GM bailout will never pay off

Wondering if your government's investment in GM will ever pay off?

It won't.

So $83,000,000,000 is what New GM would have to be worth in order for us to break even on our investment.
But $56,000,000,000 is what GM was worth at its all time peak in 2000.
And it's only worth about $7,300,000,000 now.

0.000000435% (via Kottke)

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SamSam

How were her calculations made?

If it’s worth $7.3B, then divided by $300M of us is $166 each. $166 in $7.3B is 0.0000000227%, which is 20 times less than what she quotes.

Even if she’s using the total number of taxpayers (which I can’t find out) and comes up with $362 each, $362 in $7.3B is 0.0000000495%, which is 10 times less than what she quotes.

So how is she doing her calculation..?
Anonymous

We would lose hundreds of billions, say $100 billion as a conservative estimate, if the economy froze up as a consequence of G.M. collapsing. Lehman Bros. scared a lot of people. Everyone thought “Let’s just let them fail, it will be okay.” but… remember the credit freeze? A couple of days when banks stopped lending, even to each other? It took emergency measures to restore confidence even a tiny bit?

That was just one little tiny repercussion of Lehman Bros being allowed to collapse. There have been many many others, some even more serious.

Whatever we’re paying, it’s cheap compared to a general crisis. Stopping that first domino from falling is worth it.
BrooksT

*Pls* stp pstng hrbrnd cnmc “nlyss”, Cry. Y’r mbrrssng yrslf, nd y dn’t vn rlz t. Ths s vry bt s bd s th BS’s crp tht cnts vry prtd cpy s lst fll-prc sl: yr ssmptns r wrng, nd th nlyss tht flws frm thm jst gts mr flwd wth ch stp.

This “analysis”:
Taxpayer value today =
(Government ownership %) * (GM Value today)

A more realistic analysis (still deeply flawed and overly simplistic, but at least not completely naive):

Taxpayer value =
(Government investment $) * (GM’s supplies and labor use of that investment %) * (economic consumption multiplier %)
+
(NPV Michigan and other states’ unemployment savings $)
+
(NPV of future treasury receipts from outcomes where GM is profitable $)
+
(Difference in wages at other businesses due to lack of downward pressure from tens of thousands of unemployed GM workers % ) * (Average relevant worker tax rate $)
+
(Government ownership %) * (weighted average of likely GM values over 5 years)

Hnstly, my vrsn s smplstc ngh t b bt mbrrssng. Bt pst t s n llstrtn f hw smn wth vn bt f knwldg n th fld wld g bt vltng th ctl bnft (r lck thrf) f th nvstmnt.

lv Bng Bng. Crppy cnmc nd fnncl psts r rnng t. Pls stp thm, r g gt dctd ngh t fltr thm wth th sm ntllgnc ppld t rt nd cltrl psts.
- Antinous / Moderator
  
  BrooksT,
  
  If you can’t be civil, you can’t comment here. Let me know.
SamSam

When is our “investment” in the Hubble telescope going to pay off? Do you have a specified year when the exact dollars I paid for it are going to go back into my own wallet?

How about our investment in welfare and medicaid? Can you specify when that is going to mature, exactly? What will my return on investment be?

Is the only function of the government to be savvy stock brokers? I thought we were supposed to hate those guys. Wasn’t chasing money for its own sake the cause of all our current problems?
Anonymous

If you don’t understand that by not helping GM out the whole system slides down the hill,I feel sorry for you.By the time GM went under hundreds of thousands lose in the trickle down,it isn’t just the ones that work for GM only.And to all that don’t buy the Ford,GM and Chrysler products you are sending money to pad the pockets of other countries,that money does not stay here.What do you think would happen if all the original car makers of the United States went under and then the other coutries withdrew from here.We are not even using our steel mills here.I just hope our great country starts taking care of the USA and let the other countries take care of their own.We use to be a thriving country where is our country going? GOD bless the USA and GOD help us all to be American and stand up for what is right.Buy American not imports and there sister companies!
tuktuk

shucks, i was counting on that for beer money in ten years.

(groan) back to the streetcorner…
Anonymous

I’ll try to Canadian-ify it.

Scenario in link is $362 per person… so they’re using 138million taxpayers… or about 40% of the US population.

40% of the CDN population is approx 13.2 million.

CDN Bailout for GMC = 10.9Billion + 4Billion for approx $15 Billion total.

15,000,000,000 / 13,200,000 = $1136 per Canadian taxpayer.

I have no idea what GMCs peak value was.

I would have rather invested my $1136 in… well, pretty much anything. Something usful and sensible would’ve been nice. Or just lots of beer… yeah, that would have been fine too. I would have been guaranteed to get something with that scenario at least.
mdh

Assuming the only point of the exercise was to come out even in dollar terms, then it was a terrible investment.
Anonymous

The point was never to make an investment or fix anything. No, the point was theft. We’re a bunch of suckers.
Todd Knarr

I guess the immediate counter-question: what’s the dollar value of keeping all those GM employees on the payroll instead of on the unemployment and welfare rolls? Not just in terms of the tax dollar difference (what they pay vs. what everybody else has to pay to fund their benefits) but in terms of just making people more confident that they won’t lose everything to this recession.
applesbananas

Using the Consumer Price Index to adjust for inflation of the $56m from 2000 to 2009 dollars, $71.8m is the ‘real’ value of the highest amount GM was worth, adjusted.
(the Bureau of Labor and Statistics http://data.bls.gov/cgi-bin/cpicalc.pl has a calculator)

So it’s BAD, but not as bad as it seems, if GM can resume production. If they get their asses moving again, get people jobs to pay for stuff, they’ll eventually buy them. Investing is the correct move. Take any econ class and you’ll easily learn that not investing in a failing company is essentially like not watering a dying plant. If you give it enough love, it’ll Green up again.
Anonymous

Where does the $83,000,000,000 number come from?
Onecos

Thank you President Obama. Re-election time will come sooner than you may think.
RationalPragmatist

Depending on who you talk to, small businesses create one-half to two-thirds of all new jobs in the US. So, why are we bailing out GM and other massive firms? Simple: they have an organized lobby. The rest is just rationalization, in my opinion.
Anonymous

#26: You’re right. Dumping 243,000 people directly onto the unemployment rolls, endangering another 146,000 jobs at Delphi (which other U.S. auto manufacturers rely on, by the way), plus all the dealerships and related businesses â€” yeah, that won’t hurt a bit.

And no doubt there’s a little mom and pop somewhere that can make Strykers for the military.
Anonymous

It’s worth noting that many small business owners and employees had reason to root for the bailout. Many auto industry suppliers are small businesses. My family had a small injection molding company which was, despite constant attempts to diversify, always frustratingly dependent on Detroit. We were not unusual. Although it certainly is reasonable to ask if the bailout was the best possible use of the money, it’s also important to remember that the jobs that will be saved if GM stays in business are more than those of GM employees. I’ve read claims that it will be several times more, which sounds reasonable to me.
Daemon

They didn’t invest in the company to own profitable stocks.

They invested to ensure the company will continue, that all the employed people will continue to be employed, and thus keep paying taxes, buying stuff and otherwise participating in the economy.

Somebody needs to do that math.
Todd Knarr

#21: no, the GM bailout isn’t a good deal. It’s a horrible deal. It’s the kind of deal you avoid if you’ve got any better alternative.

The problem is, we don’t have a better alternative. The alternative is to not bail GM out. That starts with all their workers being laid off. Then the majority of their dealers lay off their employees because they’re no longer auto dealers. Then the suppliers who make parts to make GM vehicles start laying off their workers because GM isn’t there to buy the parts those workers made. And all those former employees stop paying taxes (less revenue for the government) and start drawing unemployment and welfare and the like (more cost for the government).

That’d be bad enough, but then you come to the stock market. Chrysler going under’s bad enough, GM folding too would upset things badly. We saw over the winter what happens when things go down that path. That’s a problem because over the last 30 years we’ve gone from traditional pension plans to 401K retirement plans centered around, you guessed it, the stock market. When people start seeing their retirement funds dropping by 25, 35, 45 percent, they get nervous. They pull their money out, which only accelerates the slide (look at the percentage of stock that’s held by retirement funds). They also clamp down on their cash, because nothing makes people nervous faster than watching a financial cushion they’ve been counting on evaporate before their eyes. And then the economy really gets ugly.
Bottle Imp

Seriously, that is not how you set up an argument.

You can say that it is highly unlikely that it will pay off. It is.

You can say that it is a terrible investment. Again, it is.

You can prove that it is statistically impossible that it will pay off. This is also probably true (at least in a stock market valuation sense, the people of Michigan will feel differently).

You cannot say that because it is not now worth 83 billion and never has been, it will never be worth more than 83 billion. Or that it will fail to pay off as an investment.

Logic is a tool, not a question and a statement, held together by three numbers, some duct tape, and sass.

That and what #4 and #5 said.
teufelsdroch

The discussion on _This Week_ was anyway honest. Cory, for me this post demonstrates quite well why blogging isn’t journalism, why in fact blogging is often DISinformation. Snip of transcript follows:

WILL: Yes. $20 billion in so far, perhaps $50 billion more to come. The president will be long into collecting Social Security before General Motors pays all this back, if it ever does, which I sincerely doubt.

Why are we doing this? We’re doing this because it is too big to fail. First, big. Harley-Davidson has a market capitalization eight times larger than that of General Motors. In what sense is it big anymore?

…

KRUGMAN: OK. I think it’s kind of telling that you’re talking about market cap. Of course, workers, not, you know, GM stock is essentially worthless, which we knew. But there are still a lot of workers there.

…

So if you’re going to do anything, you’re going to have to have some kind of packaged bankruptcy that has a lot more English on the ball from the federal government than normal. That’s what’s happening here. This is not seizing the commanding heights. This is trying to sort of make bankruptcy work. Even odds that anything survives five years from now, but that seems like an option we’re taking.
Anonymous

What #14 said.

Additionally, even if GM’s total worth never reaches the amount of money we’ve invested in it, so long as the company becomes profitable, it will eventually have been worth it, and not even in a particularly long period of time, once you bring into play money saved by not having to pay pensions, unemployment benefits, tax income, etc, etc. I’m not economist, and this is clear to me.

Clearly, that girl didn’t learn what she thinks she did.
Brainspore

@ Anonymous #30:
… it’s also important to remember that the jobs that will be saved if GM stays in business are more than those of GM employees.

That is a reasonable argument for bailing out GM and other big companies, but you could also argue that if we saved several thousand small businesses there would be more people who could afford to buy GM’s cars.

Everybody benefits when the rest of the country is employed, but it seems like the only jobs that the government actually tries to save are the ones at large corporations.
Anonymous

MarketCap isn’t the right number. GM has a LOT of assets, cars, plants, patents, designs, brands buildings, accounts recievable etc. You need to look at the value of stock, bonds, and debit of GM that’s the pie being sliced up; the stockholdersr are first in line for increases and decreases in the pie.
noahpoah

Small change you can believe in.
Thrishmal

What really bothered me about the whole thing is if you couldn’t make more jobs with that money by investing in new businesses than GM can save with that money.

Investing in new business will mean renovations, construction, new jobs, and fresh faces on the economic landscape. What is it getting used for now? Keeping the companies head above the water.

Let the company sink or swim based on its own abilities. Use those many billions to stimulate the entrepreneurial spirit in thousands of talented and motivated minds.
chroma

#31 Todd Knarr: I don’t know if you noticed, but GM actually went bankrupt just recently. It didn’t have much of an effect on the stock market.

Also, you and several others are making the ludicrous argument that we need to give GM & Chrysler money so that the workers can pay taxes. Think about this for a moment: the money comes from the government to GM as bailout, gets paid to the workers as wages, then goes back to the government as taxes. How is this sensible?

Everyone: there’s clearly some value in what GM does, but we’ll never sort it out if we have Government Motors. If they went bankrupt without our tax dollars propping them up, the factories, skills, and brands would still exist.
gadgetophile

How about buying GM, then using a whole bunch of their people and capacity to build high speed rail stock under the guidance of SNCF?

Or would the French telling US workers how to build trains be too ironic?
chroma

I can’t believe that so many posters are backing this bailout. If you think it’s such a great deal (and I’m looking at you #16), please post your own numbers.

There’s a lot of factors left out on the other side, too:
- opportunity costs
- moral hazard
- corrupting influence on the government
- fairness to other car makers

We’ve got no reason to believe that this dog of a company can ever be turned around. The burden of proof is on those making the extraordinary claim that I should be spending giant piles of money to keep GM afloat.
benher

You know, to be honest these posts require more unicorn chasers for me than the hairless gorillas…
Anonymous

Don’t know if anyone has pondered the trickle down with jobs….

First you have the GM jobs –
The jobs of the suppliers
The jobs of the dealers (sales/mechanics)
Trucking and rail companies that distribute the vehicles…
Marketing firms for print, radio, and Television
Newspapers, magazines,etc… that rely on the adverts….
the tax revenue generated by all of these companies and individuals…
This goes on and on…. then we get to an earlier point that was made about what these unemployed workers do – lose their homes… don’t pay bills… collect unemployment, social security, welfare, etc…..
Anonymous

“in soviet russia, car drives you”
-yakov smirnoff

next: health care
escowles

As many other posters have pointed out, this analysis is ridiculous because the main point is to keep GM running so the government doesn’t have to pay unemployment, food stamps, etc. costs for them. More importantly, the intention is to keep their suppliers, dealers, and the whole car manufacturing infrastructure in place to keep this recession from snowballing into a recession.

In more concrete terms, the US government would be on the hook for around 15 billion in pension liabilities alone. So that by itself is a huge chunk of the 38 billion.

More to the point, though, I’m surprised that Cory (or anyone else) would fall for such a simplistic argument. If we’ve learned absolutely nothing from the last 9 months, I would hope that everybody understands that economics is complex and interconnected, and looking at just the share price to see if an investment makes sense is asinine.
Snig

“Did GM deserve death? I dare say it did. Many that live deserve death. And some that die deserve life. Can you give it to them? Then do not be too eager to deal out death in judgement. For even the very wise cannot see all ends. My heart tells me that they have some part to play yet, for good or ill, before the end; and when that comes, the pity of Obama may rule the fate of many – yours not least.â€
Anonymous

This is what happens when you build crappy products that are not well-marketed. People stop buying it, but you really don’t start to care until your using your last Christmas bonus as CEO to hurry production of the Volt, which has been killed anyways.
Brainspore

Like most investments of this scale the expected payout was never calculated in dollars. It was calculated in votes.

What annoys me about the “let’s save the big companies to protect employment” strategy is that it completely ignores the millions of Americans that are either self-employed or work for small businesses. Why are thousands of jobs at one big company more important for the economy than an equal number of jobs at hundreds of smaller companies?
teufelsdroch

The quoted numbers are market capitalization, not value. Market cap is way down because the market is forward-looking, and feels that the risk that GM goes bankrupt is significant.

That said, your $7B number appears to be several years old (the $56B number is correct). GM’s market cap is now less that $1B. But any further discussion within such a warped context is useless.
Anonymous

And what does the highest value for GM at a single point in time have to do with anything anyways?

I may not ever have enough cash to cover the cost of my house at any given time; that doesn’t mean that I won’t pay it off over the term of my mortgage.

A better comparison would be the amount of money that GM has generated in revenue over it’s corporate lifetime, I think.