Unfair Advantage – Treasury Department Still Owns GM
Tim Esterdahl | Jul 18, 2012 | Comments 10
There has been a lot of news lately in regards to the Governments involvement in General Motors and the bailouts of the auto industry. China has claimed unfair trade practices and have increased tariffs on imports. Plus, there have been calls during the 2012 presidential race for the Treasury Department to sell all the shares it owns. What should the Obama Administration do?
A big controversy a few years ago, the U.S. Government's ownership of General Motors is fueling some presidential race debate.
During the recent economic collapse, the federal government invested in General Motors and Chrysler (Ford was the lone automaker not taking a bailout). The auto industry bailouts had and continue to have critics. The premise was that unless the government stepped these large, international companies would fail causing millions more lost jobs. So, the federal government stepped in, bailed them out and keep both companies in business. This resulted in a new phrase in our vocabulary, “too big to fail.”
Following this bailout, China has since decided to increase tariffs on automobile imports from the United States. China’s thinking is that since the U.S. Government is helping prop the companies up, that is causing an unfair advantage to their automakers. The Obama Administration has gone so far as to condemn the tariffs and has since filed an appeal to the World Trade Organization. According to an Autoblog.com story, “The duties cover around 80-percent of the vehicles imported from the U.S. and are expected to cost U.S. automakers $3.3 billion. Interestingly enough, General Motors and Chrysler vehicles face higher tariffs than those of other automakers due to the government bailout those manufacturers received under presidents George W. Bush and Barack Obama.”
It is a bit hypocritical that China would feel this way after their has been controversy for years about how the Chinese government allows their automakers to build vehicles that are nearly identical to other manufactures (see: Ford F-150). They are upset that the U.S. Government would help big business stay in business yet they allow all sorts of copyright infringement.
Beyond the trade issue, is that question of “What should the Treasury Department do now?” The thought process when they bought GM was that they would trade the investment into shares. This is pretty much what has happened and the Treasury Department (We) own 30 percent of General Motors and 74 percent of Ally (once known as GMAC, the financing arm of General Motors). The current plan is that the Treasury would like to sell these shares at $52-per share according to an Autoblog.com story. The problem is that the share price is currently hovering around $20 a share. The Treasury claims that the company is undervalued by the market and the share price will come up. They made that statement two months ago.
And don’t even begin to wonder what the Treasury will do with Ally. The firm has paid back $5.4 billion on the TARP loan and filed paperwork for an IPO. Sounds great except there currently isn’t any planned date for an offering and Ally has currently no idea if/when it will pay back the rest of the loan.
The question that many Americans/The World is wondering is how long will the U.S. Government own General Motors. It is a catch 22 in some ways, if the Treasury sells now, we (taxpayers) lose billions. If we buy General Motors products to increase the stock price, we create an unfair advantage to other makers like Chrysler, Ford, Toyota and Honda. Who knows what ripple effect that would cause, i.e.; Japanese Government buying into Toyota to help them lower purchase prices to compete.
While secretly Toyota Tundra owners like watching the “other” guys stumble and their truck come out on top in quality surveys and sales reports, the ironic part is that American taxpayers need General Motors to succeed, so we can get out. The quickest way for GM to succeed is through North American truck sales that are very profitable to automakers. The big question then is “Will the new Chevy Silverado/GM Sierra and Chevy Colorado/GM Canyon help GM succeed or will we be stuck waiting for GM to come up with something else?”
What do you think? Does the Government’s ownership of GM tempt you to buy a GM product? Do you think new GM products are the answer?
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Filed Under: Auto News
I am staying far away from GM products as possible! As long as the government has a share in them I want nothing to do with GM. I have too hard of a time trying to figure out things the government runs RIGHT to have any faith in them running a business. Staying with Toyota.
I had a chance to buy another GM product and chose not to for couple of reasons.
First, well, their 1/2 ton trucks are way inferior to Toyota.
Second, who knows what will come of the investigation into the rusting brake lines. I suspect that “outcome” will be deferred until the government’s bailout money is paid in full. Here’s a reminder of the problem: http://wheels.blogs.nytimes.co.....ake-lines/
Third, GM should be forced to sell foreign interests and pay back our government. The sooner the better.
Oh, one more thing: it would be really interesting to know if GM used the same supplier as Ford did that lead to the recall of Ford’s rusting gas tank straps. I ask because my former GMC Sierra had the same problem.
What, hasn’t GM paid back 100% of their bailout money yet?
If not, which I am pretty sure is the case, how can GM record profits the past few years? Shouldn’t the government step in and demand the profits go towards the bailout money?
Haven’t bought a GM since 2007 and not planning on it until they come out with a better product and preferably until all 100% of the money they borrowed is returned to us.
Only problem with this thinking like so many have still is if GM fails and no one buys their vehicles, we are in the same boat all over again and I am sure a govt. bailout will NOT be happening a 2nd time around.
GM has paid back their bailout LOANS. But not all of the bailout money was in loans. A good portion of it went to purchase 60% of GM as part of the restructuring. Now, half of that was liquidated as part of the IPO, I believe. But the US government still owns 30% of GM. This isn’t a matter of GM “repaying” the loan; this is a matter of the US government selling their SHARES of GM at a profit. Regardless of how profitable GM might be right now, their share prices are still down, so if the US sells their shares they will lose money on the bailout.
Jeremy,
You’re comment reinforces the point I was trying to make in the article. The ultimate question is when does the Government sell its shares.
-Tim
I will not under any circumstances buy another Government Motors product in my lifetime. An operational definition of corruption is when the regulating authority has a vested interest in one of the market players. Consequently, the USFG owning a large percentage of one of the automakers AND regulating them all is corrupt at its core. It is the very definition of an unlevel playing field. One has to wonder about how much the (eventually found untrue) problems Toyota had with random acceleration would have been played up had the USFG not had an incentive for competition to fail. That’s even ignoring the underhanded way the original bond holders were screwed over by the USFG in their takeover of GM.
If you watch GM commercials now they are boasting the best sales ever in the company. Now since you are selling the most vehicles where is the govt. payday GM?
Not to mention the brake line issues on there new Silverado. Tried to tell son-in-law to get a Tundra but he insisted on a Silverado. Well $2,100 later and two failures that left him on the side of the interstate made him finally see the light. Especially since both just happen when he reached over his standard mileage warranty. Now he’s getting a Tacoma. Some people take a little more to learn. I guess his wallet wasn’t as big as he thought.
LOL – I like that line “I guess his wallet wasn’t as big as he thought.” I’m gonna use that. 🙂
I agree with many of you about not buying a GM made product.
That also goes for Chrysler
While these two companies cried and got a bailout from Uncle Sam they closed plants here in the US. Laid off workers her in the US. All the while they ramped up production in Canada and in Mexico. When GM and Chrysler announced they were hiring or rehiring workers they have not slowed down production in Canada or Mexico.