General Motors’ stock hit an all-time low today of $31 and change. That’s right, “all-time.” Today’s GM is a new company that did not exist two years ago. In an effort to shed liabilities and force sacrifices from creditors while protecting the UAW, GM emerged from bankruptcy as a totally new company. The media inaccurately reported that GM had its best earnings since 1999, but it has not given a clear picture of the situation at GM. Biased media coverage is a story in itself, but let’s look at why GM has not done as well as the pundits predicted, and why it is likely to continue to struggle.
Much of the good news is behind GM
Investment banks with a vested interest in seeing GM succeed have already initiated coverage with buy ratings and rosy projections. When GM shares started to trade below the IPO price of $33, underwriters …
General Motors has been very benevolent since receiving $50 billion of taxpayer funds less than two years ago. GM, the GM Foundation and Chevrolet are donating more than $10 million towards the building of a Martin Luther King, Jr. monument in Washington, DC. Following is a list of just some of GM and GM Foundation recent giveaways.
- $40 million for “clean energy projects.”
- $4.5 million for college scholarship programs to benefit students; criteria list includes being female, being a minority or being a military member.
- $27.1 million to United Way for restructuring of Detroit schools.
- $1 million to Haiti earthquake relief.
- $70,000 to the United Negro College Fund
- $2 million to Detroit for community recreation centers near Chevy Volt manufacturing plant.
- $41,000 to groups associated with lawmakers with a $36,000 majority going to the Congressional Black Caucus Foundation.
The GM Foundation is legally separate from the company, but is fully …
The New York Times reports that the auto industry “overhaul” (AKA General Motors’ bankruptcy) is about to “pay off handsomely” for UAW workers at GM. GM, along with Ford, is expected to announce profit-sharing checks for hourly workers this month. UAW president, Bob King, states that workers expect to get a piece of GM’s profits.
There was a time when publicly traded companies were expected to deliver profits to shareholders in the form of dividends or increased share price. This model seems to have been subordinated at General Motors where the desires of politically favored union members seem to take precedence over other stakeholders. In a particularly egregious example of the wealth redistribution scheme at GM, Old GM bondholders have yet to receive their equity distribution as laid out in the bankruptcy proceeding. It is likely that additional stock offerings will dilute the bondholders’ share while their equity is held …
In the coming weeks we are sure to hear a lot of hype over the upcoming General Motors IPO. As we approach the November elections, it is a certainty that the Obama administration will tout the government intervention and nationalization of a major US industrial corporation as a huge success. Claims have already been made that the American economy and millions of jobs have been saved by bailing out GM. There are many people, including the Mom and Pop investors that financed GM through their bond purchases, who see a less savory side to the bankruptcy process and view it as a model of corruption and cronyism.
Let’s review the sordid history of the GM bailout. Well before the time of the bankruptcy filing, the executive branch of the US government unilaterally took it upon itself to bail out and restructure the American auto industry. Decisions and funding were made …