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GM's financial arm was GMAC, which, while bailed out during the financial crises, eventually rebranded and IPO'ed as Ally Financial. The US Treasury made a ~ $

by adevine 11y ago

GM's financial arm was GMAC, which, while bailed out during the financial crises, eventually rebranded and IPO'ed as Ally Financial. The US Treasury made a ~ $2.4 billion profit on a $17.2 billion investment: https://www.treasury.gov/press-center/press-releases/Pages/jl9727.aspx https://www.treasury.gov/press-center/press-releases/Pages/j...

aaardvark 11y ago
On a risk-adjusted basis, that's a pretty mediocre return.
- kbenson 11y ago
  Considering the profit was at most a secondary goal of the investment, I wouldn't consider it bad at all.
kbenson 11y ago
Sure (I was aware of most of that in general, but not the specifics), which only slightly alters my point, which is that major automakers have lots of experience in finance at certain levels. GM may have sold off a large portion of the division that handled this for them, but I would be surprised if there's not still a lot of people with quite a of of experience in finance embedded somewhere in their org. My real objection is to thinking of automakers as not having finance as core to their business. The vast majority of new car purchases are financed in some manner[1], and many of those are through the financial divisions of the automakers[2]. To my eyes, finance incentives are core to their marketing, and marketing is core to their business. 1: http://www.consumerreports.org/cro/news/2013/09/car-financing-on-rise-loans-and-leases/index.htm http://www.consumerreports.org/cro/news/2013/09/car-financin... 2: http://www.reuters.com/article/us-autos-financing-insight-idUSKBN0ER0E820140616 http://www.reuters.com/article/us-autos-financing-insight-id...
MajorLOL 11y ago
>The US Treasury made a ~ $2.4 billion profit on a $17.2 billion investment Factor in the interest USA would have saved by paying down the national debt instead. Additionally, consider what private investors would have returned with the same investment and what they would have paid in tax on personal income if they had never been taxed that $17.2b instead. They won on this one, we can point at the various Solyndras the USA has bet on and lost while we are at it. This ignores the fact that we don't mail taxes in for government to act like a massive VC. We send the cash in so they can fix the 'crumbling roads and bridges', service debt and help the poor we are always hearing about.
- criley2 11y ago
  >Factor in the interest USA would have saved by paying down the national debt instead. The average interest rate on the debt is 2.43$, we have around $17 trillion debt, and you're talking about a $17 billion paydown (0.1%). The amount of interest saved would be around $400 million per year. The profit on the GM bailout was $2400 million, so it would have taken 6 years for the decreased interest to total 2.4 billion. >we can point at the various Solyndras the USA has bet on and lost while we are at it. Can you point to the value of the hundreds or thousands of engineers and employees of failed new energy startups that received invaluable real world training and experience who are lending those talents to other companies. Think about NASA and the 18 billion we "piss away" down that black hole every year, and the huge benefits that we derive from their work and the experience that those who work there gain. Not every investment the government makes has a return in next-year-dollars.
  - MajorLOL 11y ago
    Debt: 6 years to realize the savings on the interest? It nearly took GM that long to repay the debt they took on. It's sounding like a worse investment all the time. OTJ Experience: I think it's less speculative and lines less wealthy billionaires pockets to invest directly into education and industry beyond private market money to provide great learning experiences for people.
    - criley2 11y ago
      >It's sounding like a worse investment all the time. Until you realize the negative feedback loop of hundreds of thousands of GM employees hitting unemployment lines, and the secondary and tertiary companies that supply and contract for GM also shutting down. 200,000 employees * 1,000/mo unemployment * 100 weeks = $20 billion dollars. Obviously a terrible case, but not even a worst case as I examine only GM employees and not the subsequent losses in direct suppliers/contractors and community losses relying on those employees patronage. Sure, the investment may not have great returns. But are you calculating the billions in reduced welfare, or the billions in increased GDP, or the effect of stopping a negative feedback loop which spirals more deeply? I mean, a GM level destruction isn't just GM. Isn't just suppliers. It's grocery stores. It's car mechanics. It's big box stores. It's fast food. It's everything in those communities that former employees patronized. When you examine the decision more deeply than "net dollar returned" I think you'll develop a greater appreciation for the economic benefits of entire communities not being ruined.
tedmiston 11y ago
I made some pretty unreasonable but convenient assumptions with the basic compound interest formula in back-of-the-envelope math to arrive at ~2.25% annual interest rate. http://www.wolframalpha.com/input/?i=compound+interest&a=*C.compound+interest-_*Formula.dflt-&a=FSelect_**PresentValueFutureValueDates-.dflt-&a=*FS-_**PresentValueFutureValueDates.i-.*PresentValueFutureValueDates.PV-.*PresentValueFutureValueDates.FV--&f4=19%2C600%2C000%2C000&f=PresentValueFutureValueDates.FV_19%2C600%2C000%2C000&f5=17%2C200%2C000%2C000&f=PresentValueFutureValueDates.PV_17%2C200%2C000%2C000&a=*FP.PresentValueFutureValueDates.compoundingfreq-_Monthly&f7=29+Dec+2008&f=PresentValueFutureValueDates.ID%5Cu005f29+Dec+2008&f8=17+Oct+2014&f=PresentValueFutureValueDates.MD%5Cu005f17+Oct+2014 http://www.wolframalpha.com/input/?i=compound+interest&a=*C.... Assumptions: - I know the amount was not dispersed all at once at the start - I have no idea what compounding frequency seems appropriate - Does not account for inflation - Time frame: 12/29/2008–10/17/2014 per the linked pdf [1] Aside: $17.2B 2008 dollars adjusted for inflation becomes $18.89B 2014 dollars. https://www.wolframalpha.com/input/?i=17%2C200%2C000%2C000+2008+dollars+in+2014 https://www.wolframalpha.com/input/?i=17%2C200%2C000%2C000+2... That makes the return a bit less exciting. I'd love to model this in a more accurate way if others know how that might be done. 1: https://www.treasury.gov/press-center/press-releases/Documents/Ally%20Financial%20Timeline.pdf https://www.treasury.gov/press-center/press-releases/Documen...

by adevine 11y ago

aaardvark 11y ago

On a risk-adjusted basis, that's a pretty mediocre return.

kbenson 11y ago
Considering the profit was at most a secondary goal of the investment, I wouldn't consider it bad at all.

kbenson 11y ago

Sure (I was aware of most of that in general, but not the specifics), which only slightly alters my point, which is that major automakers have lots of experience in finance at certain levels. GM may have sold off a large portion of the division that handled this for them, but I would be surprised if there's not still a lot of people with quite a of of experience in finance embedded somewhere in their org. My real objection is to thinking of automakers as not having finance as core to their business. The vast majority of new car purchases are financed in some manner[1], and many of those are through the financial divisions of the automakers[2]. To my eyes, finance incentives are core to their marketing, and marketing is core to their business. 1: http://www.consumerreports.org/cro/news/2013/09/car-financing-on-rise-loans-and-leases/index.htm http://www.consumerreports.org/cro/news/2013/09/car-financin... 2: http://www.reuters.com/article/us-autos-financing-insight-idUSKBN0ER0E820140616 http://www.reuters.com/article/us-autos-financing-insight-id...

MajorLOL 11y ago

>The US Treasury made a ~ $2.4 billion profit on a $17.2 billion investment Factor in the interest USA would have saved by paying down the national debt instead. Additionally, consider what private investors would have returned with the same investment and what they would have paid in tax on personal income if they had never been taxed that $17.2b instead. They won on this one, we can point at the various Solyndras the USA has bet on and lost while we are at it. This ignores the fact that we don't mail taxes in for government to act like a massive VC. We send the cash in so they can fix the 'crumbling roads and bridges', service debt and help the poor we are always hearing about.

criley2 11y ago
>Factor in the interest USA would have saved by paying down the national debt instead. The average interest rate on the debt is 2.43$, we have around $17 trillion debt, and you're talking about a $17 billion paydown (0.1%). The amount of interest saved would be around $400 million per year. The profit on the GM bailout was $2400 million, so it would have taken 6 years for the decreased interest to total 2.4 billion. >we can point at the various Solyndras the USA has bet on and lost while we are at it. Can you point to the value of the hundreds or thousands of engineers and employees of failed new energy startups that received invaluable real world training and experience who are lending those talents to other companies. Think about NASA and the 18 billion we "piss away" down that black hole every year, and the huge benefits that we derive from their work and the experience that those who work there gain. Not every investment the government makes has a return in next-year-dollars.
- MajorLOL 11y ago
  Debt: 6 years to realize the savings on the interest? It nearly took GM that long to repay the debt they took on. It's sounding like a worse investment all the time. OTJ Experience: I think it's less speculative and lines less wealthy billionaires pockets to invest directly into education and industry beyond private market money to provide great learning experiences for people.
  - criley2 11y ago
    >It's sounding like a worse investment all the time. Until you realize the negative feedback loop of hundreds of thousands of GM employees hitting unemployment lines, and the secondary and tertiary companies that supply and contract for GM also shutting down. 200,000 employees * 1,000/mo unemployment * 100 weeks = $20 billion dollars. Obviously a terrible case, but not even a worst case as I examine only GM employees and not the subsequent losses in direct suppliers/contractors and community losses relying on those employees patronage. Sure, the investment may not have great returns. But are you calculating the billions in reduced welfare, or the billions in increased GDP, or the effect of stopping a negative feedback loop which spirals more deeply? I mean, a GM level destruction isn't just GM. Isn't just suppliers. It's grocery stores. It's car mechanics. It's big box stores. It's fast food. It's everything in those communities that former employees patronized. When you examine the decision more deeply than "net dollar returned" I think you'll develop a greater appreciation for the economic benefits of entire communities not being ruined.

tedmiston 11y ago

I made some pretty unreasonable but convenient assumptions with the basic compound interest formula in back-of-the-envelope math to arrive at ~2.25% annual interest rate. http://www.wolframalpha.com/input/?i=compound+interest&a=*C.compound+interest-_*Formula.dflt-&a=FSelect_**PresentValueFutureValueDates-.dflt-&a=*FS-_**PresentValueFutureValueDates.i-.*PresentValueFutureValueDates.PV-.*PresentValueFutureValueDates.FV--&f4=19%2C600%2C000%2C000&f=PresentValueFutureValueDates.FV_19%2C600%2C000%2C000&f5=17%2C200%2C000%2C000&f=PresentValueFutureValueDates.PV_17%2C200%2C000%2C000&a=*FP.PresentValueFutureValueDates.compoundingfreq-_Monthly&f7=29+Dec+2008&f=PresentValueFutureValueDates.ID%5Cu005f29+Dec+2008&f8=17+Oct+2014&f=PresentValueFutureValueDates.MD%5Cu005f17+Oct+2014 http://www.wolframalpha.com/input/?i=compound+interest&a=*C.... Assumptions: - I know the amount was not dispersed all at once at the start - I have no idea what compounding frequency seems appropriate - Does not account for inflation - Time frame: 12/29/2008–10/17/2014 per the linked pdf [1] Aside: $17.2B 2008 dollars adjusted for inflation becomes $18.89B 2014 dollars. https://www.wolframalpha.com/input/?i=17%2C200%2C000%2C000+2008+dollars+in+2014 https://www.wolframalpha.com/input/?i=17%2C200%2C000%2C000+2... That makes the return a bit less exciting. I'd love to model this in a more accurate way if others know how that might be done. 1: https://www.treasury.gov/press-center/press-releases/Documents/Ally%20Financial%20Timeline.pdf https://www.treasury.gov/press-center/press-releases/Documen...