No Car Dealer Left Behind

Can't wait until congress gets to vote on what color the interior should be, and has hearings on engine design.

First, the caveats: I support the car company bailouts; I am not a car dealer nor do I have any reason to particularly support them. I have no ax to grind here (and have never liked David Broder!).

That said, I watched extensive portions of both the Senate and House committee hearings with officials from GM and Chrysler and a panel of car dealers as witnesses on C-Span. I came away convinced that the process for eliminating dealerships was unfair and unreasonable, and that it constitutes, constitutionally, a "taking" of dealers' property.

Dealers have invested millions of their own dollars in building up their franchises. They have purchased real estate, inventories, parts and all of the infrastructure that goes along with that. They hire tens to hundreds of employees, all of whose jobs are at stake. Many dealers have been in the business for generations, and all of their family's equity is tied up in these dealerships.

The car companies have decided simply to eliminate numerous dealerships, and argue that they need to do so in order to survive themselves. (Their case is largely based on the fact that they are now selling far fewer cars, which is not necessarily going to remain the case forever). Even to the extent that their need is real, however, no convincing case was made that the policy is being well implemented.

Giving the car companies life and death decisions over dealerships -- in Chrysler's case with no right of appeal -- is tantamount to giving them the right simply to take the equity that dealers have built up, with virtually no further recourse. This is a poor solution, and case after case presented at these hearings demonstrated why.

Kevin's attempt to reduce this to Congress's simply being bought is a vast oversimplification in this case, and ignores virtually all of the fundamentals. There are far more dollars and far more jobs at stake here than just those given to political campaigns, and representatives and senators are absolutely right to be concerned about them. For EXACTLY the same reasons that it made sense to bail out the car companies themselves, Congress needs to slow this process down and protect dealer's rights, communities and jobs that would otherwise be needlessly trampled.

Kevin, step back and take a closer look.

Even if the New GM works as a company it won’t work as an investment for the 300 Million US shareholders. Here is the scary math behind our little investment.

The government effectively will get 60% of General Motors in exchange for $50 Billion in aid.

This, using standard investor math, means that GM has an implied value of:

50 Billion/.60 = $83.3 Billion

Currently (just prior to bankruptcy) GM had 610 million shares outstanding.

That means that for the taxpayer to break-even GM shares (in the pre-bankruptcy world) would need to be worth $136.55 PER SHARE (83.3 Billion/610 Million)

The lifetime HIGH for GM is $93.62 back in April 2000 when the going was good. So good luck with that.

Oh and to complicate matters the government will see its holdings diluted if the bondholders take the extra 10% that they were promised as part of setting up the bankruptcy filing. If GM is doing well one would assume they would exercise these options and taxpayer shareholders would get diluted.

In that case the taxpayer stake goes to 54% which means an assumed market cap of $89.3 Billion or a per share price of $146.39

So even if GM were to return to its lifetime high of $93.62 the taxpayer would only get back $34 Billion 0r 68% of its investment if GM got as BIG as it ever was.

This of course is impossible based on the Government’s own admission that they are structuring GM to compete in an economy where car sales are 33% less than they are now.

Sure these numbers are approximations and some of the debt might be repaid like a normal loan (and I hope most of it is) but you can tell that there is no way that the taxpayers will see even HALF of their money returned even if all the right things happened (in a short-period of time as President Obama doesn’t want to hold on for long).

Well look on the bright side. We got rust-protection and under-coating free with the deal and we know how important those are.

http://watchingmarcitz.com/2009/06/01/the-scary-math-behind-the-gm-taxpa...