GM Posts Record Profits

“Sounds nice but if you remember back to the dark days of '07, pensions, 401Ks, and the market had taken a 50% dive. There was not enough government cash to cover those. Government pension guarantees only covered maybe 10% of what pensioners were getting, so the public would have taken a 90% loss in income.”

I read this as Bing is talking about ALL sources of retiree income, so I can’t address the 10% figure, although PBGC typically pays way more than 10% of what the Plan would have paid. PBGC doesn’t cover 401k’s or the stock market and last time I checked no part of the gummint does or should. There is a limit on the benefits the PBGC will pay and it only covers Defined Benefit Plans, which fewer and fewer people in the U.S. have. If Wikipedia can be trusted the limit in 2011 was $54,000 a year.

IIRC, PBGC will pay a varying amount, depending on the health of the plan when it takes over. They also get the rights to pursue additional assets from the company in question if the value of the pension assets aren’t great enough to pay benefits. Their benefits are limited to $54,000 (wikipedia has that right) at most, for someone age 65 at the time of termination of the plan, with lesser benefits for younger participants.

Those limits are actually well over what the pension benefits for most UAW workers were, though. If you worked as a UAW member for 30 years, you were actually getting around $36,000 per year in pension payments if you were retired and below social security age - once you hit social security eligibility, they reduced your pension dollar for dollar with whatever you got from SS… so the average UAW pensioner was actually getting around $16,000 per year, IIRC.

However, the pension plan was still underfunded and would have likely killed PBGC (and hence hit the taxpayer hard) had the PBGC been forced to take it over… that’s why they agreed to let GM keep their loss carryforwards in exchange for not dumping the pension plan on PBGC - it was cheaper for the government that way, especially if GM doesn’t continue to remain profitable.

It’s hypocritical that many of these same polticians who support the auto bailout over saving 300k+ UAW jobs (assuming all would be lost, which they would not) are also the same ones supporting the so-called free trade agreements which send millions of jobs overseas.

The wife of a friend of mine in a neighboring state lost her job (along with hundreds of fellow employees) a few years after NAFTA was passed when the company relocated to Mexico. This put the hurt on the local economy and none of those employees got a bailout or even a few seconds of face time on the national news.

While all the jobs affected by the collapse of GM and Chrysler would not have been lost, many would have. We can’t know how many, but it is possible that GM and Chrysler might not have been able to continue in North America anymore. That would have cost a lot of suppliers their businesses, too. I imagine their demise could have meant the loss of maybe 200,000 jobs - most in the upper Midwest. Michigan and the surrounding states have had huge problems as it is. I’m just glad it was not worse. BTW, who would pay for the formerly employed auto works had hey lost their jobs? Yes, you and me. Again, we will never know, but it could have been more expensive than whatever the unrepaid loans to GM and Chrysler end up being.

Ok4450… I hear what you are saying. But free trade between countries is a matter of world community and will/has happened and will continue regardless of who is in charge. NAFTA in and of itself is not the problem…the problem are the elected officials we (hire, if you get my drift) who neglect to enforce and update the agreement’s provisions. Read it and you will see, it addresses concerns we all have. The same as the job discription as it existed for Greenspan in the investment debacle and chose to do nothing…being a govt. appointee. You just need payed officials who do not get more from reelection contributors who have everything to gain by shipping your friends wife’s job overseas. Every thing is on the books…we just have no “Matt Dillion”.

Oh, and while we’re on the subject of President George W. Bush, he started the auto loan thing. He is quoted as saying he couldn’t abide a 21% unemployment rate.

You’re right about that. For the record, I was against TARP, the auto union/industry bailout, Cash For Clunkers, and years ago, the euro.

Bush made a bad decision, but at least he didn’t do it to get re-elected.

It’s hard to know whether it was a bad decision or not. But quadrupling unemployment and having most of that centered in the upper Midwest would have been tragic. I guess it’s all about how a society should function in the face of difficult circumstances. Do we help each other or let the poor souls fend for themselves? IMO, when Chrysler and GM declared bankruptcy it would have been the end of both. And no one would have bought the remnants, in large part because there was no money to loan. And when second tier and lower suppliers went out of business, they may well have taken Ford with them since Ford would have lost suppliers as well. Maybe Asian and European manufacturers that depend on US auto part manufacturers would have faced the same ends. Not all, to be sure, but starting down that road could have been a lot worse than anyone expected. That is undoubtedly why President Bush undertook the loans and strongly encouraged President Obama to follow through. Is this a nightmare scenario? Yes, and it was quite plausible when the credit markets shut down for several months.

Yeah not only the US but Europe was far more extended than we were as we are seeing now. There would have been far greater world wide impact that hadn’t been seen since the 30’s and with no world war in sight to pull us out of it.

Jt, the case has been made, and I’m ignorant enough to think it has some merit, that the vacant manufacturing capacity and labor force would be acquired by foreign car manufacturers for a net unemployment change of not very much. In a normal bankruptcy doesn’t the company sell off assets?

Bing wrote:“Yeah not only the US but Europe was far more extended than we were as we are seeing now. There would have been far greater world wide impact that hadn’t been seen since the 30’s and with no world war in sight to pull us out of it.”

Which validates being against TARP because a lot of the money went to European banks, which wasn’t revealed until later, and we still don’t know where some of it went. The U.S. economy has its limits, and I draw the line at fixing the European economy, parts of which are doing quite well. We didn’t tell them to adopt the euro. They made that mistake on their own. “No world war in sight”? You’re being pessimistic.

“… that the vacant manufacturing capacity and labor force would be acquired by foreign car manufacturers for a net unemployment change of not very much.”

Where would the buyers have gotten the credit? The credit market was bad everywhere. And why should they have taken those plants over? It would have made better business sense to force us to buy their existing products. And if they had employed a great many UAW workers, the new owners may have had to take on the UAW. Maybe they would not have wanted that. You can say that things would have been hunky-dory eventually, but maybe they wouldn’t have been. We only know what actually happened.

BTW, I’m sure you meant the court sells the assets and then distributes the proceeds to the debt holders.

You raise valid points. Where would the buyers have gotten the credit? Sovereign wealth funds would be a good start. The Carlyle Group certainly doesn’t pay 100% cash for their acquisitions. You can’t be saying there was no credit anywhere, surely?

I’m not saying everything would have been hunky-dory, just that we shouldn’t have bailed out GM and Chrysler (we did bail them out right? I know we didn’t bail Ford out). Yes, people would have been unemployed. How different from the way things are now. Oh well, it’s water under the bridge, as Ted Kennedy never got tired of saying. Once GM stock hits $55 a share the gummint will get its money back. Nevermind the bondholders, nothing to see there.

I am saying that there was effectively not any credit at all, at least on the scale required to keep GM or Chrysler going. The market dried up. Even Fiat would not touch Chrysler without government loans. Only the governments were moving money at the time. Who knows when the Feds will sell their remaining GM stock. I imagine the total deal will create some “loss”, if you put it in in narrow terms of dollars returned or dollars spent. I guess we’ll drive off that bridge when we come to it.

You missed the part where I said “sovereign wealth funds” in the first line. Check out that word “sovereign”. And you know how much credit venture funds like Carlyle can get how?

Of course, what’s the difference between the US government giving money to GM and Chrysler and a sovereign wealth fund giving them money? The biggest difference is that you’re looking at China owning GM in the latter case, rather than the US government.

As for private equity, here’s something to consider. In 2009, about the time of the GM and Chrysler bankruptcy my employer’s long term bonds were trading at yields BELOW the level at which comparable maturity US Treasury Bonds were trading. We were having a difficult time selling bonds on the open market as was pretty much every company around. If we were viewed as a better credit risk than the US government and were struggling to place debt, what are the odds GM could have? Or Chrysler? Remember, Chrysler was owned by a private equity firm, but they couldn’t afford to save Chrysler, so was another private equity firm going to be able to?

" eraser1998 11:02AM Report
Of course, what’s the difference between the US government giving money to GM and Chrysler and a sovereign wealth fund giving them money?"

The difference is the sovereign wealth fund is trying to make a profit. And what do you mean “giving”?

Butterfly in the sky. I can go twice as high. Take a look. It’s in a book. A Reading Rainbow.

Sorry to hear that your employer sucked.

Littlemouse - so you’re claiming that the US government doesn’t care about its return on investment? The whole point of the bailout was to get a positive return - keep the economy stronger, which results in more taxes paid, which more than covers any losses on the stock.

As for my employer, those are your words. If you read more carefully, you would realize that your words are grossly inappropriate. When bonds trade at yields BELOW treasury bonds, that means that the company is viewed as having a better credit risk than the US government. That almost NEVER happens, because US treasuries have for decades been viewed as the safest investment in the world. In fact, it hadn’t happened for any company until the recession, and then only a couple of companies saw such a position.

So you have a company that is viewed by the markets as one of the 3-4 safest investments in the world, yet they can’t find buyers for debt instruments? That isn’t a reflection on the company - that’s a reflection on how frozen the credit markets were.

I would suggest that it’s a reflection on people preferring to roll the dice on full faith and credit rather than go for an even more miniscule return from a private entity.