GM, AIG, Fannie and Freddie: Bailouts in Common?

Does General Motors (GM) carry the same implied government guarantee on its debt that Fannie Mae (FNM) and Freddie Mac (FRE) did before the government takeover? This is not as ridiculous as it sounds. Think about the political power of its reduced, but still massive, workforce, and that of its suppliers. And we can’t forget the precedent of the first Chrysler bailout, and that the second might also be on its way -- this time via GM, just as PNC got paid by the Treasury to take over National City (NCC).

GM is the company that gave aspirational Americans the perfect ride to go with their McMansions. The company that fought, along with its short-sighted unions, every attempt at increasing government mandated fuel economy standards. And GMAC financed both the perfect home and the perfect ride. Good while it lasted.

Should GM receive the same treatment as the GSEs and American International Group (AIG) in its rescue? All profited by acting outside the public interest. All took outsized risks. While the financials became overly dependent on mortgages and credit default swamps (CDS), GM became overly dependent on SUVs, and GMAC had more than its share of questionable mortgages. The only difference is that GM has a large union blue collar workforce.

Is GM’s workforce politically potent enough to spare GM’s shareholders the 79.9% punishment and onerous interest rate and fees the Federal Reserve charged AIG? Does GM deserve the parental love given to Citigroup (C)? The politics will probably favor GM, but I wouldn’t chance it. If you want to gamble on GM, stick with the bonds. Some GM bonds trade like preferreds on the NYSE.

Disclosures: Author is long AIG, C, FNM, FRE and NCC.

Comments

[thedozer:]

Mr. author,

Gm already received a 25 billion dollar loan from the government earlier this month!

your article should have been written then as a question...

It was done the week before the 'bailout' was passed....

Question, where did the gov. get that 25B loan to give in the first place?!
that is an article worth writing

2008 Oct 27 04:31 PM

[madasiwannabe:]

thedozer,
There was a piece of pork in last years federal budget that allotted 50 Billion to the automotive manufacturers so they could do R&D on alternate fueled vehicles. Funny part is they have dozens of models already being sold around the world that are not currently available in the US.

The money was not suppose to be given till next year but the lobbiests convinced the government to give them the money early. By the way, it's not a loan... it's a grant funded by our tax dollars.

2008 Oct 27 06:54 PM

[Philly Jim:]

The government shouldn't be in the business of keeping failing businesses in business. The market determines which businesses thrive and which die. This is what encourages innovation better business practices, this is what keeps the U.S. ahead of the curve -not bailing out failures.

The government should consider funding new and innovative start-ups like Tesla Motors rather than pump more money into corporations like GM that are being run into their graves by failed leadership that is disconnected from the new generation of consumers.

2008 Oct 27 07:33 PM

[User 265729:]

Why doesn't the government give me some money? I have an idea for a gull-winged car... I think I'll call it the DeLorean.

2008 Oct 27 10:03 PM

[thedozer:]

madasiwannabe,

GM is now a GSE... along with the financials of our country

as a matter of fact, I think most businesses are GSE's... except my business of course.

curbs- where ya been?
have you started 'the forgotten man' yet?

it will make your eyes bleed!

2008 Oct 28 12:41 AM

[thedozer:]

oh yeah...

where are those 'evil' oil speculators????

have we already burned them at the stake? Guess we'll just have to wait to enact outrageous legislation NEXT SUMMER with OBAMA and his 300+ liberal cronies

2008 Oct 28 12:45 AM

[James Wilson:]

It seems the anal yst still don't get it.
When you overvalue millions of homes by 30% or more then fiance it, sell the loan, and hedge the risk you have created a monster.
They are blaming everyone except the Loan Maker like Country Wide and the COLLUSION between them and the Property Appraisers they employed.

2008 Oct 28 06:50 AM

[Gen. Change:]

If we the public are to be per force major shareholders of American industry I suggest we use this moment to make major demands BEFORE we lay out our investment. The demands i have in mind that we demand a 70mpg car from any automaker BEFORE we deal out any cash and a DEMAND that the
CEO of any of these companies receive no more than $500.000 annually or no more than 50 times the salaries of the lowest paid employee. This should apply to all other officers. And if this is not acceptable or undoable i am certain we can find willing, capable young applicants in the work force. We must take his opportunity to tame the would-be oligarchs who have plundered and abusied the world economy. THIS IS THE TIME FOR YOUNG IMAGINATIVE LEADERSHIP. LET'S DO IT. And this is advice from a 77 year old. Go do it!

2008 Oct 28 01:09 PM

[thedozer:]

Gen. Change,

I like your spirit. But the young imaginative leaders you speak of are busy booking trips on expedia to visit Ireland before relocating their business

2008 Oct 28 06:22 PM

[anni-econo'...:]

In addition to demanding 70mpg autos for the private sector BEFORE granting any more public money in any form, let the military and other govt agencies demand similar fuel efficiency in every vehicle they buy. Contracts have power and if big auto can't fill the bill, there may be some smaller companies that are willing to try.

And could we turn lose those young hot rodders who tinker with cars for fun to retrofit our present sorry stock.

2008 Oct 28 11:04 PM