Home > Banking, Democratic Party, Economy, President Barack Obama, Stupid Republicans, Tea Party > “Government Motors” – a real success of the Obama administration

“Government Motors” – a real success of the Obama administration

This time last year GM was on its knees. It was about to go under. If it had been left to fail at least 200,000 jobs in the US were at stake and many more in Europe.

The financial meltdown of 2008 was disastrous for the Car Industry. Prior to the meltdown, credit had already tightened as part of the “credit crunch”. This crunch hit industry and none more so than the car industry and the housing market. Big ticket items were not available on credit.

GM was especially weak. The collapse in the credit market was fatal.

The company was making cars people were not buying in the good years, never mind when the crunch came. Poor management decisions and a poorer balance sheet did not help. G.M. was forced in to bankruptcy in June 2009.

With the expected loss of 200,000 jobs the US government stepped in to avoid the recession becoming a depression.

Stockholders in the original GM got burned. The Heads of GM were sacked by the Obama administration.

The Obama administration stepped in with a $50 billion bail out. Republicans, who had previously voted to bail out the banks to the tune of nearly $1 trillion were furious. They nicknamed GM “Government Motors” and FoxNews claimed it was evidence of the socialist nature of the Obama administration. They argued GM should have been allowed to fail.

18 months later half of the shares owned by the US government are offered for sale in the largest Initial Public Offering in history.

If the Republican scare stories were to be believed shareholders would be wary of investing in GM again.

Republicans were wrong. As usual.

The bail out of GM was one of the most successful bail outs in history.

GM offered $10 billion in common stock. That offer was six times over subscribed. Investors had placed pre-orders worth in excess of $60 billion. The government was going to issue shares at £25 a share. With the high level of demand they were able to get $33 a share . GM closed on Friday 19 November at $34.26 a share. When the IPO was floated on Thursday, the stock was traded over 400 million times, on the Friday shares were exchanged 100 million times. Most analysts expect the price to rise to around $40 a share.

Stupidly, few if any Democratic Candidates ran on this success story.

G.M. is going to be profitable both the the taxpayer and to the stock-holder. If you can get your hands on the shares. GM made a profit in excess of $2 billion in the last quarter and is one of very few car companies that have been able to raise prices in a still very tight market.

The Company has been heavily slimmed down. Many lost their jobs but nowhere near the number that would have done if the company had failed.

The World economy would be n a much worse place had GM failed. The repercussions would still be unwinding now. Even The Economist understands that. They apologised to the President of the US for their stance.Will Republicans?

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