General Motors May Still be Going Bankrupt

Who would have thought that shoveling money into a company that was circling the drain without fixing the underlying problems leading to the bankruptcy wouldn’t fix the problem? Well, despite President Obama’s constant self-congratulating over the supposed “rescue” of the auto industry, General Motors is not doing well:

“Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company.  It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday.  This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

“Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share.  However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.”

The auto bailout did not solve GM’s core problems: a falling market share in both Europe and North America, falling revenue on both continents, pension and union problems, and not to mention cars that don’t measure up to the competition. No amount of money will fix those problems. As Louis Woodhill of Forbes points out:

“It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling.  It would be too embarrassing politically.  Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

“GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.”

Could we be facing a second auto bailout in the next four years? Do Americans want to hand over more money to a company that wasn’t rescued the first time around? If President Obama wins re-election, what would he do?

The auto bailout did not work because it didn’t solve the underlying problems that are plaguing GM. Letting the company go through the normal bankruptcy process and restructuring would have been better than handing over tens of billions of dollars of taxpayer funds and rewarding the unions that helped cause the problem in the first place.

GM has faced bankruptcy multiple times in the past few decades. Until it solves its underlying problems, there’s no surprise that it may be in trouble again.

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