Wednesday, May 27, 2009

Government Motors Wheels and Deals

GM and the UAW apparently made a deal yesterday. There were some choice quotes including:

--- "GM and the United Auto Workers have agreed to a new restructuring plan that would give the union a significantly smaller stake in the company than previously envisioned, and leave the U.S. government owning as much as 70% of the car maker.... An earlier revamping worked out by the Treasury Department and GM would have given the union 39% and the government 50%."

---"Concerned that GM's viability was based on an increasingly unlikely U.S. auto-sales rate of 10 million vehicles a year, the UAW instead sought the preferred stock that will pay out a $585 million annual dividend. The fear at the UAW was that ownership in GM could eventually be worth very little," said a person involved in the talks."

--- "In return, the Treasury could demand up to 70% of the company's equity, said people familiar with the matter. The funds would, in effect, be a big bet by the government that GM will be successfully reorganized."

--- "The Treasury is portraying itself as an unwitting majority-owner-in-waiting of GM -- the only lender able and willing to put forward the huge sums necessary to rescue the company, but a player that has no intentions of directly guiding the company once it emerges from bankruptcy. 'We are reluctant, involuntary shareholders in this case,' said one person involved in the discussions."

If ever there was a recipe for billions and billions of dollars to be wasted this is it. GM will get money from a new owner with a seemingly endless supply of cash. However, that owner will not actively manage or even guide the company. So who will? I pity the CEO who has to make hard decisions moving forward. Finally, GM's workers opted for cash via preferred stock because they don't seem to believe the company will have any long term value. It's not often that I wholeheartedly agree with the UAW. To quote Winston Churchill, "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." The Government Motors saga is a work in progress and will go on and on. And on. And on.

Ultimately, it's the workers and especially taxpayers who get left holding the bag on this one. Meanwhile, Obama will say lots of words, with lots of adjectives, and talk about responsibility and hope, followed by more words with more adjectives. I guess he's doing the best he can? It's still all Bush's fault, right?

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