profit of $2B; its first profit in five years. An amazing accomplishment, even given cost reductions associated with the eradication stockholders’ and diminution of bondholders’ interests. And GM products are flying off the showroom floors like hot cakes. Well, at least heavy pickup trucks and older models are flying out of the showroom floors.

The much heralded and under achieving Chevy “All Electric” Volt which has been promoted to get 93 miles per gallon (down from 230 mpg last year) hasn’t received tremendous public reception yet. And well the Volt, despite GM’s assurance, is not quite “all electric”, nor quite all that energy efficient. So why is it surprising it hasn’t garnered much consumer enthusiasm. Rumors suggest however that the nascent demand on the highly touted Chevy Volt and other “hybrids” is likely to be reversed when a major fleet buyer swoops in to buy the unpopular vehicles.

And that rumored buyer is none other than the Federal Government.
“U.S. sales of hybrids are projected to decline for the third year in 2010, and will account for less than 3 percent of all auto sales. For American automakers, the news gets worse: More than half of all those sales were Toyota Prius’, and Uncle Sam bought almost a fourth of the GM and Ford Motor hybrids, according to government data obtained by Bloomberg News.” And what will be the ultimate taxpayer cost incurred by the purchases and reduced productivity inherent in the Volt?

And while GM and the Administration seemed to assure us that the Government was paid off six months ago, the recent IPO raised some $13.7 Billion in equity funds and another $9.5B in debt of the remaining $50 Billion still owed to the Treasury by GM?!? The United Autoworker’s Health Care and Pension Trust Fund also received $3.4 Billion.

So now the Administration, the Treasury, and General Motors are all now touting the IPO and Government rescue as an outstanding success? Yet GM has misled about Spring payoff of debt obligation to the Federal Government. GM has misled about the all “electric” Chevy Volt and 93 mpg (assumes multiple battery recharging stops at 4 hours each). GM’s first profit in five years is not because of their new “green” product line which wasn’t readily pointed out by the company. GM’s “success” in new compacts and hybrids sales depends on major fleet orders from the Federal Government again bailing out GM at American taxpayer expense.

GM still owes the US taxpayer nearly $30 Billion after the IPO, with the Federal Governments equity stake in GM still accounting for 33% of GM’s outstanding stock. So is this truly a success story? Or do you suppose that GM, the Treasury and the Administration are guilty of using deceptive sales practices with the general investment public in their disclosures about the success of GM’s marketing, sales, and financial initiatives as well as the quality/consumer reception of their new products like the Chevy Volt?

Where is the outrage from Attorney General Eric Holder, Consumer Advocates and the reigning Democrat House and Senate Committee Chairs? Where were the calls for Congressional investigations? So why isn’t the FBI raiding the offices of GM, the Treasury and the White House for deceptive sales and securities practices? After all the FBI is raiding Hedge and Mutual Funds for violating insider trading laws. And how much future cash will taxpayers’ be called upon to pump into GM to save it and its new poorly conceived product lines supported by Federal Government fleet purchases?

See also, Dec 27, 2010 Wall Street Journal Car Dealers Hope for a Year-End Bump

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