GM bailout was a lemon after all

Posted: August 19, 2012

By Glenn Garvin

It's never too early to think about your next job, especially if you're the president and unemployment has been above 8 percent for your entire term. So I imagine President Obama has spent some time contemplating where he could send his resumé. Here's my advice: Forget the stock brokerages, because inevitably, some squinty-eyed HR person is going to say, "Now, about that speech you made about General Motors ..."

You know, the one in April 2010, when you bragged that the government had done so well in the auto business that, any day, it would be selling its stake in GM. "It won't be too long before the stock the Treasury is holding in GM could be sold," you told us. "As essential as it was that we got in, I'm glad to see that we're getting out."

Twenty-eight months later, taxpayers still own 500 million shares of GM - more than a quarter of the company. And the chances of selling them at anything but an enormous loss recede every day. Just to break even on the government's $50 billion investment, that stock has to sell for about $54 a share. Fat chance.

Six months after Obama's rosy prediction, the government did indeed put about half its shares of GM on the market. It got $33 apiece for them. Since then, GM's European sales have tanked, its politically correct Chevy Volts have developed a disconcerting propensity to burst into flames, and the company has been firing executives right and left. For the last nine months, the company's share price has hovered around $20.

And the financial picture may be about to get worse. Investor's Business Daily reported recently that GM is increasingly relying on subprime auto loans - that is, loans to customers with sketchy credit.

The auto-loan market, just like the one in housing loans, assigns potential borrowers credit scores according to their financial history. The general industry rule is that scores under 660 are considered subprime. From the last quarter of 2010 through the first quarter of this year, GM Financial - the company's lending arm - handed out $7 billion to car buyers with scores under 600. Loans to the highest-risk customers, those with scores under 540, jumped 79 percent.

"The subprime market grew as a result of the recession," a GM spokesman told Investor's Business Daily. "Our experience, however, is that with proper management, they are very good risks." Where have we heard that before?

The bottom line is that taxpayers are still on the hook for about $27 billion in GM bailout money, plus $15 billion for Ally Financial, the company financier once known as GMAC. That comes as a surprise to most Americans. What about those heartwarming TV ads in 2010, when GM chairman Ed Whitacre gazed dramatically into the camera and swore, "We have repaid our government loan, in full, with interest, five years ahead of the original schedule"?

It turns out that Whitacre, like the wily car salesman he is, was concealing the real dimensions of the deal in the fine print. Of the $67 billion government bailout of GM and its lending arm, only about $6.7 billion came in the form of a loan. The rest was invested in GM stock, which these days is barking like a dog - though Obama prefers the phrase "roaring back."

Maybe he's got a future in conveying pre-owned automobiles.


Glenn Garvin writes for the Miami Herald.

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