Saturday, October 13, 2012

Obama's Poorly Hidden Secret About General Motors


My stomach churns every time I hear President Barack Obama tell me that he saved the auto industry.  And this week in the Vice Presidential Debate with Congressman Paul Ryan, Vice President Joe Biden made the following remarks when discussing how he and the President “helped” the economy:

We immediately went out and rescued General Motors. … when that occurred, what did Romney do? Romney said, “No, let Detroit go bankrupt.”  (The Washington Post Transcript)

Biden’s assertion is clearly that the Obama Administration saved GM from bankruptcy, when Mitt Romney wanted to supposedly usher it to the grave.

What the Obama/Biden ticket fails to accurately disclose is that General Motors did, in fact, utilize Chapter 11, Section 363 of the U.S. Bankruptcy Code to reduce its liabilities and get a fresh start.  But don’t take my word for it, read its own words from the General Motors' 2010 Annual Report (my emphasis):

Our company commenced operations on July 10, 2009 when we completed the acquisition of substantially all of the assets and assumption of certain liabilities of Old GM through a 363 Sale under the Bankruptcy Code. As a result of the 363 Sale and other recent restructuring and cost savings initiatives, we have improved our financial position and level of operational flexibility as compared to Old GM when it operated the business.

The annual report explains that as part of this 363 Sale a new entity named NGMCO, Inc. was formed and “acquired substantially all of the assets and assumed certain liabilities of General Motors Company.”  This entity then went so far as to change its name to – take a guess – General Motors Company.

The next step in the transaction was for the existing General Motors Company (“Old GM” according to the company’s own words) to change its name to “Motors Liquidation Company.”  Creative, huh?  The company formerly known as General Motors Corporation continued to exist until the remaining assets and liabilities could be liquidated, and from General Motors’ 2011 Annual Report we learn that, “On December 15, 2011 MLC was dissolved.”
Wait, wait, wait; walk that back again.  Biden puts Romney on blast for wanting to “let Detroit go bankrupt.”  Not the city of Detroit itself (although it could probably benefit from bankruptcy as well… I digress), but specifically General Motors.

So the genius alternative to bankruptcy that Obama/Biden are taking credit for is to let General Motors utilize provisions in Chapter 11 of the U.S. Bankruptcy Code to sell its assets to itself. 

Here it is again in Crayola:  Obama/Biden saved GM from bankruptcy, by letting it go through – say it with me now – BANKRUPTCY!

The only difference was that Obama’s version puts the American Taxpayers on the hook for 500 million shares of GM stock.  The break-even share price on our (the taxpayers’) investment is $53.00 per share.  What was the last closing price, you ask?  Get ready… you may want to sit down for this: $24.44.  A little public school math tells you that figures out to an unrealized loss of $14.28 Billion dollars.

OUCH!  No wonder Joe Biden was so angry the other night:


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