Wednesday, September 09, 2009

Government Motors, Government Housing, Government Healthcare

Government blabbers are preparing the public for the inevitable. What's that? The announcement informing the taxpayers about the New GM failing to repay the its bailout money. Of course that is only the start. The administration will probably whisper -- only if asked -- about the pension and healthcare benefits of the United Auto Workers that have been shifted to taxpayers.

Management at the New GM may have dreams of repaying the borrowed funds. But the new smaller company with its new smaller revenue stream and the high prospect of disastrous failure for the Chevy Volt, GM's electric vehicle that will sell like the Edsel, is likely to doom all possibilities of repayment.

The Obama administration hopes to recoup the cash given to GM with a sale of stock. Why would investors by the stock of the New GM? As with any company hoping to attract investors, GM must tell a convincing tale of a bright future.

Well, what lies ahead for GM? For starters, an extraordinarily competitive car market. Has the new GM got the goods? Or is the new management offering hype? Too soon to tell. The company seems to have a couple of good models in its portfolio. Is that enough to drive the value of GM's equity to a record high? Not too likely.

If the company lacks enough winning designs, lacks effective marketing, lacks sufficient quality and lacks the power to price its products competitively, is it possible for its stock to soar as high as the Obama administration dreams?

Is it possible for the New GM to pound out a reliable income stream like the tobacco companies? Philip Morris sells cigarettes to addicts. Business is good, but the number of customers is unlikely to grow much. However, investors enjoy big dividend payments. Meanwhile, the government receives huge tax payments from the tobacco companies and huge payments of sales taxes from smokers.

If only smoking was good for your lungs. But, that's another problem for voters and taxpayers. Too bad for GM that it has none of the aspects of tobacco that keep tobacco stocks afloat.

Creeping governmentalism. What's next? Housing. When will legislators decide it's time to relieve the private sector of the burden of foreclosed homes? Will taxpayers get the bill for the collapsed housing industry like they have been handed the bill for the collapsed auto industry? Cash for Clunkers was hugely popular. Has anyone in Washington begun to fantasize about Bucks for Buildings? Dollars for Domiciles?

As painful as a housing plan may be, it will cost pennies compared with the coming healthcare crusher.

Taxpayers face heavy losses on auto bailout

Taxpayers likely to face significant losses on $81 billion auto bailout, watchdog report says

Wednesday September 9, 2009

WASHINGTON (AP) -- Taxpayers face losses on a significant portion of the $81 billion in government aid provided to the auto industry, an oversight panel said in a report to be released Wednesday.

The Congressional Oversight Panel did not provide an estimate of the projected loss in its latest monthly report on the $700 billion Troubled Asset Relief Program. But it said most of the $23 billion initially provided to General Motors Corp. and Chrysler LLC late last year is unlikely to be repaid.

"I think they drove a very hard bargain," said Elizabeth Warren, the panel's chairwoman and a law professor at Harvard University, referring to the Obama administration's Treasury Department. "But it may not be enough."

The prospect of recovering the government's assistance to GM and Chrysler is heavily dependent on shares of the two companies rising to unprecedented levels, the report said. The government owns 10 percent of Chrysler and 61 percent of GM. The two companies are currently private but are expected to issue stock, in GM's case by next year.

The shares "will have to appreciate sharply" for taxpayers to get their money back, the report said.

For example, GM's market value would have to reach $67.6 billion, the report said, a "highly optimistic" estimate and more than the $57.2 billion GM was worth at the height of its share value in April 2008. And in the case of Chrysler, about $5.4 billion of the $14.3 billion provided to the company is "highly unlikely" to ever be repaid, the panel said.

Administration officials have previously said they want to maximize taxpayers' return on the investment but want to dispose of the government's ownership interests as soon as practicable.

"We are not trying to be Warren Buffett here. We are not trying to squeeze every last dollar out," Steve Rattner, who led the administration's auto task force, said before his departure in July. "We do want to do well for the taxpayers but the most important thing is to get the government out of the car business."

Greg Martin, a spokesman for the new GM, said the company is "confident that we will repay our nation's support because we are a company with less debt, a stronger balance sheet, a winning product portfolio and the right size to match today's market realities."

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