Posted By Lambchop
General Motors is trying to sell some of the government-owned stock back to the private sector in what would be one of the IPOs in history. The Wall Street Journal reported that the Treasury Department is resisting the sale because of the resulting loss to the government. The stocks need to reach $53 a share for the treasury break even. Currently the stock is at $24.
After a $50 billion bailout which has now become the cornerstone achievement of the Obama campaign, taxpayers own around 26.5% of GM. GM has been paddling as fast as it can, realizing that the “Government Motors” moniker has done damage to the company’s reputation and brand. GM also realized that its ability to attract talent to the organization is virtually impossible with the class-warfare-style, government -imposed salary caps place on the company as part of the bailout deal.
GM reduced its US labor force by 12% with more workforce cuts planned. Production facilities are to be cut and franchise contracts with dealers are being terminated. Saab and Hummer were sold while Saturn and Pontiac brands were terminated during the restructuring.
GM’s biggest problem was the UAW and the union's unrealistic, extravagant benefits and pension plans offered to GM workers. Progress was made in the negotiations with the union and they agreed to consumer-driven healthcare plans including reductions in cost-of-living raises, bonuses, and tuition assistance. This is a menu of benefits that are typically NOT offered in the private sector for comparable jobs.
Taxpayers stand to lose $15-$25 billion dollars in the deal depending on who is doing the predicting. The unintended consequences of the bailout are being played out in the GM situation for the world to see. Taxpayers lost, shareholders lost, the unions gained, and workers are laid off and operations closed down anyway.
The precedent set by the bailout results in stagnation as corporate resources are allocated to the well-worn streams of production and distribution, thus limiting innovation which is only spurred on by the entrepreneurial capitalism. Bottom line: bailouts are bad policy.