As of the close of business on Friday the market cap for General Motors was about $1.9 billion, Ford about 4.3 billion….Chrysler is privately held but it’s a safe bet that their FMV is less than $2 billion…probably a LOT less….so for approximately a lousy $7 billion….a rounding error for the federal budget…the government could simply BUY the entire U.S. auto “industry” — actually, of course, it’s just the U.S. nameplate manufacturers, but that’s another story — for what amounts to a pittance.
So if these geniuses in the government, especially the best and the brightest coming in with The One, think they know better what to do…that they can defy the market’s judgment….why don’t they just cut to the chase and buy the companies, replace their boards and management and run the companies….can you imagine how disastrous that would be?….but that’s in effect what they’ll be doing…almost as much fun as Fannie and Freddie!
Like I said, I look forward to US automobiles made by the same sort of philosophies and workers who brought us public education, public housing, public transport, and public toilets. Public automobiles should be a real treat.
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The problem is not the auto companies’ capitalization, it’s their pension obligations, which are considerably more than $7 billion.
As for the Gummint owning car companies, imagine a car designed and built by the Post Office (USPS, to some).
Interesting thought, USPS only lost $2.8 billion net last year on 202 billion pieces of mail.
If you believe standard government accounting.
That’s with 5 billion in special payments to a pension fund and fuel being twice what they budgeted for.
Imagine a car built by the same minds that gave us thieves standing around(TSA).
I think it’s already been done. They called it a Yugo.
Mr Du Toit nails it. Enterprise Value or the Equity + Debt - Cash is way, way, way, way, way, way, (many more ways to follow)… higher. That’s if you believe what they say is debt. Realistic actuarial accounting for the pensions, benefits and other future off balance sheet liabilities are probably unfathomable. It’s a wonder why their equity has any value at all given it’s subordinated to all those liabilities.
At this point it’s just optionality value that the government greater fools will come in and pay them off somehow. I bet, like many options, the option will eventually expire worthless. Even Obama’s not that much a fool to pay the equity holders off. They’re the wrong class in the class wars.
Same applies to the US federal government and most lower-level governments. No one in his right mind would buy stock in any of them. Even the ability to take revenue by force won’t be enough.
One of the talking heads on CNN mentioned a contract clause that requires GM to pay laid off workers 96% of their salary. I’m guessing that they still pay all the bennis. And then the uaw freak claims it’s all managements fault. It is for not moving the factories to “Right to work” states.