Alan Abelson has a few kind words in this week’s Up & Down Wall Street column.

“Barry Ritholtz of FusionIQ, who’s sparing in his praise of just about anything connected with Wall Street even though (or maybe because) he earns his daily bread analyzing markets and the economy, calls the rescue of GM and its IPO “the most successful bailout of the 2007-2010 era.”

Grumps like us might not view that as all that much praise, but, he explains, the new pared-down GM has clean books, is well capitalized, has been relieved of its crushing debt and enjoys less onerous payroll (employment is down to 209,000, from 324,000 six years ago), pension and health-care obligations (the union now picks up the tab for retirees’ health care).

Fair enough, but obviously the acid test for both the company and its new stockholders will be where GM goes from here. Don’t misunderstand our restrained response to the rapidity and extent of its revival. Back in the dark days of the Great Recession, we voiced our conviction that allowing the company to go up in smoke would cause unimaginable woe to an economy teetering on the edge of the abyss. So we’re only too happy to second Barry’s positive view of GM in its new incarnation.

Our wariness springs from the fact that this lame recovery is still notably fragile, the consumer still wary and pinched. And the things that make him so—the lack of jobs and the sorry condition of housing—stubbornly refuse to fade away. All of which stacks up as a rather formidable speed bump for GM and its fellow auto makers in the road ahead.

Keep in mind, the purpose of the GM complement was to point out how absurd the bank bailouts have been.

I have no real opinion on where GM’s stock goes, but I can firmly state that had the banks gone through the same process, they would be much healthier today than they are. So too would the entire US economy.

A quote in Abelson’s column, for some reason, never ceases to thrill me . . .


Off the Scrap Heap
Barron’s NOVEMBER 20, 2010

Category: Bailouts, Media

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “Off the Scrap Heap”

  1. Sechel says:

    B.R. You are dead wrong on this one. At least Ford(Alan Mulally) had the good sense to hire a real CEO, Dan Ackerson is a deal maker(Carlyle Group), not a guy to run a business. G.M. still has unfunded pension liabilities, and from the prospectus poor internal risk controls. This is the same company from before, governed by an insular management, but only now the government helps them out by going after Toyota and giving them tax credits which would not have been available if they they went through bankruptcy. And the Volt is a small car that costs too much, has no range, and requires a subsidy.

    OK, here’s my prediction. The company continues to outsource and produce more of its product abroad(Don’t forget all those G.M. factories in China).


    BR: Read what I wrote:

    “I have no real opinion on where GM’s stock goes, but I can firmly state that had the banks gone through the same process, they would be much healthier today than they are. So too would the entire US economy.”

    This is really about the banks, not GM.

  2. Sechel says:

    With Ackerson at the helm you can be sure of lots of deal making and financial engineering. I can’t see a focus on developing good product and focusing on old fashioned organic growth. Mulally’s Boeing experience tells me Ford is the company to bet on.

  3. dss says:

    GM doesn’t make a car I am interested in buying; maybe that will change in the future. At least GM has a fighting chance but needs to prove that it can succeed even with it’s new slimmer structure.

  4. Bill W says:

    I think Alan Abelson missed the point of your original article. Which I believe went something like this: if companies are going to be supported by the government, they need to go through a resolution or bankruptcy process to fix the underlying problems, and punish the imprudent for their bad judgment.

    As far as GM goes:
    I’m pretty bearish overall, but even I have to admit that vehicle sales are pretty low right now. Even in a recession, do they go much lower? How quickly can GM lose what remains of its market share?

    I think the bearish case for GM is a slow death, because the government’s involvement prevented the necessary painful changes, and rise to power of the most qualified and talented. Hopefully, GM is truly restructured for success, and I will be proven wrong.


    BR: Exactly!

  5. StatArb says:

    Screwing the bondholders and unions is a great way of dealing with corporations

  6. beaufou says:

    I don’t know, maybe I’m just too damn old fashioned and naive, but I think the CEO of a car making company should actually be into car making, not just a money making-investing-equity dude, isn’t that the reason GM failed in the first place?
    Oh well, unrelated nice link.

  7. VennData says:

    The technique that the commenters and (APWC) amateur policy wonks corps use to is pick one detail, apply some gut-feeling rule-of-thumb, toss in some Austrian economics, ignore any contrary evidence, and prognosticate.

    GM = Goofballs Moaning

    Congratulations America.

  8. willid3 says:

    GM’s biggest challenge is continuous to product and not get caught up (again) in the finance world (again). it would have been better to have kept Lutz for example as a lot of the new stuff coming out (that has been getting rave reviews) was his handy work. if that work continues GM will do well. they have no chance to slow that down and continue to on. but thats what a company has to do if they make products. Ford has to do it, so does Chrysler and Toyota, Honda, BMW etc. this is challenge for all of them. always has been.
    And the main reasons GM got into trouble was the financial wizards were in charge back in the 80s. and they started to believe they were invincible. the later has infected more car companies (in fact almost all of them at some time). the former hasn’t happened to many of them yet

  9. ToNYC says:

    Alan Ableson as Wizard of Oz? That dates you as an 1980′s newbie, but you are better now spreading a morality fever.

  10. Pat Shuff says:

    Those trumpeting the ‘success’ of the bailout also ignore the foregone future tax payments that came with letting the post-bankruptcy GM keep the billions in tax-loss carry forwards that normally would not be available to them. Ford (F), which avoided taking public funds, has to pay taxes on future earnings while GM will not be paying one cent in corporate taxes for years to come, if not decades.


    If Chrysler had been allowed to go bankrupt decades ago perhaps Ford and GM would have benefitted
    instead of dividing up dwindling market share of the relatively noncompetitive American brand vehicles
    except where they had no competition, the highly competitive and profitable light truck/SUV segment.

  11. Pat Shuff says:


    EDITORIAL: GM bailout: The sequel

    The new General Motors Corp. is trying to heighten interest in its sale of about $10 billion in stock held by its rescuers – the United Auto Workers health care trust fund and the governments of Canada, the United
    States and the province of Ontario.

    Buyers will get an unusual bonus: the little-noticed forgiveness of about $45 billion in future federal income tax obligations to offset past losses and expenses of various kinds – a second bite of the bailout apple.

    Such “tax loss carry-forwards” are usually routine. Every company that loses money may apply those losses against future income. Ford Motor Co. has about $17 billion in “tax assets.”

    But that treatment is normally banned for companies that go through a bankruptcy as GM did. Bankruptcy normally gives other large advantages such as debt cancellation, which for GM was billions of dollars. The Internal Revenue Service, however, decided that companies that got money under the Troubled Asset Relief Program such as GM (and Chrysler, now owned by Italy’s Fiat) could apply the normal rule.

    The IRS ruling gives GM extra cash – an advantage that bankruptcy-avoiding competitors could not have foreseen – in addition to its $40-plus billion in debt reduction via bankruptcy. Ford, which did not enter bankruptcy, borrowed heavily and now carries $27 billion in debt on its books.


    Tax rule interpretation giving domestic labels advantage over nondomestic (excluding Fiat) undermines an administration’s argument concerning trade wars, currency manipulation etc. Pot, kettle.

    The Industrial Policy plan of a nation, sometimes shortened IP, “denotes a nation’s declared, official, total strategic effort to influence sectoral development and, thus, national industry portfolio.”[1] These interventionist measures comprise “policies that stimulate specific activities and promote structural change”[2].

    Industrial policies are sector specific, unlike broader macroeconomic policies. Examples of horizontal, economywide policies are tightening credit or taxing capital gain, while examples of vertical, sector-specific policies comprise protecting textiles from foreign imports or subsidizing export industries.


    Global auto manufacturing capacity remains woefully underutilized, at one point 50%. France kept the Peugeot workforce on the job sweeping parking lots. It’s a fight to the finish, no one willing to blink and shutter capacity that will never be utilized, kept on life support, free from taxation. People oppose corporate welfare except when they don’t.

  12. dawson63in107 says:

    This concept (to which Phil Lebeau subribes as well) that the payroll is less onerous is a myth. Here were the main concessions:
    1.) the elimination of the JOBS bank, where the UAW workers recieve pay and benefits indefinately while laid off.
    2.) reduction in wages for new hires. But since there are hundreds of thousands of workers that need to be hired back first, this puts the prospect of ever reducing the gap between US non-union auto and UAW workers furhter down the road.
    3) reduced number of jobs due to the necessary plant closures.

    My questions are:
    1.) what concessions where made by UAW union members that kept thier jobs?
    2) How much more of their healthcare do the union members pay ex-ante the bankruptcy?
    3.) How much have the pension obligations been reduced?
    4.) what other cases in bankruptcy law set the precedent of having employee claims supercede the claims of senior secured bond holders?

    Finally, now that F and GM are sniffing profits, the UAW is posturing itself to renegotiate these concessions. I guess getting $6 Billion of the IPO for VEBA ( to pay employee pensions) is not enough.