Thursday, August 16, 2012

"Wait. We bailed out these guys, also?"


Remember, gang, General Motor's sagging fortunes aren't just a result of weak sales here stateside; they've got an entire European operation that is an additional millstone around its neck.

Three years into their forced marriage with GM, the American taxpayers have seen the value of their investment in GM deteriorate by approximately $24 billion, largely due to continuing European losses. Exposure in Europe has contributed to crushing the value of GM's stock due to its chaotic and failing Opel unit in Germany. While government, journalists and Wall Street sympathizers have given the Obama Administration and GM leadership an almost incomprehensible pass on this value destruction and massive loss (presumably due to the macro-economic nature of the crisis), it's time to call for the accountability that this new Board was supposedly going to deliver.

At one time, General Motors had an opportunity to sell off GM Europe so they could consolidate, trim some non-essentials, focus on core competencies, you know, the stuff that corporations do when they are in bankruptcy. Didn't quite happen that way:

Overlooked is the value-destroying, cash-sucking disaster that is GM Europe was packaged and ready for sale to new European buyers in 2009 before the new Obama GM Board of Directors slammed the brakes on the deal, throwing GM into its current value free-fall. In fact, the decision to not sell the Opel operations (which has not been profitable for more than a decade) in 2009 after GM cleared bankruptcy was the very first major decision of the new Obama Board. Had Opel been sold, GM stock would be much higher than it is today.

So, we weren't merely content to bailout an under-performing U.S. manufacturer, we were going to bail out those of Europe as well.

But the "new and improved" Obama Board of Directors, working mostly at the persistent lobbying and urging of the UAW's appointee, Steve Girsky (in photo), were naively convinced that Opel was simply a rough jewel in need of some new leadership (Opel fired its third leader in as many years a few weeks ago) and TLC from the brain-trust in Detroit. With his persuasive lobbying, the union's man Girsky convinced all but two of the Board members to vote to ditch the planned sale and hold onto this "gem" that has now contributed to the loss of about $24 billion of the American taxpayers' forced investment. Beyond the sheer magnitude of the value losses, fixing Europe has become an all-consuming distraction that is draining GM of vital and scarce resources.

Linked article describes how GM CFO Dan Amman hemmed and hawed during last quarter's earnings coference call and never came clean with respect to how much American taxpayer money was going towards the failing Opel and Peugot operations.

Your anger would be totally understandable given that a public-private entity is mum on how much of your scratch is being thrown around an entirely different continent let alone here in our own backyard.

So, with such dismal news for General Motors, what's in the offing? Another bailout?

President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

This wouldn't surprise us. If their bailout efforts failed the first time around, by their reckoning, a second bailout is fully warranted. We hate to say it, but contrary to what you may have been told, these aren't terribly smart people. They just aren't. Smart people learn from their mistakes and there has been nothing in these last 3-1/2 years that has demonstrated that they have learned anything from their miserable failures in the U.S. economy.

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