11 ms·

How Did GM Pay Back Its Bailout So Fast? Well, It Didn't...

119 points by mcantor 16y ago

kgermino 16y ago
This would probably be funny if it wasn't my tax money that paid for their incompetence. Quick poll: How many founders on HN have had their failed startups bailed out by the Feds? (I suspect I know the answer)
- th0ma5 16y ago
  well, one can't conflate a failed business with network effects. arguably gm stopped being just a business a long time ago, and is more an army of subcontractors. perhaps managing these kinds of arrangements, and dealing with complexity and large blocks capital in the global market, is what we should be talking about, imho.
  - jacoblyles 16y ago
    It's more aptly described as an army of union workers who contribute boatloads to political parties. It may be more efficient for the feds to cut out the charade. They should close down all the union shops and give all the union workers full welfare for life. The resulting bill might be cheaper than the economic distortions caused by political policies that favor unions in the marketplace.
    - DougWebb 16y ago
      Full welfare for life? You mean Social Security and Healthcare? Perhaps we just need to make those programs work properly. If we also had some basic legal limits on the way salaried and non-salaried employees work and how much of a corporations tax-deductible costs can go to C-level salaries instead of everyone else's salaries, much of the need for unions would go away.
      - jacoblyles 16y ago
        Unions have outlived their usefulness in the American economy. Today, their primary effect is to destroy and bankrupt everything they touch. GM paid many workers full salary to do nothing for years because their union contract wouldn't allow them to fire people. I'm sure those "workers" were happy with what the union did for them. But those of us who don't get a sweet union deal have to live with a bankrupt state of California that can't negotiate their union labor contracts, a broken school system run by the country's most powerful union that resists all reform (except "more money for schools"!), bankrupt unionized automakers, a stale unionized postal system that is going broke, and even union grocery stores with long lines because the union resists putting in automatic checkout machines that they fear would take their jobs. And when the unions inevitably kill their host, they still aren't made to suffer. The federal government steps in and guarantees their pensions and salaries. Imagine what kind of incentives that gives the union leaders in future negotiations. Oh, and union workers will have lower taxes on their health insurance than non-union workers under the Obama health care plan even though union workers make more money on average, just to rub a little salt in the wound. In 1900, unions were a great idea. Now they are poison.
        roc 16y ago
        > "Unions have outlived their usefulness in the American economy." I used to think this way; even having grown up in and around Detroit. But it only takes a few years of actually paying attention to continued corporate abuse of employees -- numerous cases of flagrant violations of labor law and regulations -- to realize that's completely wrong. All unions are not the UAW or Teamsters any more than all companies are Enron and Merrill Lynch.
        robryan 16y ago
        So the alternative is unions which empower the opposite form of abuse? It seems that a balance is the problem, one is always stronger than the other.
        cullenking 16y ago
        I agree, in general, as a former Teamster working for UPS. I moved out of the union and became a supervisor for UPS. It was hell, where I couldn't penalize any worker for showing up late, for not working, for leaving early. Some workers could not be motivated, period, as 'senior' union employees told them the tricks that made it so they didn't have to work hard. Meanwhile, my trucks were late to pull, meaning I got my ass chewed out, because I regularly had 3/10 employees skip work. The only way I could get things going was to literally bribe them with popsicles (hot warehouse in summer) and energy drinks from my own pocket $$$. The worst was having to give skilled positions to the most senior, rather than the most capable. Made for a nightmare operating environment. However, my dad is a union employee - he works on elevators. It's a small union, and it doesn't have a bunch of 'no penalization' bullshit, and no seniority promotion clauses. The benefit it offers are a standardized health care package, so he can keep the same healthcare and retirement regardless of employer (there are only a few elevator companies anyway). The union also guarantees overtime. He can still get canned if he starts skipping work, doesn't perform etc, it just takes legitimate documentation to have happen. There are upsides and downsides, but I believe a well run union is a good thing, but in general unions are not well run and are in actuality, terrible for the private sector.
    - roc 16y ago
      Except that the non-failed auto companies have no problems operating in union states or nations. Many of GM's own in-the-black business units are in Europe. "The unions" didn't cause the failure, nor the bailout.
      - philwelch 16y ago
        2/3 unionized auto makers in the US failed and had to be nationalized in order to survive. (Ford survived largely on the principle that you don't have to outrun the bear, just your hunting companions.) The foreign, non-unionized auto makers have no problem keeping plants open in the US and turning profits. It may be more affordable to support a unionized workforce in Europe just because European countries have more generous welfare systems, or because European unions own stock in the company and have a financial incentive not to completely destroy the host. Of course, UAW resisted that level of responsibility in the GM and Chrysler bailouts.
    - DrSprout 16y ago
      American industry is failing primarily because safety standards are higher than abroad. GM failed because they designed shoddy cars. The Unions had nothing to do with that (especially given that most of the union workers were rank-and-file factory workers who built exactly the shitty cars they were told to.)
      - fizx 16y ago
        > GM failed because they designed shoddy cars. The Unions had nothing to do with that If the overhead of dealing with unions adds some amount to your marginal costs, and you have to sell your vehicle for a competitive price, then you have to find a way to make a cheaper car than your competitors. A cheaper car can happen through lower material costs, less R&D, etc, all of which lead to "shoddy cars."
        The_Fox 16y ago
        I read somewhere that GM's union commitments added about $2,000 to the price of a car. Meaning that if you buy a GM automobile, $2,000 is going to union-related stuff, rather than buying extra features, better quality, a longer warranty, etc.
      - spamizbad 16y ago
        I agree. It's not the union's fault the American auto industry failed to adopt using more universal/standard parts across their range of vehicles, as opposed to favoring proprietary parts for each specific model (with the exception of engines). Only now, post-gov take-over, are they implementing these practices that should have been in place 20 years ago. Their board also structured union benefits that favored short-term cuts over long-term costs. And when times were good, GM placed its engineering efforts on Trucks and SUVs, and when gas was cheap. Unfortunately, they let everything from compacts to their luxury sedan lines decay. GM's failure, to me, is more of a case of rotten corporate culture than a lesson against unions.
      - jdminhbg 16y ago
        "American industry is failing primarily because safety standards are higher than abroad." Then why can Toyota and Honda successfully build cars in the US?
  - CWuestefeld 16y ago
    This is arguably true. It seems that a big reason for the GM bailout was keeping the union workers employed, and keeping business going to the parts suppliers. Even so, how does this affect the bigger question?
    - uriel 16y ago
      > This is arguably true. It seems that a big reason for the GM bailout was keeping the union workers employed, and keeping business going to the parts suppliers. And to keep the flow political contributions from unions into the politician's coffers.
- mos1 16y ago
  My failed startup didn't get a bailout, but two of my ongoing businesses each got $35k at 0%, with a 6 month deferral, which was a pretty good deal.
  - lsc 16y ago
    how'd that work? are SBA loans easier to qualify for now or something?
    - mos1 16y ago
      http://www.sba.gov/recovery/arcloanprogram/index.html http://www.sba.gov/recovery/arcloanprogram/index.html
      - lsc 16y ago
        hm. thanks. (doesn't really help me; the downturn has caused me the 'too many customers' hardship, if anything. I think that's kindof stretching this 'hardship' definition.)
- antidaily 16y ago
  I feel the same way about the Iraq war.
  - ctd 16y ago
    "The nearly 5-year-old war, once billed as virtually paying for itself through increased Iraqi oil exports, has cost the U.S. Treasury $845 billion directly." [Much more now, I suppose.] http://www.reuters.com/article/idUSN2921527420080302 http://www.reuters.com/article/idUSN2921527420080302
S_A_P 16y ago
Conspiracy Theory: Since the government has such a hefty stake in GM, how does it boost sales? Tarnish the current #1 vehicle maker with a federal inquiry into safety issues... hmmm.
- grandalf 16y ago
  I totally agree. I bought a Toyota the other day.
- Splines 16y ago
  I'm of the opinion that there are competitive-research groups under each car maker that exist for this sole reason. Someone in another thread replied that such activity would border on the illegal, but I don't buy it.
ergo98 16y ago
This really is kind of silly and is people engaging in nonsense math. GM was expected to need {X} amount of cash to remain in business. They got that, with the government converting a large percentage to an equity holding (essentially like converting preferred shares). GM was expected to quickly burn through the escrow account as they bought off dealers, closed plants, etc. Yet somehow GM didn't burn through it. They ended up returning the cash. By every possible real way of considering it, they paid off the loan. Imagine that your friend gave you $20 for lunch, but agreed that he'd take your iPhone 3GS in return for $17 of it. Lunch comes to $16 so you give him his $3 back immediately -- did you not just pay him back? Does the money not count because it wasn't churned through a cycle first? Stupid math.
- thecombjelly 16y ago
  The problem is that it is misleading, at least to me. The way it is presented, I'm led to think that they paid back all of the money that they received from the government. So according to this article, around 50 million.
- Qz 16y ago
  Your analogy doesn't match up: "About $7 billion of that came in the form of a straight-up, low-interest loan. And about $13 billion came in the form of an escrow account. So how has GM, which lost $38 billion in 2007 even as it sold 9.4 million cars, paid back its debt? It took money from the escrow account to pay back the $6.7 billion loan." They literally used loan money to pay back loan money, and they're still in the hole for the stock part, as well as $6M of the escrow account.
  - ergo98 16y ago
    >They literally used loan money to pay back loan money Which is exactly what I said. GM isn't "in the hole" for anything, and what remains in the escrow account is theirs free and clear. The governments obviously hope to recoup their "investments" when the company goes public again, which may or may not happen. They repaid the loan because they ended up not needing the cash. It can't get simpler than that. The only question is whether they overstated their original request, or if they really have turned around enough.
stretchwithme 16y ago
If you lend me $50 billion from your slush fund and let me convert most of it into worthless stock, I will then turn around and pay off the balance with interest. We have too much auto building capacity for this economic environment and the least competent should have been shut down. That's how the rest of the economy works. GM got a sweetheart deal for totally political reasons while thousands of other companies employing many more workers being paid realistic wages and benefits went bankrupt. Do the rest of us get paid to sit on our asses at "job banks" playing cards when we bet on the wrong employer or career? What is so sacrosanct about this particular work or group of workers?
- josefresco 16y ago
  "thousands of other companies employing many more workers" Ok so what's your short list of companies who employ roughly 250 thousand workers (and effect countless more) that could have used a bailout as well?
  - modoc 16y ago
    What about a large number of smaller companies who employ the same in total? Or better yet, let companies fail, let the citizens keep their tax money to spend in the economy as they see fit.
    - lenley 16y ago
      How do you handle the World Trade model where foreign governments have no issue propping up their large industrial companies hit by recessions (companies that would also benefit from the decrease in your countries industrial capacity)?
      - stretchwithme 16y ago
        that's their business. if they wish to subsidize the production of products so that we pay less, let them. It has never been a path to real success. all that sort of thing does is build up dependency on the government and an insulation from the actual marketplace. That is more GM's problem than its solution.

119 points by mcantor 16y ago

This would probably be funny if it wasn't my tax money that paid for their incompetence. Quick poll: How many founders on HN have had their failed startups bailed out by the Feds? (I suspect I know the answer)

th0ma5 16y ago
well, one can't conflate a failed business with network effects. arguably gm stopped being just a business a long time ago, and is more an army of subcontractors. perhaps managing these kinds of arrangements, and dealing with complexity and large blocks capital in the global market, is what we should be talking about, imho.
- jacoblyles 16y ago
  It's more aptly described as an army of union workers who contribute boatloads to political parties. It may be more efficient for the feds to cut out the charade. They should close down all the union shops and give all the union workers full welfare for life. The resulting bill might be cheaper than the economic distortions caused by political policies that favor unions in the marketplace.
  - DougWebb 16y ago
    Full welfare for life? You mean Social Security and Healthcare? Perhaps we just need to make those programs work properly. If we also had some basic legal limits on the way salaried and non-salaried employees work and how much of a corporations tax-deductible costs can go to C-level salaries instead of everyone else's salaries, much of the need for unions would go away.
    - jacoblyles 16y ago
      Unions have outlived their usefulness in the American economy. Today, their primary effect is to destroy and bankrupt everything they touch. GM paid many workers full salary to do nothing for years because their union contract wouldn't allow them to fire people. I'm sure those "workers" were happy with what the union did for them. But those of us who don't get a sweet union deal have to live with a bankrupt state of California that can't negotiate their union labor contracts, a broken school system run by the country's most powerful union that resists all reform (except "more money for schools"!), bankrupt unionized automakers, a stale unionized postal system that is going broke, and even union grocery stores with long lines because the union resists putting in automatic checkout machines that they fear would take their jobs. And when the unions inevitably kill their host, they still aren't made to suffer. The federal government steps in and guarantees their pensions and salaries. Imagine what kind of incentives that gives the union leaders in future negotiations. Oh, and union workers will have lower taxes on their health insurance than non-union workers under the Obama health care plan even though union workers make more money on average, just to rub a little salt in the wound. In 1900, unions were a great idea. Now they are poison.
      - roc 16y ago
        > "Unions have outlived their usefulness in the American economy." I used to think this way; even having grown up in and around Detroit. But it only takes a few years of actually paying attention to continued corporate abuse of employees -- numerous cases of flagrant violations of labor law and regulations -- to realize that's completely wrong. All unions are not the UAW or Teamsters any more than all companies are Enron and Merrill Lynch.
        robryan 16y ago
        So the alternative is unions which empower the opposite form of abuse? It seems that a balance is the problem, one is always stronger than the other.
      - cullenking 16y ago
        I agree, in general, as a former Teamster working for UPS. I moved out of the union and became a supervisor for UPS. It was hell, where I couldn't penalize any worker for showing up late, for not working, for leaving early. Some workers could not be motivated, period, as 'senior' union employees told them the tricks that made it so they didn't have to work hard. Meanwhile, my trucks were late to pull, meaning I got my ass chewed out, because I regularly had 3/10 employees skip work. The only way I could get things going was to literally bribe them with popsicles (hot warehouse in summer) and energy drinks from my own pocket $$$. The worst was having to give skilled positions to the most senior, rather than the most capable. Made for a nightmare operating environment. However, my dad is a union employee - he works on elevators. It's a small union, and it doesn't have a bunch of 'no penalization' bullshit, and no seniority promotion clauses. The benefit it offers are a standardized health care package, so he can keep the same healthcare and retirement regardless of employer (there are only a few elevator companies anyway). The union also guarantees overtime. He can still get canned if he starts skipping work, doesn't perform etc, it just takes legitimate documentation to have happen. There are upsides and downsides, but I believe a well run union is a good thing, but in general unions are not well run and are in actuality, terrible for the private sector.
  - roc 16y ago
    Except that the non-failed auto companies have no problems operating in union states or nations. Many of GM's own in-the-black business units are in Europe. "The unions" didn't cause the failure, nor the bailout.
    - philwelch 16y ago
      2/3 unionized auto makers in the US failed and had to be nationalized in order to survive. (Ford survived largely on the principle that you don't have to outrun the bear, just your hunting companions.) The foreign, non-unionized auto makers have no problem keeping plants open in the US and turning profits. It may be more affordable to support a unionized workforce in Europe just because European countries have more generous welfare systems, or because European unions own stock in the company and have a financial incentive not to completely destroy the host. Of course, UAW resisted that level of responsibility in the GM and Chrysler bailouts.
  - DrSprout 16y ago
    American industry is failing primarily because safety standards are higher than abroad. GM failed because they designed shoddy cars. The Unions had nothing to do with that (especially given that most of the union workers were rank-and-file factory workers who built exactly the shitty cars they were told to.)
    - fizx 16y ago
      > GM failed because they designed shoddy cars. The Unions had nothing to do with that If the overhead of dealing with unions adds some amount to your marginal costs, and you have to sell your vehicle for a competitive price, then you have to find a way to make a cheaper car than your competitors. A cheaper car can happen through lower material costs, less R&D, etc, all of which lead to "shoddy cars."
      - The_Fox 16y ago
        I read somewhere that GM's union commitments added about $2,000 to the price of a car. Meaning that if you buy a GM automobile, $2,000 is going to union-related stuff, rather than buying extra features, better quality, a longer warranty, etc.
    - spamizbad 16y ago
      I agree. It's not the union's fault the American auto industry failed to adopt using more universal/standard parts across their range of vehicles, as opposed to favoring proprietary parts for each specific model (with the exception of engines). Only now, post-gov take-over, are they implementing these practices that should have been in place 20 years ago. Their board also structured union benefits that favored short-term cuts over long-term costs. And when times were good, GM placed its engineering efforts on Trucks and SUVs, and when gas was cheap. Unfortunately, they let everything from compacts to their luxury sedan lines decay. GM's failure, to me, is more of a case of rotten corporate culture than a lesson against unions.
    - jdminhbg 16y ago
      "American industry is failing primarily because safety standards are higher than abroad." Then why can Toyota and Honda successfully build cars in the US?
- CWuestefeld 16y ago
  This is arguably true. It seems that a big reason for the GM bailout was keeping the union workers employed, and keeping business going to the parts suppliers. Even so, how does this affect the bigger question?
  - uriel 16y ago
    > This is arguably true. It seems that a big reason for the GM bailout was keeping the union workers employed, and keeping business going to the parts suppliers. And to keep the flow political contributions from unions into the politician's coffers.
mos1 16y ago
My failed startup didn't get a bailout, but two of my ongoing businesses each got $35k at 0%, with a 6 month deferral, which was a pretty good deal.
- lsc 16y ago
  how'd that work? are SBA loans easier to qualify for now or something?
  - mos1 16y ago
    http://www.sba.gov/recovery/arcloanprogram/index.html http://www.sba.gov/recovery/arcloanprogram/index.html
    - lsc 16y ago
      hm. thanks. (doesn't really help me; the downturn has caused me the 'too many customers' hardship, if anything. I think that's kindof stretching this 'hardship' definition.)
antidaily 16y ago
I feel the same way about the Iraq war.
- ctd 16y ago
  "The nearly 5-year-old war, once billed as virtually paying for itself through increased Iraqi oil exports, has cost the U.S. Treasury $845 billion directly." [Much more now, I suppose.] http://www.reuters.com/article/idUSN2921527420080302 http://www.reuters.com/article/idUSN2921527420080302

S_A_P 16y ago

Conspiracy Theory: Since the government has such a hefty stake in GM, how does it boost sales? Tarnish the current #1 vehicle maker with a federal inquiry into safety issues... hmmm.

grandalf 16y ago
I totally agree. I bought a Toyota the other day.
Splines 16y ago
I'm of the opinion that there are competitive-research groups under each car maker that exist for this sole reason. Someone in another thread replied that such activity would border on the illegal, but I don't buy it.

ergo98 16y ago

This really is kind of silly and is people engaging in nonsense math. GM was expected to need {X} amount of cash to remain in business. They got that, with the government converting a large percentage to an equity holding (essentially like converting preferred shares). GM was expected to quickly burn through the escrow account as they bought off dealers, closed plants, etc. Yet somehow GM didn't burn through it. They ended up returning the cash. By every possible real way of considering it, they paid off the loan. Imagine that your friend gave you $20 for lunch, but agreed that he'd take your iPhone 3GS in return for $17 of it. Lunch comes to $16 so you give him his $3 back immediately -- did you not just pay him back? Does the money not count because it wasn't churned through a cycle first? Stupid math.

thecombjelly 16y ago
The problem is that it is misleading, at least to me. The way it is presented, I'm led to think that they paid back all of the money that they received from the government. So according to this article, around 50 million.
Qz 16y ago
Your analogy doesn't match up: "About $7 billion of that came in the form of a straight-up, low-interest loan. And about $13 billion came in the form of an escrow account. So how has GM, which lost $38 billion in 2007 even as it sold 9.4 million cars, paid back its debt? It took money from the escrow account to pay back the $6.7 billion loan." They literally used loan money to pay back loan money, and they're still in the hole for the stock part, as well as $6M of the escrow account.
- ergo98 16y ago
  >They literally used loan money to pay back loan money Which is exactly what I said. GM isn't "in the hole" for anything, and what remains in the escrow account is theirs free and clear. The governments obviously hope to recoup their "investments" when the company goes public again, which may or may not happen. They repaid the loan because they ended up not needing the cash. It can't get simpler than that. The only question is whether they overstated their original request, or if they really have turned around enough.

stretchwithme 16y ago

If you lend me $50 billion from your slush fund and let me convert most of it into worthless stock, I will then turn around and pay off the balance with interest. We have too much auto building capacity for this economic environment and the least competent should have been shut down. That's how the rest of the economy works. GM got a sweetheart deal for totally political reasons while thousands of other companies employing many more workers being paid realistic wages and benefits went bankrupt. Do the rest of us get paid to sit on our asses at "job banks" playing cards when we bet on the wrong employer or career? What is so sacrosanct about this particular work or group of workers?

josefresco 16y ago
"thousands of other companies employing many more workers" Ok so what's your short list of companies who employ roughly 250 thousand workers (and effect countless more) that could have used a bailout as well?
- modoc 16y ago
  What about a large number of smaller companies who employ the same in total? Or better yet, let companies fail, let the citizens keep their tax money to spend in the economy as they see fit.
  - lenley 16y ago
    How do you handle the World Trade model where foreign governments have no issue propping up their large industrial companies hit by recessions (companies that would also benefit from the decrease in your countries industrial capacity)?
    - stretchwithme 16y ago
      that's their business. if they wish to subsidize the production of products so that we pay less, let them. It has never been a path to real success. all that sort of thing does is build up dependency on the government and an insulation from the actual marketplace. That is more GM's problem than its solution.