General Motors, which only a few short months ago President Obama considered too big to fail, has failed anyway. It took $20 billion in taxpayer money down with it before finally being forced into the second largest industrial bankruptcy on record. And there will be at least another $30 billion in government aid to come. If this is the way the company will be managed from now on, politically correct Edsels will soon be rolling off Obama Motor’s newly reorganized assembly lines.
The White House’s initial insistence that GM not be allowed to go bankrupt, followed by its unprecedented takeover of the Detroit automaker, sends confusing and contradictory signals. GM’s bailout was supposed to protect jobs, but 120,000 factory and dealership positions will be eliminated under the bankruptcy. Obama insisted he had “no interest” in running the struggling automaker, but under the terms his auto industry task force imposed on GM, the federal government now has a 60 percent stake. Repeated White House declarations to the contrary notwithstanding, it’s been clear who was in charge since the day Obama fired former GM CEO Rick Wagoner.
The market has already figured out that union-friendly federal bureaucrats won’t rein-in the excessive labor costs that crippled GM for decades. GM stock is down to 75 cents a share from $90 less than a decade ago, and the firm once known as the world’s largest corporation has been removed from the 30 blue-chip stocks used in the Dow Jones Industrial Average. Stockholders have been wiped out, with bondholders faring only slightly better after being forced to write off $27 billion.
Only Washington politicos and United Auto Workers (UAW) union officials in Detroit think new investors are going to step up to help Obama Motors, especially given that the company’s new Chevrolet Volt electric vehicle will cost about $15,000 more than the popular Toyota Prius. A major reason the Volt will cost so much more is the government-mandated labor agreement that leaves the UAW’s excessively generous compensation package mostly in place. That and a $13 billion gap in GM’s underfunded pension fund will keep the company’s head under water for years to come.
Allowing GM – and Chrysler – to go bankrupt back in December before billions of tax dollars were thrown at the two firms as they were effectively nationalized would have saved taxpayers billions. It also would have sent a much more positive message than the current one coming from Washington: “We Subsidize Failure.”
