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So How Is That Government-Run Auto Company Working Out?
Posted By Mike Brownfield On April 7, 2010 @ 4:00 pm In Economics | Comments Disabled
It’s been nearly a year since the Obama administration took the reins of General Motors, and if today’s headlines are any indication, things aren’t looking good for the troubled Detroit auto maker.
First off, GM just isn’t making money. It posted a $4.3 billion loss for the second half 2009  – far from profitability, far from a government-led turnaround. The company claims it has a chance of “achieving profitability” in 2010, but keep in mind that GM is $50 billion in the hole to the American taxpayers, who paid for a bailout in 2009.
And those taxpayers can’t recoup their losses until the U.S. investment in GM is sold, which won’t happen until someone actually wants to buy the company. With $4.3 billion in losses, don’t expect buyers to come running anytime soon.
There’s more bad news for GM. The company is saddled with massively underfunded pension plans , and it needs to come up with $12.3 billion in payments into the plan within the next five years. According to a government report released yesterday, it’s uncertain whether GM will be able to make that payment. That’s not a hard conclusion to reach given today’s reported $4.3 billion in losses.
More bad news for Americans. As The New York Times reports , “If either company’s plan [Chrysler or GM's] must be terminated, the government would become liable for paying benefits to hundreds of thousands of retirees.” That’s 650,000 GM retirees, to be exact.
But wait, there’s more. Enter the United Auto Workers, which yesterday sued GM,  claiming that the company owes a union-run health care fund $450 million.
If you add it all up, that makes for a lot of financial obligations for a company that is already well below water, to the depths of about 20,000 leagues under the sea.
So what happens if GM doesn’t make a profit and all of these liabilities end up sinking the company? More from The New York Times on the government report issued Tuesday:
In the event that the companies [Chrysler or GM] do not return to profitability in a reasonable time frame, Treasury officials said that they will consider all commercial options for disposing of Treasury’s equity, including forcing the companies into liquidation.
In other words, back to square one – an unprofitable company overburdened with expenses, in need of a government bailout.
Last year, we wrote that the federal government’s ownership of GM was the wrong approach , and that it necessitated an exit strategy for the American taxpayer. Given where GM is now, an exit strategy would have been a good idea.
In April 2009, President Barack Obama said , “I don’t want to run auto companies. … I’ve got more than enough to do.”
At the time, GM was broken. Under President Obama’s leadership, the American taxpayer bought it. And all indications are that it’s not getting fixed anytime soon. Buyer’s remorse, anyone?
Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2010/04/07/so-how-is-that-government-run-auto-company-working-out/
URLs in this post:
 Image: http://www.foundry.org/wp-content/uploads/GM-dealer.jpg
 It posted a $4.3 billion loss for the second half 2009: http://www.washingtonpost.com/wp-dyn/content/article/2010/04/07/AR2010040701922.html
 saddled with massively underfunded pension plans: http://www.nytimes.com/2010/04/07/business/07cars.html?ref=todayspaper
 which yesterday sued GM,: http://detnews.com/article/20100407/AUTO01/4070347/UAW-suit-says-GM-owes-$450M#ixzz0kQKZGHMT
 was the wrong approach: http://www.heritage.org/Research/Reports/2009/05/General-Motors-Bankruptcy-and-Nationalization-Exit-Strategy-Needed
 President Barack Obama said: http://www.cbsnews.com/8301-503544_162-4979228-503544.html
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