Government Motors

I don't know about you, but I find it very disheartening to see what is going on here. For years, GM and Chrysler have built products that are inferior to the products built by Toyota, Honda, and Nissan. And their balance sheet shows it. Cars that are more durable, reliable, and fun to drive are the cars people will buy. If these cars happen to be from Toyota, Honda, and Nissan, then so be it. Companies that continue to produce inferior products will, and should be allowed to, fail. GM has been around for almost 100 years - plenty of time to get their act together, learn to adapt to an ever-changing marketplace, and build cars that people want to buy. They deserve to fail, file for bankruptcy protection, and let the American bankruptcy laws and courts do their thing. If an amicable deal between the creditors, bondholders, and management cannot be brokered, the company liquidates assets. The secured creditors are contractually-bound to be paid 100% either in cash or in troubled assets - this is why they are classified as "secured bondholders."General creditors fight over what is left.

However, our government has deemed the American auto-industry "too big to fail". If GM and Chrysler fail, the ripple effect would devistate an already devistaed economy. Hundred of thousands of jobs will be lost. Think of all the tax revenue that represents. So in steps Mr. Hopey McChangy, forces Chyrsler into a goverment-brokered bankruptcy, creates a "New Chrysler", forces the secured bondholders of Old Chrysler to accept pennies on the dollar, while the New Chrysler stock is owned by Fiat, the UAW, and the United States Goverment. From David A. Skeel Jr., as posted on The American.

As the administration has pointed out in defense of its plan to commandeer the bankruptcy process, asset sales (known as 363 sales, based on the relevant provision) have become a common feature of Chapter 11 cases in the last 20 years. What makes the Chrysler plan unique, and makes it similar to the receiverships of the New Dealers’ era, is that it is not really a sale at all. It is a pretend sale and its main purpose is to eliminate the pesky creditors who might otherwise interfere with the government’s plans. It also seems to flout bankruptcy’s priority rules by giving Chrysler’s employees (who are general creditors) a big stake in New Chrysler while forcing senior lenders to take a major haircut. The usual rule is that senior creditors must be paid in full before lower priority creditors are entitled to anything.

A similar deal will most likely be implemented with GM, but since GM is much larger than Chrysler, the final outcome will probably differ. From the Associated Press, as posted on Yahoo News.

The company appeared closer than ever to filing for bankruptcy protection on Wednesday after its bondholders turned their backs on a federally ordered offer to swap their debt for GM stock. If GM does file, the governments of the United States and Canada could end up with as much as 70 percent of a reconstituted GM when the court dust settles_ with the biggest share by far held by the U.S. Treasury.

Did you catch that? 70%?? !! ?? Holy crap! Folks, it's no longer General Motors...it's Government Motors. With that much ownership of the new company, the US and Canadian governments will be able to make all corporate, board-level deciscions.

According to the Byron York, as posted on the Washington Examiner:

Obama knows the public doesn't want the government to run GM and Chrysler, which is why he has said hundreds of times that the government has "no interest" in running the automakers. But on Monday, at a White House event to hail the GM bankruptcy, he gave away the game when he said the feds will stay out of running GM "in all but the most fundamental corporate decisions."

It didn't take any parsing to realize that in Obama's vision, the government will let GM management handle the small stuff, but when something really, really matters, the new owner -- the United States government -- will do the deciding.

Combine the government's 70% ownership of New GM, and their 8% ownership of New Chrysler, and this should be recognized as nothing short of the nationalization of the American auto industry. Do we really want our government, using our yet-to-be-earned money, building our cars for us? Seizing publically-held corporations and nationalizing industries goes on in banana-republic, 3rd-world, communist/socialist states like Venezuela - not in America.

Question: When did "government of the people, by the people, and for the people" change to just "government of the people"?

Answer: January 20, 2009.