GM Looks to Use U.S. and Canadian Tax Money to Bail Out Opel 20 comments
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An article in the National Post suggests General Motors may look to divert some of its bailout money to Europe in the wake of a chill in German government support for subsidies. Talk of using taxpayer money to benefit workers in other countries is sure to raise ire, especially in the United States where the unemployment rate has hit double-digit levels.
When General Motors was forced into receivership this past Spring, it received tens of billions in bailout money from the U.S. and Canadian governments in order to protect jobs in the auto sector.
For his part, Stephen Harper, Canada’s Prime Minister said the aid was regrettable but necessary.
The Vancouver Sun reported at the time:
Canada had no choice but to support the restructuring of auto giant General Motors Corp. with about $10 billion in taxpayer aid or face devastating economic consequences, Canadian government and union leaders said Monday.
Hundreds of thousands of jobs would have been lost and communities across southern Ontario would otherwise have been devastated, Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty said at a news conference Monday, hours after the 100-year-old company sought protection from bankruptcy in the U.S.
"We could either participate in reshaping these companies for the future or stand idly by as they restructured out of Canada," Harper said in Toronto.
"The decision announced today is regrettable but necessary."
The U.S. government sunk even more into General Motors – $50 billion. All of this money and the ‘cash for clunkers’ program have allowed General Motors to return to life. However, many issues remain, the most consequential of which is GM Europe.
Since late May, it has appeared that a consortium headed by Magna International (MGA) was set to take over GM Europe on the condition of 4.5 billion euros in state aid from Germany. As early as August, stories surfaced in which GM was considering raising capital in order to keep Opel (OPELF.PK). GM never wanted to sell Opel and Vauxhall, but it was forced to do so by circumstance.
However, when GM abruptly backed out of the Magna deal early in November it enraged the German government, who are now not likely to offer any aid. At the time I said:
Will Obama now come up with the funds? If this minister gets his way, there don’t seem to be a whole lot of solutions here.
Well, here is one solution via the National Post (note the part I have highlighted in bold):
General Motors Co. may use some of the money it won from Canadian and U.S. taxpayers in the spring to fix its Opel unit in Europe in the months ahead as it works out a new financing plan for the money-losing business.
Detroit-based GM plans to fund Opel’s turnaround using a mix of sources after deciding to keep the business itself instead of selling a majority stake to Magna International Inc. and Russia’s Sberbank. That could include tapping funds pledged by the federal and Ontario governments, said Chris Preuss, GM’s vice-president of global communications.
"We’re going to be needing to participate directly in the financing" of Opel, Mr. Preuss said in an interview yesterday. "The taxpayers of both Canada and the U.S. have a stake in this. But what was agreed upon was that we have to be able to run a global business."
Translation: GM has every right to use its bailout money as it sees fit.
GM continues to misjudge the political situation. They handled the decision to back out of the deal with Magna very poorly. We are now likely to see increasing signs of economic nationalism at play.
But, just as the backing out created huge waves in Germany, this latest salvo from GM is likely to enrage Canadians and Americans as they see their tax dollars at work to protect the jobs of Europeans. GM may think using Canadian and American bailout funds for GM Europe is a good ‘technical’ solution. But, it is a very poor choice politically and they will pay the price.
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This article has 20 comments:
Not on my kid's tab.
Don't get me wrong, I have nothing against GM or US businesses, if this was a situation where Opel was being sold and Magna and GM were bidding, I would say they both deserve equal chance. If Magna is getting loans, so should GM. But the situation is different, GM is running Opel for 80 yr or similar, and the situations of Opel is partly GM's fault. In that situation to ruin the deal with Magna and to ask Europe to bails you out, is very arrogant. I personally wasn't surprise.
Plus the question that remained mainly unasked during the past few years, in the "good" years for Opel was there and how much a transfer of money going in the other direction across the Atlantic. So it's OK GM to drain money from Opel when sales are good and bring them to USA, but then Europe has to save the US company when things get tough. Unfortunately, and regrettably, I have no dilemma what Americans would answer if asked this...
Of course GM should not invest US taxpayers money in Europe. No one is asking you to do that. Just make your government (de facto owners of GM right now) to sell Opel as planned and problem solved. America is asking citizens of countries all over the world to do something against their governments all the time. But it seems that "right" is not given to Americans too. GM has to take responsibility for the bad shape of Opel under its rule. That would mean giving someone else a chance. You complain about your money being used abroad but at the same time think it's perfectly normal that Opel should not have any autonomy nor guarantees that money received from Europe will end up in Opel and not GM HQ. Yes, European governments asked for such guarantees and GM declined.
They are still arround? DANG!
P.S. -- I will never buy another GM vehicle. No company that has received a dime of TARP, TALF, etc. will get any of my business! EVER.
"We could either participate in reshaping these companies for the future or stand idly by as they restructured out of Canada," Harper said in Toronto."
I wonder what limited his view to just these two options? Surely the $10B Canadian committed to GM could have been used to stimulate the expansion or creation of other businesses some of which might even have been viable.
On Opel, if GM was serious about introducing small cars to the US, the Opel franchise could do it for them (remember, that is why we gave Chrysler to Fiat). It is a decent car that seems to sell well in Europe. Will GM think of this - probably not, why start thinking strategically now.
The $1.2B loss the company had this quarter was interesting as it came on the heels of the clunkers sub rosa bailout.
The TARP has been doing well (not perfectly) with the banks.
I agree that GM Corporate Governance (a really poor function in the past), now includes USA Government. If the GM Management should NOT be making these moves, then the BoD needs to control the CxOs. The taxpayers depend on them!
On Nov 16 01:25 PM BoneYard wrote:
> On Opel, if GM was serious about introducing small cars to the US,
> the Opel franchise could do it for them (remember, that is why we
> gave Chrysler to Fiat). It is a decent car that seems to sell well
> in Europe. Will GM think of this - probably not, why start thinking
> strategically now.
www.time.com/time/busi...
How is this possible with only 431,000 members of the UAW without corruption.
On Nov 16 05:44 PM ScroogeMcduck wrote:
> March 09 "GM has paid out more than $100 billion in retiree and health-care
> costs over the past 15 years and is now facing $47 billion in future
> retiree health-care payments."
> www.time.com/time/busi...
>
>
> How is this possible with only 431,000 members of the UAW without
> corruption.
In terms of "shooting themselves in the foot", politically speaking, this ranks right up there with the decision by by the brass of the Big Three to fly to Washington in their corporate jets, when they went before Congress looking for financial "help".
On Nov 16 06:16 PM robert.b.ferguson wrote:
> Scrooge: Greetings. Wasn't shifting retiree health care costs to
> a trust fund stolen Errrr reallocated from bond holders during their
> pre packaged bankruptcy? They shouldn't owe anything for that health
> care plan.
Wouldn’t you agree that the timing of the announcement of the payments described in the attached article is probably PR cover (inadequate though it may be for that purpose) for the Opel initiative?
www.theglobeandmail.co.../
bob adamson
On Nov 16 06:55 PM Old Trader wrote:
> "GM may think using Canadian and American bailout funds for GM Europe
> is a good ‘technical’ solution. But, it is a very poor choice politically
> and they will pay the price."
>
> In terms of "shooting themselves in the foot", politically speaking,
> this ranks right up there with the decision by by the brass of the
> Big Three to fly to Washington in their corporate jets, when they
> went before Congress looking for financial "help".
I'd tend to agree with you on that. But as you point out...its pretty weak cover. I read the article that you provided the link for, and it dawned on me, afterward, that GM may turn out to be the next "Amtrack".
On Nov 16 09:28 PM bob adamson wrote:
> To Old Trader –
>
> Wouldn’t you agree that the timing of the announcement of the payments
> described in the attached article is probably PR cover (inadequate
> though it may be for that purpose) for the Opel initiative?
>
> www.theglobeandmail.co.../
>
>
> bob adamson