Friday, February 20, 2009

GM Is Cheap Enough For Some People I Know To Buy

GM Is Cheap Enough For Some People I Know To Buy

GM's stock price today fell to its lowest price in 70 years--and I don't think that was adjusted for inflation. The total valuation of the company was a bit over one billion dollars. If I were your average software engineer (at least, average of those that I know), I would buy 1/10th of the company, and clean the place out. There is a lot that GM has going for it--but much that desperately needs fixing. But that's a somewhat risky proposition--one that our government shouldn't be taking, without being prepared to do some serious work on labor costs. And the Democrats sure won't do that.

John Lott has a column at Fox News today
that really captures the madness of what is now going on:
Would you lend $1.66 million dollars on a house that was worth $100,000? You wouldn’t even take the idea seriously. Bankers would laugh at someone asking for such a loan, and they should.
To make the example even more ridiculous, suppose that the home owner has a negative income - a negative income of $2.3 million last year. That the home owner is expected to lose a lot more money over the next couple of years, and that even if things work perfectly, he might simply stop losing money after 2011. That he lives in a bad neighborhood where almost all his neighbors are in similar in shape.
Even if you had already lent $1.3 million, you would run away from this borrower and simply chalk up the $1.3 million to some temporary insanity.
Well, multiply those numbers by 10,000, and you have the loan situation facing GM. GM is worth only $1 billion, it lost $23 billion, and it wants a loan of $16.6 billion. It may seem small compared to the $5.6 trillion in obligations that the stimulus and bailout are piling up this year, but we are talking about real money here.
President Bush wasn’t thrilled to lend GM the money last December, but Obama and Democratic Congressional leaders wanted the company to remain out of bankruptcy until Obama became president.
So what do the Democrats now say about this new request for money?
Democratic House Speaker Nancy Pelosi said on Wednesday that the money will lead to the “transformation of our domestic automobile industry into a viable, technologically advanced, and globally competitive manufacturing force.”
Dr. Lott refers to the "temporary insanity" of the first bailout. It sounds like it isn't temporary for Pelosi!

I do wonder about one thing: what is the immediate cash value of GM's inventory of unsold vehicles, parts, and factories? I know that it would take a long time in today's economy to sell off all those cars, trucks, parts, and manufacturing equipment--but it is hard to imagine that it isn't worth at least one billion dollars. And at least some of the brands are worth something.

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