In December 2008, many Americans were immediately critical of the idea of bailing out General Motors(GM). Their initial proposal asking for $18 billion of taxpayer funds to bailout a company whose total assets optimistically could only be valued at $38 billion and additionally suffering a crushing debt burden of $66 billion defied common business sense. Now those who were susceptive to only labor interest groups and made these faulty decisions should be held accountable to the American public for wasting $25 billion.
General Motors told Congress their company alone would sell 15 million vehicles a year which pundits recognized would be three million in excess of the total automobile sales of all companies combined in the United States. Numerous economists and business analysts pointed out that this was impossible.
Democratic Congressional leaders using repetitive fallacies of logic made this an emotional issue that ignored that basic business fundamentals of the dilemma. Union lobbyists, mainstream media, and the Congressional Democrats cried out that the General Motors was on the brink of developing new electric cars even though the reality was that they have not secured or developed any reasonably competitive battery technology. They demanded that GM not be allowed to go bankrupt because Americans would never buy a car from a bankrupt company. Never mind that they do not buy GM cars even if they do have a warranty.
Putting Troubled Asset Relief Program (TARP) money into GM further diluted GM stock value. According to the most recent U.S. Department of the Treasury Transaction Report of March 24, 2009 so far the government has purchased $5 billion in preferred stock warrants which are likely soon to be worth pennies if anything and paid almost $15 billion in debt obligation for GM. President Obama is giving them an additional $5 billion for the next thirty days. The falling stock prices have made the policy of trading stock in return for forgiveness of GM debt to its bondholders unlikely to yield any more concessions.
When Congress began pushing money out of Washington there was nearly a trillion dollars borrowed taxpayer money to spend but now the Treasury no longer has any more funds to give the automakers because there is less than $150 billion left in government funds to deal with the housing and the banks let alone the automakers. The $25 billion spent on GM is also an opportunity cost lost that could have been better spent on necessary infrastructure or tax relief. Belatedly the President and the Democratic Congress now realize that Rasmussen polls show that only 32% of Americans have a favorable opinion of GM and half of Americans say that failure of GM would be best for the economy.
Finally today the President and his administration admit the obvious that General Motors will fail. He is giving them some time to prepare for "reorganization" which will essentially be a bankruptcy with the U.S. government agreeing to be the guarantor of GM warranties. The failure to have declared GM bankrupt in December of 2008 will end up costing American taxpayers at least $25 billion. Spending any more money on GM will not guarantee the future of American autoworkers or anyone else.
The company will need to declare bankruptcy and be significantly downsized to just carrying a few product lines at best. The equipment and the manpower even if they are totally sold off will still exist. The liberal media forgets how bankruptcy of airline carriers for example in the past resulted in resources being efficiently transferred to other carriers.
Unfortunately in this case common sense did not rule, instead the Democratic party felt the need to spend $25 billion to show its blind support of organized labor in all out attempt to save their contracts which were hopelessly doomed from the start. The tragedy is that if bankruptcy would have been declared in December at that point the stock price was high enough and the debt burden held, before the government stepped in, low enough that a viable reconstruction could have taken place albeit still to a much smaller company. When government owns the controlling stock options then rescue by trading stock for debt can no longer work.
What a strange paradox that now Obama is saying that Americans will buy a car from a bankrupt company especially one that has a warranty from the reliable U.S. government.
Dr. Tony Magana was raised in McAllen Texas, attended Texas A&M;University, and holds a doctorate from Harvard University. He has served in the United States Army Reserve. He is a member of the National Association of Hispanic Journalists.
