The Taxpayers to lose Billions on the GM Bailout and likely will have to bail GM out Again

Posted by PITHOCRATES - December 22nd, 2012

Week in Review

GM could have filed bankruptcy.  Like many companies do.  They reorganize.  Fix the problems that caused them to go bankrupt.  Then they emerge leaner and meaner.  And are able to compete in the market that bankrupted them before their reorganization.  That’s the usual path.  GM did not take it.  Why?  Because the thing that bankrupted GM was its high union costs.  Especially their legacy costs.  Paying pension and health care costs for more retirees than they have active workers.

Had they gone through a normal bankruptcy they would have made GM competitive again.  Which meant doing something to those costly union contracts.  But as the UAW is a valuable resource for the Democrat Party President Obama swept in and protected the UAW.  Giving them the money they needed to fund those pension plans.  Without fixing their competiveness problem.  Meaning they will likely need another bailout (see GM to benefit from tax break for years by David Shepardson posted 12/20/2012 on The Detroit News).

The Treasury Department’s decision to begin its exit from General Motors Co., despite low stock prices, means U.S. taxpayers are almost certain to incur large losses on the $49.5 billion bailout of the Detroit automaker.

At current stock prices, the government stands to lose nearly $13 billion.

To break even, it would need to sell its remaining 300 million shares for about $70 each. The Treasury will sell its remaining shares over the next 15 months, likely in a series of small sales, and that could stem some of the losses.

Unlike the 1980 Chrysler bailout, the Obama administration didn’t require GM to repay all of its government funds. Instead, the government swapped about $42 billion for a 61 percent equity stake in the automaker.

Former auto czar Steve Rattner said the government made the decision because it didn’t want the new GM to be carrying crushing debt. Instead, it gave GM billions of dollars after its bankruptcy to operate.

GM also got other financial benefits. For example, it has legally avoided paying federal income taxes since exiting bankruptcy, even though it has earned $16 billion in profits.

And GM likely will pay no income taxes for many years, because Treasury rulings let GM use $18 billion in losses from the “old GM” left behind in bankruptcy to offset profits.

Interesting.  We’re going to raise taxes on small business owners (those S corporations and LLCs who earn more than $250,000 in business profits that pass through to their personal tax returns) because those who can afford to pay a little more should.  But a company earning $16 billion (yes, that’s billion with a ‘B’) in profits doesn’t have to pay any income taxes.  Why?  Small business owners create far more jobs than GM does.  So why does GM get preferential treatment?  Because small businesses aren’t unionized.  And don’t pay union dues that feed back to the Democrat Party.

When the Carter administration bailed out Chrysler they at least got all of our money back.  They made no gifts of taxpayer money.  If that wasn’t bad enough our gift to GM didn’t fix their competitiveness problem.  So that when GM once again pays income taxes they will be right back where they were before.  Starved of cash.  And unable to fund their pension plans.

Had GM gone through a normal bankruptcy they would already be back in business.  Competitive.  And paying income taxes.  Without the taxpayers picking up the tab.  President Obama didn’t save GM.  He saved the UAW.  Who will eventually destroy GM with their legacy costs.

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