General Motors & America

General Motors & America

You are doubtless aware of the famous statement by the chairman of GM, back some years ago: "For years I thought that what was good for our country was good for General Motors, and vice versa." If so, they are both in big trouble right now. GM closed on Friday at $3.01 per share of common stock. I understand that it is now at the lowest price since 1946. With 610 million shares of common stock outstanding, there are people that I used to work with who could buy a majority of GM shares without enormous strain--the whole value of the common stock is only about $2 billion.

The prospect of GM going under is pretty terrifying, not because of sentimentality, but because this is one of the largest manufacturing companies on Earth, and at the core of much of the American economy. This whole bailout idiocy has done to American business what welfare does to ordinary people: it encourages those who might not need help to decide that it is easier to go on the dole.

So, does anyone seriously think that the value of GM is only in the low billions? It owns a vast number of manufacturing plants. It has a pretty talented bunch of engineers who are capable of quite astonishing work. (If you don't believe this, take a Corvette out for a spin.) I am almost inclined to think that buying a thousand shares of GM wouldn't be a particularly risky thing to do at this price.

UPDATE: A reader points out something that I remember reading a while back, and something that I didn't know. The UAW wants GM bailed out because then they get to continue to enjoy their extraordinary health insurance plan (no copayments, no premiums for employees or family--including for retirees)--and if the only way to keep this afloat is to have the federal government take over the insurance plan as a first step towards nationalized health care, all the better! GM management doesn't want to go bankrupt (even though it would let them force renegotiation of the UAW contract) because the preferred stock and associated options would become pretty much worthless.

Remember that the UAW's contracts are a lot of why GM, Ford, and Chrysler are in such serious shape--while other company that make cars here (Honda, Mercedes, BMW, Subaru) are not. That's not the only reason (the Big Three have managed to do plenty of harm to themselves without union help)--but it is a big part of it. There's a reason that the other makers are located in right to work states, or at least states that aren't spectacularly union friendly.