Peter Pays Paul
link UPDATE 1-GM to acquire AmeriCredit for $3.5 bln | Reuters.
Unless you happen to be paying attention, this news item would be just another of those boring finance stories. If you whittle the story down to the basic elements, then an amusing scenario becomes more obvious.
As some may recall, not too long ago, General Motors wound up in a bit of a financial pickle. The short story is, they were not selling enough cars at prices that people were willing to pay for their products. Not that they didn’t make good products, it was just that for a similar amount of money, many other manufacturers offered arguably better products. General Motors was saddled with a legacy of costs that eventually overwhelmed the company. Principally, the main culprits were the very generous pay and benefits packages given to working and retired employees. You would often hear the joke that GM was more of an extended care and benefits company than an automobile company.
So along with large debt payments to bondholders, GM was unable to pay it’s bills with the income from car sales. Luckily, the federal government decided that the fate of GM was tied to the fate of many workers and therefore America. They would be bailed out of their financial woes. The amount of money involved was so big that only governments had the might to write the big cheque. Ultimately with all of the restructuring, the government OWNS GM. So now, GM is now Government Motors, or the people’s car company. This solved a short term debt problem, but the company still had to sell cars.
Since the economy overall is still not as robust as the administration would have you believe with unemployment still ratcheting upwards, people didn’t have the capacity to finance car purchases. Ironically, many of the unemployed became that way because GM and Chrysler were forced to close down hundreds of car dealers throwing those people out of work. Todays’ news is that GM will spend $3.5 billion dollars to buy a company involved in the financing of cars. Not just anybody, but particularly people with ‘subprime’ credit. Hmm, this sounds oddly familiar. In case anyone noticed, the money used to purchase AmeriCredit is actually government money, or public money. So in essence, the public is subsidizing other people to buy cars that they otherwise couldn’t afford with their own money. I think in real life, that’s called a circle jerk. Nevertheless, the UAW union at GM, also a major stakeholder post restructuring, have managed to keep their members employed albeit at the expense of everyone else. Bernie Madoff in his ponzi schemes at least bilked the rich. In this latest government scheme, the people who can least afford to pay are getting roped in.
This is but the first of these types of ingenious rescue schemes to see the light of day. In scenarios throughout the country, the same dilemna will surface again as public pensions for teachers,postal workers, firemen, police etc have to be funded. An agency will have to be established in order to offer financing to people who cannot otherwise afford teachers, fire or police protection: some means of allowing people to pay money regularly in order to recieve these services…hmm how to do that…if only there was a way…