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The Success of the Detroit Bailout

[ 208 ] February 25, 2011 |

As G.M.’s healthy profit makes clear, it’s been a striking policy success that Republicans in Congress were wrong about.

For a strikingly non-prescient column, your moment of Bobo from 2009. The giveaway is the bit about “educated buyers.” But, in fact, as I knew from having to research the purchase of a car for the first time in 2009, people who believed that GM (or Ford) were not making competitive cars were pretty much the opposite of educated (particularly when you remember that the decision to replace the Cobalt with the vastly superior Cruze had already been made.) Anybody who actually did up-to-date consumer research rather than relying on lazy received wisdom could have foreseen that the bailout would work for GM. The quality product was already there or on the way; it needed the capital to shut down redundant product lines and dealers. As Cohn says, Chrysler (where the stereotypes about American car quality were still largely applicable) is a tougher case, but bailing out one but not the other was almost certainly not viable.

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  1. Jager says:

    In 2008, I bought my my first American car in over 30 years, a Corvette Z06. Those union workers in Lexington Ky build one helluva car!

  2. MPAVictoria says:

    The new Chrysler products are turning out to be very nice as well. Check out the new Jeep Cherokee or the 300.

  3. elm says:

    The last American car I owned was a used 1985 Ford Tempo, which I drove in the mid 90’s. It’s been Nissan’s and Honda’s for me ever since.

    But now as I look to buy a new car for the first time in half a dozen years, I’ve narrowed it down to the Malibu and the Fusion. Never would have thought that I’d be choosing between 2 American midsize cars, but here we are. Detroit’s turnaround in terms of product the last 5 years has been remarkable.

  4. Brad P. says:

    And they won’t even have to pay taxes on it!

    Maybe if the taxpayers sacrifice another $50B, GM could shake off that sluggish 4th quarter and actually perform as well as its its non-bailout competitor Ford.

    But then again, probably not.

    • joe from Lowell says:

      Nice goalpost moving.

      Sure, you were wrong about whether the taxpayer investment – the one that’s being repaid – could turn around GM and make it a sustainable, going concern.

      Sure, it’s now a profitable, growing company.

      But…but…but…it’s not the most profitable, fastest growing company in the world! So, take that, liberals!

      Oh, and the taxpayers haven’t sacrificed a dime. People who don’t know the difference between a gift and a loan shouldn’t hold forth on economic issues.

      • Brad P. says:

        Sure, you were wrong about whether the taxpayer investment – the one that’s being repaid – could turn around GM and make it a sustainable, going concern.

        Did you look at the reports or read the links I posted? Profits went from $2B to $500M from Q3-Q4, with Q3 leading into a IPO. There are several parts of their report that suggests GM is overstating its revenues and understating its debt expenses.

        Gas prices are rising, they actually have a dearth of new models as design expenditures had been slashed in recent years, and their stock actually dropped 4 points yesterday. Expectations were actually higher than what GM turned in. GM Europe is hemorrhaging money.

        Not quite sure enough has come in to show GM is a long-term, “sustainable, growing concern”.

        Oh, and the taxpayers haven’t sacrificed a dime. People who don’t know the difference between a gift and a loan shouldn’t hold forth on economic issues.

        Actually, the deal struck with the IRS was termed in the two articles I read about it in, including the CNN Money article used these exact words:

        Since the company shed $30 billion in debt during bankruptcy, it should have wiped out most of the tax break. GM even warned it expected to lose those tax breaks shortly before filing for Chapter 11 protection.

        Since the company shed $30 billion in debt during bankruptcy, it should have wiped out most of the tax break. GM even warned it expected to lose those tax breaks shortly before filing for Chapter 11 protection.

        But somehow, that never happened, and the automaker was able to keep most of its tax breaks, essentially receiving a $14 billion “gift” from the government.

        Furthermore, the US lost $7B dollars in the IPO GM launched in November, and stand to lose a whole lot more as the companies shares are currently trading at about 50% of what they would for the US to cut a profit.

        Plus I think they are still on the hook for like $40B in loans.

        • joe from Lowell says:

          You sound like a global warming denier. “Years-long trend of steadily improving performance? Pfft! If I only look at one quarter, or one day’s stock performance, I can pretend things are terrible!”

          • Brad P. says:

            You sound like a global warming denier. “Years-long trend of steadily improving performance? Pfft! If I only look at one quarter, or one day’s stock performance, I can pretend things are terrible!”

            This is a one year trend in profit following a 7-year trend of shit that lead to bankruptcy, and half of the profits were contained in one quarter, with the last quarter being poor.

            So one quarter of good profits, three quarters of so-so profits, and seven preceding years of losses.

            And just to point out, I listed no less than 10 reasons why I did not see this as rosily as you do, and you didn’t even actually address the only one you picked out.

            • joe from Lowell says:

              This is a one year trend in profit

              Actually, it’s a 2-year trend that began with shrinking losses, turned into breaking even, and then turned into a profit. Do you not know what a trend is? The phrase “a trend in profit” makes no sense. Your argument amounts to saying that going from 20 below to 0 to 10 degrees isn’t a warming trend, until temperatures hit 32.

              following a 7-year trend of shit that lead to bankruptcy

              You mean, before the government got involved. Yes, GM was trending downward for years before the government got involved, and has been trending upwards ever since. Thank you for making the point so explicitly that the government’s involvement reversed the trend.

        • Malaclypse says:

          Okay, from your next link:

          5. Accounts payable increased 14.8%. Sure, when you’re increasing sales (and COGS) its not unreasonable to see accounts payable rise as well, if the trend continues, especially at a greater rate than COGS, then management is probably taking longer to pay suppliers, i.e. understating expenses and overstating net income.

          Okay, if you are taking longer to pay suppliers, that would increase AP, and would preserve cash. However, if you were in fact understating expenses, then your AP would not be rising. AP is recognized, but unpaid, expense. This is really basic. Anybody who would write that last sentence is trying to bullshit people. Full stop. There is no other possible explanation.

          • elm says:

            Anybody who would write that last sentence is trying to bullshit people. Full stop. There is no other possible explanation.

            I think you’re wrong here: the writer could also be stupid or ignorant.

            • Malaclypse says:

              I think you’re wrong here: the writer could also be stupid or ignorant.

              Brad is ignorant, but not stupid, nor lying. Zero Hedge is neither stupid not ignorant. He’s lying.

              • Brad P. says:

                I have completed a couple of 300 level accounting courses. I at least understand the difference between a balance sheet and an income statement.

                And I also know that a brief glance at GM’s balance sheet doesn’t reveal how much in government loans cause I looked there.

              • Malaclypse says:

                I have completed a couple of 300 level accounting courses. I at least understand the difference between a balance sheet and an income statement.

                Did you pass? Because you are asking questions about how AP works that imply you really don’t understand financials.

                And I also know that a brief glance at GM’s balance sheet doesn’t reveal how much in government loans cause I looked there.

                And yet you felt confident throwing out that 40 billion number…

                Now, when I look, I see total liabilities of about 102B. 21B of that is short-term trade AP. 30B is pension-related. 13B is taxes not yet due, but recognizable. So there is absolutely no way your figure could be right. Actual loans is either 4.5B or 12B, depending on how you want to treat GM Financial liabilities. So it is an open question whether you were wrong by a factor of 3, or of 9.

              • Brad P. says:

                And yet you felt confident throwing out that 40 billion number…

                The most recent thing I could find on the repayment of the TARP loans was before the IPO, so I don’t know how much has been paid back since that.

                Since the last figure I saw was in the area of 40B, but there has been a significant change in the financials since then, so I said I think that they still owe about 40B.

              • Malaclypse says:

                The most recent thing I could find on the repayment of the TARP loans was before the IPO, so I don’t know how much has been paid back since that.

                Well, you discussed the financials today, once the balance sheet was released. So you made up a bullshit number, and got called on it.

                Beyond that, GM’s TARP loan was 8.4B, which has been, as discussed, repaid. It was never, ever, ever 40B.

                Please, for the love of Cthulhu, stop digging.

              • Brad P. says:

                Well, you discussed the financials today, once the balance sheet was released. So you made up a bullshit number, and got called on it.

                Beyond that, GM’s TARP loan was 8.4B, which has been, as discussed, repaid. It was never, ever, ever 40B.

                Please, for the love of Cthulhu, stop digging.

                Yes, the source I read was including the cost of the government stock purchase as something that GM owed the government. I misread it, or he mislead me.

                Of course that is not owed back, that is just going to be a straight up investment loss by our government.

                And yes, they did payback the TARP funds with other TARP funds held in escrow.

              • Malaclypse says:

                I misread it, or he mislead me.

                Which will lead you to revising opinions, of course, right?

                Of course that is not owed back, that is just going to be a straight up investment loss by our government.

                Or maybe not.

                Seriously, you’ve been completely wrong about everything you discussed in this thread, and that wrongness is a matter of provable fact, not opinion. Have you learned anything from this, beyond the fact that I am an insufferable prick?

              • Malaclypse says:

                Of course that is not owed back, that is just going to be a straight up investment loss by our government.

                Because I bothered to look:

                a href=”http://www.kansascity.com/2011/02/23/2677388/earnings-preview-general-WHY IT MATTERS: Strong GM profits mean the U.S. government will get more of its bailout money back. The government sold GM shares in the IPO and now has been repaid $23 billion. But it needs $26.4 billion more to recoup its whole investment. The government still owns 500 million shares of GM common stock, which would have to sell for roughly $53 per share to get all the money back.

                Current stock price is 33.25. So if they sold everything today, exclusive of already realized dividends earnings, they would lose about 25% of their investment.

                For perspective, during 2009, Harvard’s wide pool of investments lost 30%.

          • Brad P. says:

            Okay, if you are taking longer to pay suppliers, that would increase AP, and would preserve cash. However, if you were in fact understating expenses, then your AP would not be rising. AP is recognized, but unpaid, expense. This is really basic. Anybody who would write that last sentence is trying to bullshit people. Full stop. There is no other possible explanation.

            Does accounts payable actually show up in an income statement?

            If indeed accounts payable is growing more rapidly than COGS, then wouldn’t it naturally overstate income, even if the balance was reported elsewhere?

            • Malaclypse says:

              Does accounts payable actually show up in an income statement?

              No. If you need to ask that question, you have no competence to be commenting on financials.

              If indeed accounts payable is growing more rapidly than COGS, then wouldn’t it naturally overstate income, even if the balance was reported elsewhere?

              You don’t even understand enough to be wrong, Brad. I’m sorry if this is snark, but you are commenting on a technical report, in an area where you literally have no competence.

              Look, for AP (on the balance sheet, first line of liabilities) to rise, then there must have been an expense recognized on the income statement. Debits always equal credits. Always.

              Now the interesting question is, now that I demonstrated that your source lied (and I have, beyond any question, showed that), will you question any conclusions?

              • Brad P. says:

                No. If you need to ask that question, you have no competence to be commenting on financials.

                That is why I posted links.

                You don’t even understand enough to be wrong, Brad. I’m sorry if this is snark, but you are commenting on a technical report, in an area where you literally have no competence.

                I’m pretty sure that isn’t snark.

                Look, for AP (on the balance sheet, first line of liabilities) to rise, then there must have been an expense recognized on the income statement. Debits always equal credits. Always.

                So a loan that is taken out but not repaid counts as an expense on an income statement.

                Now the interesting question is, now that I demonstrated that your source lied (and I have, beyond any question, showed that), will you question any conclusions?

                Well, there are other signs that maybe the company isn’t as strong as being proposed on here.

                And you did say that looking at profit as a judge of company health is for amateurs.

                So how about I just say that I will wait and see.

              • Malaclypse says:

                That is why I posted links.

                Which were to really, really bad analyses.

                I’m pretty sure that isn’t snark.

                Fair enough. It was an open statement that you don’t understand the statements that you are making.

                So a loan that is taken out but not repaid counts as an expense on an income statement.

                Dear Christ, no. A loan is receiving cash, an asset, in exchange for a note, or liability. A loan has absolutely no P/L impact. Are you sure you took accounting courses? Were you stoned at the time?

                And you did say that looking at profit as a judge of company health is for amateurs.

                Yes, I did, which is why I focused on your analyst making misrepresentations about how balance sheets worked, as well as your bullshitting of a 40B debt number.

              • Brad P. says:

                Dear Christ, no. A loan is receiving cash, an asset, in exchange for a note, or liability. A loan has absolutely no P/L impact. Are you sure you took accounting courses? Were you stoned at the time?

                I understand that, I am just trying to figure out how the relevant expenses end up on the income statement.

              • Malaclypse says:

                I understand that,

                It seems clear you do not, or you would not have used that example. In trying to understand a P&L, you picked an example that only has any impact on the Balance Sheet.

                I am just trying to figure out how the relevant expenses end up on the income statement.

                Okay, let us say you purchase a part for $100, payable N30.

                DR Parts $100.00
                CR AP $100.00

                Parts is (in my example) an expense on the income statement. AP is a liability on the Balance Sheet. I can make this a whole lot more complicated by discussing how to treat Inventory, but I really don’t think that will help at this point.

                The relevant point is that each and every debit on the income statement has a corresponding credit on the balance sheet.

                Seriously, you claimed to have taken advanced accounting courses, and you don’t know this? How the fuck is that possible? If you passed the course, but don’t know this, you need to sue the school. I’m not joking, you should sue. You never, ever get to mock my education ever again, because I will link to this each and every time you do it. 300-level accounting courses, and you don’t understand how a simple credit purchase gets recorded? What school, so I can make sure my kid never goes there?

              • Brad P. says:

                It seems clear you do not, or you would not have used that example. In trying to understand a P&L, you picked an example that only has any impact on the Balance Sheet.

                Hence my confusion over how the relevant flow to AP’s balance is reported on an income statement.

                That link came from Business Insider and was posted by a financial analysis group, so it was your word against his, and I figure there may be a link between AP and the way in which COGS is calculated that may have the effect he mentioned. I do know that our company is in the precarious position of having our larger buyers on N60, yet having N30 for our smaller suppliers, and I thought pressure on suppliers to accept longer terms, or a greater reliance on longer credit payments could cause it.

                I did receive a response when I asked him to explain his assertion, and just like you he explained that it is basic accounting:

                Its basic accounting my friend. COGS are funded (ceteris paribus) via cash on hand and supplier credit (accounts payable) and cash increases when net income and AR increase. If COGS are increasing, AP is increasing, and cash/short-term investments are not increasing at the same rate…

                I figured the key to understanding this was in inventory calculations, so at this point both of you make sense, and I am bowing out for being too ignorant to know which one of you is correct.

              • Malaclypse says:

                Hence my confusion over how the relevant flow to AP’s balance is reported on an income statement.

                For the last time, AP is not on an income statement. AP is (normally) the first line item under liabilities in the Balance Sheet.

                I figured the key to understanding this was in inventory calculations,

                Inventory is genuinely complicated as a concept, and is a good place to look for shenanigans. It is also a very hard place to find shenanigans if there are any.

                so at this point both of you make sense,

                Except he started off making a highly deceptive statement which he is now backing away from, which I did not.

              • Brad P. says:

                For the last time, AP is not on an income statement. AP is (normally) the first line item under liabilities in the Balance Sheet.

                I know. Hence why I referred to the relative flows to the AP’s balance.

                Except he started off making a highly deceptive statement which he is now backing away from, which I did not.

                Here is where we are at:

                COGS is paid for by cash on hand, accounts payable, and cash from increased income.

                So he is saying that, since AP is rising faster than COGS, GM is likely bearing more and more expenses on credit, when their profits would imply that they had cash on hand.

                That would seem to imply that they are either taking on higher levels of debt or indeed their actual profits are lower than they are reporting.

                Am I wrong factually, and am I wrong in my interpretation of what he said?

              • Malaclypse says:

                So he is saying that, since AP is rising faster than COGS, GM is likely bearing more and more expenses on credit, when their profits would imply that they had cash on hand.

                Preserving cash is not a strange business decision.

                That would seem to imply that they are either taking on higher levels of debt or indeed their actual profits are lower than they are reporting.

                Yes, Brad, AP is debt. That it why it is a liability. It is right there is the name – Accounts Payable. There is nothing nefarious here. An educated reader of the Balance Sheet can see exactly what is going on. Someone who thought, even for a minute, that there was 40B in TARP debt is not that educated reader.

                I’ve tried, patiently, to explain this, going so far as to show you with individual Journal Entries how this works. However, you are so convinced what you already think you know that there is no explaining even the basics to you. I’m done.

              • djw says:

                Mal: I’ve actually learned a great deal about accounting basics from the education you’ve tried to give Brad here, and I doubt I’m the only one, so even if you understandably feel engaging Brad has been a futile waste of time, rest assured there have been positive externalities to your efforts, even as the main target remained elusive.

              • Malaclypse says:

                djw: Thank you. Right now I’ve been flogging the same dead horse so long I felt as though I was trolling, especially given the inherent dullness of the topic. So knowing that someone found it useful makes me feel better. Thank you.

              • Brad P. says:

                Preserving cash is not a strange business decision.

                Going through the same release that started all of this, you can see that Cash and Cash Equivalents fell by about 5% from EOY 2009 to EOY 2010.

                So they aren’t preserving cash.

                I’ve tried, patiently, to explain this, going so far as to show you with individual Journal Entries how this works. However, you are so convinced what you already think you know that there is no explaining even the basics to you. I’m done.

                So now that I can point out that Cash and Cash Equivalents and all Current Assets fell over the period that AP and COGS went up, and that would imply that profits are overstated on the income statement because AP rose faster than COGS, you are giving up?

                So since this is still at a basic level, my question should not be difficult:

                If GM is indeed experiencing a good margin on its COGS to the extent that they can show 4.7B in profits, and if GM is indeed financing a larger portion of the operations through liabilities, then where is that cash going?

              • Malaclypse says:

                Dear Cthulhu, Brad, please let me stop proving you wrong.

                1) Cash not falling does not actually imply that people are not taking actions to preserve cash. Beyond that, see point 2, which is rather germane:

                Going through the same release that started all of this, you can see that Cash and Cash Equivalents fell by about 5% from EOY 2009 to EOY 2010.

                2) Contrary to what you said, Cash and Cash Equivalents went from 22.8B to 26.6, an increase of 3.8B (see Consol Balance Sheet, page 8, here). Restricted Cash did fall, yes. That usually related to debt payoff (see point 4), but I’m honestly unable to say I am sure about this, as opposed to simple suspecting the reason, based on familiarity with how these things tend to work. Please note that “Restricted Cash” does not even get described as cash on the balance sheet, because it works differently than cash, and is used for different purposes. You don’t get to lump them together just because you want to. This is not ‘Nam. This is accounting. There are rules.

                3) Total Assets are not falling. Total Assets went up by $3B. The purchase of those assets is what is known as a Use of Cash.

                4) Total Liabilities fell by $6B. Paying off liabilities is, coincidentally enough, also a Use of Cash.

                I’m becoming embarrassed doing this to you over and again, Brad. Please let me stop.

              • Brad P. says:

                2) Contrary to what you said, Cash and Cash Equivalents went from 22.8B to 26.6, an increase of 3.8B (see Consol Balance Sheet, page 8, here). Restricted Cash did fall, yes. That usually related to debt payoff (see point 4), but I’m honestly unable to say I am sure about this, as opposed to simple suspecting the reason, based on familiarity with how these things tend to work. Please note that “Restricted Cash” does not even get described as cash on the balance sheet, because it works differently than cash, and is used for different purposes. You don’t get to lump them together just because you want to. This is not ‘Nam. This is accounting. There are rules.

                No, cash and cash equivalents dropped by 1.5B. Marketable securities went from nothing to 5.5B. I’m not sure why that happened, but there was a 12B drop in restricted marketable securities that may have something to do with it.

                3) Total Assets are not falling. Total Assets went up by $3B. The purchase of those assets is what is known as a Use of Cash.

                No, its called an 8.3B increase in receivables.

                Current automotive assets and non-current automotive assets,

                4) Total Liabilities fell by $6B. Paying off liabilities is, coincidentally enough, also a Use of Cash.

                Of which it appears that 5.3B seems to be shirked pension payments.

              • Malaclypse says:

                No, cash and cash equivalents dropped by 1.5B. Marketable securities went from nothing to 5.5B. I’m not sure why that happened, but there was a 12B drop in restricted marketable securities that may have something to do with it.

                Brad, read all the words I wrote:

                Please note that “Restricted Cash” does not even get described as cash on the balance sheet, because it works differently than cash, and is used for different purposes. You don’t get to lump them together just because you want to. This is not ‘Nam. This is accounting. There are rules.

                Cash and Cash Equivalents went from 22.8B to 26.6B. This is an increase of 3.8B. Even McMegan’s calculator will yield the same answer. These numbers are right there on lines 1-3 of the Balance Sheet. This is a simple statement of fact, and you are simply, and embarrassingly, wrong.

                In what universe is 26.6 billion dollars a smaller number than 22.8 billion? Why are you picking the stupidest possible hill to die on? As annoying as I often find you, I really am embarrassed for you right now, and I genuinely wish you would stop making demonstrably stupid factual errors.

              • Brad P. says:

                Cash and Cash Equivalents went from 22.8B to 26.6B. This is an increase of 3.8B.

                I am looking at it and I see cash and cash equivalents decreased from 22.7B to 21.06. Its in the first damned line.

                You are including marketable securities with your figures. That may be justified, but I don’t know why it is. I am not using restricted cash and marketable securities, even though they fell off a cliff.

              • Malaclypse says:

                Wait, are you actually finding nefarious purpose behind the fact that GM, like many companies, owns securities, and are ignoring the rather clear fact that they go together on line 3? You are claiming that, when stock prices started rising again, and GM made the reasonable decision to move to a less conservative investment portfolio, is evidence of shenanigans?

                Okay, I think I now know how you are making this mistake. It is still pretty embarrassing, but I at least understand what part of the financials you are misreading.

                Companies hold stock in other companies to gain investment returns, rather than hold idle cash. It is normal, and the stock is liquid enough that it goes along with cash and cash equivalents, although it is indeed disclosed separately. But they all go together on line 3, in a way that restricted cash does not.

              • Malaclypse says:

                Its in the first damned line.

                We cross-posted, but you need to look at line 3.

              • Malaclypse says:

                Oh, one last thing. According to you, your trusted source wrote:

                COGS are funded (ceteris paribus) via cash on hand and supplier credit (accounts payable) and cash increases when net income and AR increase.

                Except, ceteris paribus, cash will decrease, not increase, when AR increases. AR, as an asset, works differently than AP, a liability.

                Your analyst really sucks, dude. Really, really sucks.

        • Malaclypse says:

          Plus I think they are still on the hook for like $40B in loans.

          Well, your links brought you to their financial statements, which actually answer that question. Since you are now an expert in reading financials, you could look it up, and be sure.

          As a helpful hint, you want the Balance Sheet, not the Income Statement. Zero Hedge made one correct implication – if you want to judge the health of a company, reading income statements is for amateurs.

      • Malaclypse says:

        Speaking as an accountant, I cannot tell you how fascinating the treatment of NOL carryforwards during bankruptcy really is.

        Oh, and the taxpayers haven’t sacrificed a dime. People who don’t know the difference between a gift and a loan shouldn’t hold forth on economic issues.

        If Brad is indeed correct about preferential treatment of NOL carryforwards, they have. However, it is not at all clear that Brad is correct. From the article he linked:

        Officials with the Treasury Department and GM insist that the tax break was not special treatment, and that any company going through bankruptcy could have gotten the same breaks.

        When NOLs get forfeited is a highly technical question, so of course Brad is an instant expert. I’ve been an accountant for over a decade, and know enough to know that I do not in fact know the answer.

        Now, for goalpost moving, watch his next claim that the fact that the tax code is highly technical is itself evidence that there are no real rules, and that the solution is less government.

        • wsn says:

          I, for one, am willing to give Brad P. all the benefit of the doubt to his accounting analysis he has earned from his legal and economic analysis.

          • Malaclypse says:

            I for one, am kind of enjoying watching the hole Brad is digging on technical accounting questions, the kind that have actual, unambiguous answers.

            If he wanted to argue about revenue recognition of leased vehicles, okay, there are arguments to be had here. But arguing that rising accounts payable means unrecognized expenses and overstated income is the sort of wrong that only an accounting nerd could find genuinely funny. Doubling down with “I took Accounting 300!” is the icing on my shadenfreude pie.

            I know that makes me a jerk, and a nerd, but I can live with that.

        • joe from Lowell says:

          If Brad is indeed correct about preferential treatment of NOL carryforwards, they have.

          His ‘sacrifice’ statement was about the $50 billion bailout.

          • Brad P. says:

            His ’sacrifice’ statement was about the $50 billion bailout.

            No, they have already paid off a sizeable portion of that, and the bailout was actually more like $60B as Canada chipped in too.

            I am referring to the portion that hasn’t been paid back, the loss on the IPO, and the value of the tax exempt status afforded to them.

            The number of people who feel themselves qualified to speak for me on here is astounding.

            • Hogan says:

              the loss on the IPO

              It’s not a loss (or gain) until the feds sell the stock. Have they done that?

              • Brad Potts says:

                I don’t know if the government shed some of its shares during the IPO in November or not.

                Assuming the government still owns all of its shares, and that GMs profits are a result of good business (and not tax deals and access to low cost government loans when credit is slim), then the government has turned GM into a company that has turned a profit at a net value loss of somewhere about $10B.

                If GM reverses its recent trend of stock price decline and gains about 70% of its stock value by the time the government wants out, and the company remains viable, you can pat yourself on the back.

                Do it quick though, because as soon as you have saved this giant corporate parasite, you will have to start fighting it as it constantly petitions our new “business friendly” government for countless privileges in getting financing, subsidies, and powers over their labor force. And it will use your own crisis rhetoric against you.

                But I guess you progressives live off of the challenge.

              • Malaclypse says:

                I don’t know if the government shed some of its shares during the IPO in November or not.

                Answered upthread. They sold about half. I even computed the potential loss on the remaining shares.

                Assuming the government still owns all of its shares, and that GMs profits are a result of good business (and not tax deals and access to low cost government loans when credit is slim),

                They are not. This is why they have deferred tax liabilities on their balance sheet, clearly labelled. I even discussed erred taxes when I was using simple addition to show that your 40B TARP loan number was bullshit.

                If/since you don’t know what a deferred tax liability is, I would, once again, suggest you stop opining on matters where you are clearly, factually, in error.

                If GM reverses its recent trend of stock price decline and gains about 70% of its stock value by the time the government wants out,

                Stock gain needs to be about 35%, not 70%. Again, this is simple math you keep getting demonstrably wrong.

              • Brad P. says:

                Answered upthread. They sold about half. I even computed the potential loss on the remaining shares.

                Is it approximately the $10B I mentioned in the comment you quoted?

                If/since you don’t know what a deferred tax liability is, I would, once again, suggest you stop opining on matters where you are clearly, factually, in error.

                Is it, or is it not a favorable tax position, even if GM is not unusual in receiving it?

                And everything I read about it seems to imply that it is indeed a special break issues specifically for GM by the Treasury Department.

                If you are going to argue that any company who received such a bailout would receive an exemption from the rules of tax liabilities during the resulting change of ownership, then I would agree. It is still a cost of the bailout, however.

                Stock gain needs to be about 35%, not 70%. Again, this is simple math you keep getting demonstrably wrong.

                Current price = $33
                Needed price = $53

                Percentage change to reach necessary prices:

                (53-33)/33*100= 61%

                So I was closer in my guess than you.

              • Malaclypse says:

                Is it approximately the $10B I mentioned in the comment you quoted?

                No.

                Is it, or is it not a favorable tax position, even if GM is not unusual in receiving it?

                No Brad, a liability is a Bad Thing. Assets are Good Things. A deferred tax liability is a Bad Thing.

                Look, you arguing incessantly about how basic accounting works was kind of funny at first, but this is getting silly. Pick up an Accounting 101 book, since your 300-level courses served you so poorly.

              • Brad P. says:

                No.

                Then I am confused cause I thought you were saying that they would lose 25% of the 40B they laid out for the GM stock purchases.

                No Brad, a liability is a Bad Thing. Assets are Good Things. A deferred tax liability is a Bad Thing.

                Look, you arguing incessantly about how basic accounting works was kind of funny at first, but this is getting silly. Pick up an Accounting 101 book, since your 300-level courses served you so poorly.

                I don’t need any textbook to know that a deferred liability is better than a present one.

              • Malaclypse says:

                I don’t need any textbook to know that a deferred liability is better than a present one.

                A deferred tax liability, or a deferred tax asset, arises out of differences between GAAP profit and tax profit. The usual reason for this is due to accelerated depreciation available to all corporations under IRS rules, but not allowed under GAAP.

                This is not something having anything to do with GM specifically. Reasonable people can differ about the effect of accelerated depreciation. I would say that it is one of the very few ideas favored by conservatives that is not straight-up stupid, but I doubt anyone wants a lecture on book vs. tax depreciation at this point in the thread.

        • Brad P. says:

          When NOLs get forfeited is a highly technical question, so of course Brad is an instant expert. I’ve been an accountant for over a decade, and know enough to know that I do not in fact know the answer.

          I said nothing on my own. I only linked to articles that seemed to be written by experts.

          • Malaclypse says:

            I said nothing on my own.

            Brad, the article you linked to said:

            Officials with the Treasury Department and GM insist that the tax break was not special treatment, and that any company going through bankruptcy could have gotten the same breaks.

            You used that link to imply that they got preferential tax treatment, when the article merely says that “some people” make that claim.

            • Brad P. says:

              You used that link to imply that they got preferential tax treatment, when the article merely says that “some people” make that claim.

              Any other scenario where a corporation receives the deal, and you would be as suspicious as me, and denials from “Officials with the Treasury Department” wouldn’t be worth a shit.

              But I will admit, this could be a situation where a corporation and the government just happened to actually have a relationship similar to the relationship government has with everybody else.

              It still adds to the cost of making GM a profitable company (which implies none of the following: strong, sustainable, or beneficial to society).

              • Malaclypse says:

                NOL carryforwards are a long-standing way in which corporations that lose money can recover. It is really pretty basic, although when they can get forfeited is complicated.

                The reason the complications exist was that, at one point, large companies would buy large bankrupt companies is order to get their hands on the NOLs.

              • Brad P. says:

                The reason the complications exist was that, at one point, large companies would buy large bankrupt companies is order to get their hands on the NOLs.

                Of course this had nothing to do with GM.

              • Malaclypse says:

                Of course this had nothing to do with GM.

                Since eliminating simple purchase of NOLs was done under Section 382 in 1986, it seems rather clear that it did not.

                Brad, you are in a deep, deep hole. Admit you were wrong and, for the love of Cthulhu, stop digging.

    • joe from Lowell says:

      So, let me get this straight:

      Ford, without a bailout, improved its performance a little as the economy came out of recession..

      GM, with a bailout, went from being a money-losing basket case that was about to go out of business, to being a highly-profitable, going concern, with a bailout.

      Thus proving that bailouts don’t work.

      Similarly, the 20-year-old marathon runner’s stress-test results were much better than those of the 60-year-old who needed bypass surgery last year, and who has now returned to work and can jog around the block…thus proving, by libertarian “reasoning,” the uselessness of bypass surgery.

    • snoey says:

      Of course, if GM hadn’t been bailed out, Ford would have gone too when the supply chain collapsed.

    • Tom M says:

      If those are your go to analyses, you will have some tax losses to shelter your own income with. Increased payables overstates income? WTF? That’s not Stone Street that’s Stoned Street. The guy’s an idiot.

      (MBA with 30 years in banking)

    • Jeremy says:

      I don’t know about Brad, but I definitely learned something from this discussion.

  5. patrick II says:

    I rarely click on links to Bobo, but this time I did, and I wasn’t disappointed, in the sense that I was disappointed but I expected that so I wasn’t disappointed in my expectation.
    Anyway, Bobo gives his six reasons why Obama’s plan could not possibly help GM. And as it turned out, completely wrong. But then he summarizes with:
    We’ve seen this before, albeit in different context: An overconfident government throws itself into a dysfunctional culture it doesn’t really understand. The result is quagmire. The costs escalate. There is no exit strategy.

    So, Bobo is seeing commonalities to entanglement in foreign wars, implicitly Irag, and expects a government induced quagmire. This might make some sense except he was a supporter of the war in Iraq and did not recognize overconfidence, dysfuntion and quagmire where they actually existed, but then projects it upon a circumstance in which they don’t.
    There actually is a common thread here, but it isn’t Bobo’s premise of the inability of government to manage problems. the common thread is that Bobo pretty much always gets which problems the government can manage backwards.

  6. Murc says:

    I was against the auto industry bailouts; I took the view that these companies had been periodically running themselves into the ground and then coming hat in hand to the federales since before I was born, using the ‘we’re broke’ excuse to bust their unions by inches over a similar time period, and then during the good times failing to properly fund pensions and other retiree obligations while paying their executives exorbitant amounts of money. I took the attitude that they were pathologically impaired and should die or, at the very least, be broken apart.

    I will freely admit that I was dead wrong about the bailouts and, crucially, about the restructuring that would come with them; I was SURE this would be a case identical to the insurance industry where they were given a huge pile of cash and then allowed to continue business as usual. It is good to see that this didn’t happen. I don’t often like being wrong; this is a case in which I’m thrilled to have been.

    Of course, now that GM is back on its feet, and their workers have been given a little taste, its time to talk about making sure that GM doesn’t try and fuck them over in future downturns by not adequately preparing for them… right?

    • joe from Lowell says:

      I was reassured at the time by the administration’s forthright acknowledgment that there were going to be job losses, plant closings, and a general shrinking of the company as part of the bailout.

  7. wengler says:

    The rightwingers hated this bailout most of all because it allowed GM and Chrysler to go through bankruptcy with their unions intact. That is all. They wanted to break UAW. They hate workers having any sort of say in the future of their companies.

    Also, don’t worry Brad P. That 700 billion dollar bailout of Wall Street has worked out horribly for the American people. The criminals at the top were given cash that they then used to stomp on everyone below them. The consequences of this is what is bringing this country to crisis.

    • Brad P. says:

      Also, don’t worry Brad P. That 700 billion dollar bailout of Wall Street has worked out horribly for the American people. The criminals at the top were given cash that they then used to stomp on everyone below them. The consequences of this is what is bringing this country to crisis.

      I don’t understand why this is directed at me.

  8. joe from Lowell says:

    Looking at all of these wingnut comments – comments based on a certain moral argument – is really is striking how hollow and corrupt their souls are.

    What’s the great moral concern surrounding the near collapse, salvation, and turnaround of the auto industry? Is it the million+ people who would have been pauperized by the industry’s collapse? Is it the well-being of Americans?

    Why, no, silly! Obviously, the most important moral consideration here is that markets not be interfered with. Ohnoes, “picking winners and losers!” Dammit, The Invisible Hand decided that those people should be pauperized, and it’s wrong to interfere with that!

  9. olexicon says:

    “LAYOFFS HAPPEN. People get fired. Wages get cut. That’s life. Get over it. MOVE ON”

    Good, so when you get laid off for being “redundant” when your company is purchased you won;t collect unemployment, rather you will move into the nearest refrigerator box in a low traffic alley

  10. olexicon says:

    So, maybe if you were unionized you wouldn’t get laid off and those “union thugs” would be there to protect your workers rights

    • joe from Lowell says:

      People use the term “union thugs” when the sight of people with work boots and calluses makes their lacy-pink hearts skip a beat.

      Such ruffians they are! No breeding.

  11. olexicon says:

    Is Reality Check named for ironic purposes because “Discredited Right Wing Shill” was too on the nose?

    • Murc says:

      I have to say, if he’s a troll, he’s a really, really good one. Excellent sense of when to engage and when to disengage. He could be a little bit more subtle (less ‘LOL!’) but the art of the subtle troll is very nearly a lost one, so I forgive him.

      He could also be real, I suppose.

      • hv says:

        He will back-slide.

        Losing arguments doesn’t fit his grand narrative of fighting them evil libruls, so the offensiveness comes out pretty quick. The more he fails, the faster he ratchets up.

  12. Rayl says:

    It will be a sad day when reality wakes up to the fact that there are many young people in India and China who are able and willing to work their asses off for a lot less than reality is. Not very difficult to transmit their output to the US and elsewhere either.

    • Holden Pattern says:

      I suspect that RC/Big Wrongful Jim is not actually a programmer. I think that he thinks that “programmer” is a useful “hard work” job that he can claim in this kind of trolling.

    • Davis X. Machina says:

      There’s a guy studying at IIT in Bangalore, — his name is Pradip — with Reality Check’s picture pinned up in his carrel, who will work harder, and better, for a fifth of what RC gets, just waiting, waiting….

      Blessed be the Market, the righteous Judge.

  13. Aaron says:

    I feel better about the GM bailout than that of Chrysler, as GM was a publicly traded company. With Chrysler, taxpayers effectively bailed out well-connected, wealthy corporate raiders (Cerberus Capital Management, L.P.) who privatized the company and proceeded to run a struggling company into the ground. They appeared interested in making a quick buck, not in investment in R&D. Chrysler’s present difficulty appears to be making the most of the limited product it had under development while seeking to leverage Fiat’s technology for future vehicles.

    It’s not that I wanted to see Chrysler go under – not at all. And a takeover was probably the only way to keep the company alive. But I would have liked to see the folks at Cerberus have to take a loss based upon their incompetence rather than effectively profiting (like so many other incompetents of the late Bush era) at the hands of the taxpayer.

  14. Brad P. says:

    Mal, if you are interested, I’m BKP in the comments. I didn’t get the chance to pester him like I pester you.

    For your information, and anyone who wants to feel smug, you are correct: there is nothing in the GM financial release that would suggest profits are overstated

    • Malaclypse says:

      Manfully conceded, sir.

      • Malaclypse says:

        And, having read your comment there, I will add more: both rising inventories and the fact that AR is rising without a proportional increase in reserve for bad debt might be real problems. Somewhere, in a link I have not seen, are Notes to the financials, which should explain those matters.

        To oversimplify: a good shortcut to look for dodginess in financials is 1) Inventory, 2) Prepaid Expenses, 3) Reserve for Bad Debt, and 4) Other Accrued Expenses. On complex entities like GM, you need to read Notes about off-balance-sheet items. The headline link does not give enough info to discuss these items for GM, but when dodginess exists, that is almost always where it is. Numbers, without Notes, should not be taken as giving a complete picture.

        • Brad Potts says:

          And, having read your comment there, I will add more: both rising inventories and the fact that AR is rising without a proportional increase in reserve for bad debt might be real problems. Somewhere, in a link I have not seen, are Notes to the financials, which should explain those matters.

          Yes, I had read also that rising inventories and the sluggish 4Q were kind of a double whammy of sorts.

          Manfully conceded, sir.

          Sexist.

          Don’t expect me to backdown a bit in the future, though. My MO tends to be to play the devil’s advocate up to and past the point where I begin to feel like I’m wrong.

  15. Malaclypse says:

    Just a mention that certain libertarian’s predictions of an imminent demise have proven to be false.

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