Thursday, August 19, 2010

General Motors "Profit"

We are being told that the turnaround in General Motors profit is a remarkable success for its management and for its majority shareholders (the US and Canadian governments), who now hold about seventy percent of its stock. Over the last six months, GM has earned $2.1 billion in profits versus the thirteen billion it lost over the same period last year.

The "secret" to GM's success is evident from its income statements. From January 2009 to its takeover on July 7, GM paid $16 billion in interest payments. From July 8 to year end, it paid $5 billion. For this period, its expenses were thus reduced by $11 billion as its debt was converted into shares owned by the U.S. and Canadian governments. Without this equity bailout, GM would still be losing almost $9 billion, instead of its reported profit. Notably, there has been no reduction in GM's pension liabilities to its workers.

It seems to me that just about any company could achieve such a turnaround if the government were willing to take its debt and convert it into shares.

1 comment:

  1. Someone remind me why it was absolutely necessary to bail out General Motors?

    If it wasn't necessary, then tell me how it happened so unjustly?