Obama's General Motors [GM] Tarp Bailout - Profits News Update
General Motors [GM] TARP Bailout - It Worked
Reported for the Daily Constitutional - reassigned to the Curmudgeon's desk: GA Anderson
GM, and the U.S. auto industry are obviously alive and recovering after the controversial 2008 TARP Bailout orchestrated by the Obama administration, but the controversies continue to swirl as the 2012 general election approaches.
Politically, the Left is touting GM's survival, (and apparent profitability), as proof that President Obama was right, but the Right is still pointing fingers at the details, special deals, and obvious trampling of the Rule-of-Law that is the bedrock of our nation's character.
*See the details and story behind the Government's bailout of GM and Chrysler here.
Controversies, Perceptions and Cloudy Facts
As with most politically charged issues - "the Devil is in the details," and in this case the Left is saying GM and the auto industry's success are proof enough, but the Right continues to point out that it is "the how," of the details that are the real issue.
The issue: The New GM is making a profit...
"New" GM stock history:
Initial offering $33.00, High - $38.98 (1/6/11) Current - $25.65 (12/2/2012)
GM Profits 2011 - Fact and Spin
GM has officially posted profits for 2011 and 2012, but the true picture of those profits is more than just the headlines. Ideologically, both sides have pointed to the GM profits headlines as proof of their contentions, but once again, it is the details that tell the true story.
GM 2011 profits: GM claimed earnings of $7.6 billion for 2011, a 62% gain over 2010. Revenue increased 11% to $150.3 billion1.
First Quarter profits, (2011) totaled $4.8 Billion, but the sale of GM's Dephi subsidiary accounted for $3.2 Billion of that , leaving a unit sales-based operating profit of $1.6 Billion.
- The controversy - 1) GM's U.S. sales and market share actually declined, but an increase in global markets sales, (particularly in China), boosted not only GM's overall profit picture, but also its position as the world's leading auto maker - a fact that both supporters and opponents claim as validation of their position. 2) From the bankruptcy process GM was allowed to retain a $45 Billion Carry-forward Business Loss tax credit, (a highly unusual grant from bankruptcy Courts), that allowed the company to avoid any U.S. tax liability for the quarter. *Note: this tax credit will be used throughout 2011/2012, (and can be used for up to the next 18 years), also note that GM's $1.6 Billion "tax-free" 1st quarter profit compares to Ford's $1.4 Billion taxes-included 1st quarter profits
In the fourth quarter, GM's profits fell to $472 million from $510 million in the same period a year earlier. Revenue increased 3% to $38 billion.
Auto Industry supporters of the TARP bailout say the record earnings of 2011 represented "a remarkable turnaround from what appeared to be a hopeless situation just three years ago" (Jesse Toprak, an analyst with automotive information company TrueCar.com), but opponents point out that it was primarily due to:
1) China and South American sales, (not U.S. production, or U.S. jobs)
2) Continued use of the $45 Billion tax credit, (GM actually received a $110 Million tax refund for 20112 vs. Ford, which paid $2.54 Billion in 2011 taxes)
3) Opponents also point to specific consumer tax credits, like the $7500 credit for purchasing a Chevy Volt, (available to consumers with an average annual income up to $170.000)2, as further evidence of the Government's involvement in GM's viability
**Opponents also note that contrary to GM's claims that they have repaid the TARP monies; as of 2/16/12, GM had only repaid $24.1 billion of the $49.5 billion in federal government aid it received, and the bulk of that repayment was from other axillary TARP funds allotted to GM, and proceeds from the automaker's public stock offering, not from operating profits generated by a new and invigorated auto maker.
A Profit is a Profit is a Profit...
The debate over the "Bailout vs Bankruptcy" handling of General Motor's problem has and will continue for many years. Supporters point to the jobs saved, the profitable New GM, and the avoidance of which could possibly have been a "Depression-era" shock to the U.S. economy had the company been allowed to fail - as conservatives proposed, (claiming GM could have legitimately emerged from traditional bankruptcy proceedings), but opponents say the touted facts supporting GM's success are really skewed facts that, even with its favored Government treatment and involvement, show GM's problems were not solved - just papered over with U.S. taxpayer money.
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Writing for the Daily Constitutional, and commentary from the Curmudgeon's desk - GA Anderson
"Seeing it does not make it real, and reading it does not make it true. Use a little common-sense and trust your instincts." - GAA
*Composite image component source citations: Creative Commons images from:commons.wikimedia.org, flickr.com/creativecommons, search.creativecommons.org, http://googlesystem.blogspot.com/2009/06/find-creative-commons-images-in-google.html. *photo and image source credits: divider and separation images - http://gaanderson.hubpages.com