GM Debt Free? Not Yet

Ok, so GM paid off its 7 billion in direct loans from Canada and the U.S. ahead of schedule.  However, don’t forget that GM received 43 billion in TARP bailout money in 2009 which was converted into equity in Chapter 11 bankruptcy proceedings.  Now the U.S. treasury owns a little over 60% of GM; Canada around 12%.  When shares of GM go public, and this may come as early as the summer, the two governments can get out of the car business and recover some if not all of its investments.  And of course this would be good for taxpayers and another victory for the Obama administration.  But the success of the IPO depends on whether Mr. Whitacre can really turn around the auto giant, known in some circles as Government Motors.

Can GM turn the corner?  Are their cars good enough to win back consumers who turned to the Japanese in the late 70’s?  Would you buy a Chevy Malibu, Impala, or Silverado?  Or how about a Dodge Charger or Neon.  Do they even make the Neon anymore?  I’d like for GM to bring back the Dodge Colt and the Dodge Dart.  Now may be the best time ever for GM to pick up customers as ailing Toyota struggles to regain its reputation for quality.

Will the Big 3 Survive?

One of the first acts of the Obama administration or one of the last acts of the Bush administration may be to bailout the U.S. auto industry.  GM is suffering and may collapse by the end of the year.  Ford and Chrslyer are in bad shape too.  The Big 3 have been aggressively lobbying Congress to provide additional loan packages beyond the 25 billion promised to help meet new fuel efficiency standards set by the 2007 energy bill.  Senate Majority Leader Reid and Speaker Pelosi have asked Secretary Paulson to provide relief to the failing auto industry from the 700 billion bailout package, courtesy of taxpayers which already includes a gift to GM of a $7,504 2009chevroletvoltprftax break to buyers of the hybrid plug-in Chevrolet Volt set to debut in 2010.  The Volt will retail in the $30,000 range, so the tax break was deemed necessary to attract buyers who might otherwise purchase a proven and cheaper hybrid like the Toyota Prius.

In an article in today’s New York Times, Jackie Calmes reports that President-elect Obama urged President Bush to provide immediate emergency assistance to the auto industry.  The article cites a study from the Center for Automotive Research predicting that if the U.S. auto industry fails, 3 million jobs would be lost, along with 156 billion dollars over 3 years in lost taxes, unemployment and heath care costs which could lead the economy into a depression.  President Bush would favor assistance in exchange for support for a free trade agreement with Colombia, something the Democrats are not likely to accept.  Obama’s pledge to support the auto industry is conditioned, fairly I think, on the Big Three’s commitment to making greener and more fuel efficient vehicles.  And as a taxpayer, I would add that support should also be conditioned on a commitment to building better cars.

In the annual new car edition,  Consumer Reports named 16 standout vehicles, but only 3 American cars made the list; and one, the aforementioned Chevrolet Volt, won’t be available for over a year.  Only 1 American offering appeared on any of the Best in Class lists and that was a full-sized fuel inefficient pickup truck.  GM, Ford and Chrysler cars were not mentioned at all among the safest, most fuel efficient, family friendly or fun to drive.  Not a single car from the Big 3 received Best of Class marks for owner satisfaction.   Of the 47 new cars predicted to be the most reliable,  only 4 American models made the list – a Ford, 2 Lincolns and a Pontiac.  Of the 45 listed as the least reliable, the Big 3 lead the way with 25 mediocre cars.  European automakers were not far behind with 17.

If the Big 3 can’t make better cars, why should we bail them out?  Would they fail, if not bailed?  Would the Japanese come to the rescue and buy out GM or Ford?  Were they to fail couldn’t the millions of dislocated workers be retrained and put to work rebuilding our decaying bridges, highways and tunnels.  President-elect Obama has talked about the importance of National Service and the need to modernize our aging public infrastructure a la the Civilian Conservation Corps.  And we do need to create a manufacturing base for new energy technologies, like wind and solar and the new plug-in battery industry that will power future generation of hybrids, starting with the Chevy Volt.

The Chevy Volt; will GM survive to roll it out?  Or will it be rolled out and renamed the Toyota Bolt or something like that?