Unfair Advantage – Treasury Department Still Owns GM
There has been a lot of news lately in regards to the Governments involvement in General Motors and the bailouts of the auto industry. China has claimed unfair trade practices and have increased tariffs on imports. Plus, there have been calls during the 2012 presidential race for the Treasury Department to sell all the shares it owns. What should the Obama Administration do?
During the recent economic collapse, the federal government invested in General Motors and Chrysler (Ford was the lone automaker not taking a bailout). The auto industry bailouts had and continue to have critics. The premise was that unless the government stepped these large, international companies would fail causing millions more lost jobs. So, the federal government stepped in, bailed them out and keep both companies in business. This resulted in a new phrase in our vocabulary, “too big to fail.”
Following this bailout, China has since decided to increase tariffs on automobile imports from the United States. China’s thinking is that since the U.S. Government is helping prop the companies up, that is causing an unfair advantage to their automakers. The Obama Administration has gone so far as to condemn the tariffs and has since filed an appeal to the World Trade Organization. According to an Autoblog.com story, “The duties cover around 80-percent of the vehicles imported from the U.S. and are expected to cost U.S. automakers $3.3 billion. Interestingly enough, General Motors and Chrysler vehicles face higher tariffs than those of other automakers due to the government bailout those manufacturers received under presidents George W. Bush and Barack Obama.”
It is a bit hypocritical that China would feel this way after their has been controversy for years about how the Chinese government allows their automakers to build vehicles that are nearly identical to other manufactures (see: Ford F-150). They are upset that the U.S. Government would help big business stay in business yet they allow all sorts of copyright infringement.
Beyond the trade issue, is that question of “What should the Treasury Department do now?” The thought process when they bought GM was that they would trade the investment into shares. This is pretty much what has happened and the Treasury Department (We) own 30 percent of General Motors and 74 percent of Ally (once known as GMAC, the financing arm of General Motors). The current plan is that the Treasury would like to sell these shares at $52-per share according to an Autoblog.com story. The problem is that the share price is currently hovering around $20 a share. The Treasury claims that the company is undervalued by the market and the share price will come up. They made that statement two months ago.
And don’t even begin to wonder what the Treasury will do with Ally. The firm has paid back $5.4 billion on the TARP loan and filed paperwork for an IPO. Sounds great except there currently isn’t any planned date for an offering and Ally has currently no idea if/when it will pay back the rest of the loan.
The question that many Americans/The World is wondering is how long will the U.S. Government own General Motors. It is a catch 22 in some ways, if the Treasury sells now, we (taxpayers) lose billions. If we buy General Motors products to increase the stock price, we create an unfair advantage to other makers like Chrysler, Ford, Toyota and Honda. Who knows what ripple effect that would cause, i.e.; Japanese Government buying into Toyota to help them lower purchase prices to compete.
While secretly Toyota Tundra owners like watching the “other” guys stumble and their truck come out on top in quality surveys and sales reports, the ironic part is that American taxpayers need General Motors to succeed, so we can get out. The quickest way for GM to succeed is through North American truck sales that are very profitable to automakers. The big question then is “Will the new Chevy Silverado/GM Sierra and Chevy Colorado/GM Canyon help GM succeed or will we be stuck waiting for GM to come up with something else?”
What do you think? Does the Government’s ownership of GM tempt you to buy a GM product? Do you think new GM products are the answer?
Filed Under: Auto News