AlixPartners, one of the firms charged with helping General Motors navigate its way through bankruptcy, performed liquidation analysis as part of the company's court proceedings, and its findings are disturbing: If GM liquidated tomorrow, there would be less than $10 billion in net proceeds.
The New York Times reports that "bank lenders owed $5.4 billion would recover from 26.3 to 77.1 cents on the dollar. The United States Treasury, on the hook for $20.5 billion, fares even worse under this scenario, getting just 12.7 cents to 23.7 cents on the dollar for its claims. Unsecured creditors would get nothing." (emphasis added)
In a way, this has only marginal relevance since GM isn't being liquidated, but here's the problem: If the United States government only has 12.7 cents in assets to earn a return on for every dollar it has invested in the company, GM will need to earn incredibly high returns on assets in order to pay back its mammoth debt load. If GM were capable of earning abnormally high returns . . . it wouldn't be in this situation.
Comparing the liquidation value of GM with the amount of money we have invested in it suggests that GM's goodwill will need to deliver tremendous value in order for taxpayers to be repaid. I somehow doubt GM's brands and overall image have that kind of earning power.
It could take many, many years -- probably decades -- before the United States government gets it money back -- and once you take inflation into account, this is likely to be a worse investment than any of the supposed scams the SEC goes after private individuals for trying to snooker Americans into buying.
Comparing the liquidation value of GM with the amount of money we have invested in it suggests that GM's goodwill will need to deliver tremendous value in order for taxpayers to be repaid. I somehow doubt GM's brands and overall image have that kind of earning power.
It could take many, many years -- probably decades -- before the United States government gets it money back -- and once you take inflation into account, this is likely to be a worse investment than any of the supposed scams the SEC goes after private individuals for trying to snooker Americans into buying.
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Reader Comments (Page 1 of 1)
6-08-2009 @ 1:48PM
Sheldon L said...
It WILL take many years. GM does not have DECADES. If the payback time goes from 'years' to 'decades' then GM simply just goes -- away!
6-08-2009 @ 2:57PM
much.faster said...
let`s make a quick look at your numbers. gm has 610 mio shares, so us gov owes 70%, 420 mio. if they invest 40 bio, they must get $100 dollar per share. impossible? let`s look at toyota. 1,5 bio shares at §75. makes 112,5 bio. if you assume, gm new could be as succesfully as toyota, give gm new the same market cap and divide it with 610 mio shares, you will get $ 184 per share. so, on a quick look, it`s not impossible to make gm new a success for the taxpayers.
and, zac, if you only make advertissement for a third term of george bush, say it plain and simple.
6-08-2009 @ 7:11PM
william lindblad said...
To both Zac and Sheldon:
This is a lot more complicated than it looks. I keep saying this - it is more than GM - it is the entire industry. GM just happens to be BIG and in the forefront. What about Chrysler? What about the rest of the companies? Volvo, (it rolls in Latin), makes trucks. They make trucks here - in the U.S. This is just not cars, it is the entire wheeled machine industry. Although you don't see the marque often, Marmon is still around - on an 18 wheeler hood. They made cars once upon a time also.
Today these industries are world wide and there are people sleeping under bridges in cardboard boxes in Toyota City. Better keep in mind that operations like Fiat and Renault are really cartels, and government sponsored. Some are better run than others but this means squat if this market stays dead. The worldwide capacity from cars to farm machines has far greater production than demand - and that's in a good market economy.
Now, if the worlds economy remains dismal, so will sales. As a consequence, so will all of the jobs that are part of this massive supply chain.
Three guesses to what happens? Since all have the same answer - this one is easy.
One other point. Our government says we are in a very deep recession. The U.K. government says they are in the worst recession in 70 years. Somehow, this does not sound like good news to me!