Obama GM "investment" not likely to pay off

You've got to hand it to Barack Obama. He's got a special kind of ambition. We've all known the smart, over achieving kind of kid in school who might have claimed he wanted to be a CEO of a major corporation. And most every high school Student Council President has harbored at least a passing thought of being President of the United States. Now Barack Obama has it all. In addition to his duties as POTUS, he has the "honor" of being the de facto CEO of General Motors. (You could say the same thing about Chrysler and AIG too)

The federal government has poured about 50 billion into GM since the "bailouts" started. However, we are told not to fret because this isn't really the government just throwing money away, this is an investment. In fact, we the American Taxpayers, are now the majority shareholder of General Motors. All we need now is to sit back and wait for CEO Obama to wave his magic wand and then watch as motorists the world over chose to buy Chevy Volts instead of Toyota Camrys.

Does anyone really believe that's going to happen?

Let's put this in perspective. If we assume that the federal government doesn't invest another dime in GM on top of the 50 billion already committed, GM would have to post an 80 billion dollar valuation in order for the taxpayers to BREAK EVEN. Consider that GM's market cap just prior to bankruptcy was just a shade over 1 billion. (At it's highest point, GM's valuation was around 56 billion in 2000 when the company actually posted around 19 billion in positive cash flow).

So we are to expect that government management of what is going to be a considerably smaller GM post bankruptcy is going to eclipse the zenith of pre-bankrupcy GM which in 2000 boasted 8 brands and a highly profitable finance unit (GMAC) which accounted for one third of its earnings?

It's just not going to happen friends. This is going to be a train wreck. While Obama says he doesn't want politics getting in the way of business decisions at GM, you can rest assured they will. In fact they already have. The UAW has already pressured Congress into restricting the number of cars that GM manufacturs in foreign countries that can be imported into the United States. And that's just the beginning. Congress will stick their noses deeper and deeper into this under the guise of "protecting the taxpayer's investment". Anyone who thinks they won't is delusional.

What's happening to the American automobile industry is eerily similar to when the government basically nationalized commuter rail service almost 40 years ago. Government wouldn't be involved for long and the venture would surely be turning a profit in no time.

And of course we all know how that story has turned out...if we're lucky the government's foray into the auto business will be as wildly successful as Amtrak.