29 May 2009


The government took over Chrysler, while handing a chunk to the UAW and another piece to Fiat, an Italian maker of crummy little cars no one in this country wants to buy. Secured bondholders included TARP recipients who rolled over, but also others who objected. They were strongly “encouraged” to cooperate by the government and also went along with the deal.

For GM a similar deal was struck. The US and Canadian governments own most of the company, with another big chunk going to the UAW, while bondholders were forced to settle for 10% of the company in lieu of the money they are owed. Stockholders, like myself, get nothing, for what was once a blue chip, dividend-paying stock. Never mind that as owners of the company we had no opportunity to vote on the deal; it was simply forced by the government. Perhaps bankruptcy would have yielded the same results, but an unfettered bankruptcy would not have required billions from the federal government, and would have voided the UAW contracts that largely sank the company in the first place. Instead the government has taken our property and given it to the UAW, which is mainly what the administration was interested in saving.

Meanwhile GM had a viable international business that was making money and which, until recently, maintained its position as the largest auto manufacturer in the world. GM was doing well in China, South America, and Europe. But the US is effectively walking away and dumping GM’s Opel brand on the German government, which in turn is also working on a deal to give it to Fiat.

This all has been handled incredibly badly and truly amounts to Grand Theft Auto. The biggest losers will be the taxpayers, who will also have to subsidize little green cars no one wants to buy and the lot of these companies will just get worse. Meanwhile what about Ford? Ford hasn’t taken any government money and as a result has a large private debt that it is going to have to pay back, unlike the other two, whose bondholders have been screwed. This puts Ford at a competitive disadvantage; punished for being slightly more successful and prudent It simply isn’t fair. . All of this is the kind of thing you might expect from Hugo Chavez , not the US government. These unprecedented actions make a mockery of the rule of law (more on that subsequently). Personally I’m never going to buy a government car, and the next one I buy will most likely be a Ford.

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