Friday, December 19

Get the Bailout Money From The Shareholders

I have been watching what has been going on with the 'Big three' automaker's bailout plea. I have not given the issue too much thought other than I would rather the Government not step in to help these companies, especially if nobody else is willing to do so.

But it got me wondering, who should step in to bailout these companies. Clearly the obvious answer is the people who own them, the shareholders. After all, if these companies fail, they are left with nothing. So, why doesn't the Government tell Chrysler, Ford and GM, 'thanks but no thanks', suggesting that they appeal to their shareholders for the needed cash.

Take GM. According to these statistics, the company has 610.46 million shares outstanding. The company has been pleading for around $15 billion in rescue money. That comes out to $24.57 a share. Unfortunately for GM, their stock closed on Thursday at $3.66, essentially meaning that the stock is already worthless given that the company needs almost seven times more investment per share than each share of stock is worth. That would be a huge leap of faith for existing investors. The company has about 266,000 employees. How about transferring majority ownership of the company to them? $15 billion comes out to $56,391 per employee. They can be paid partly in company stock, say 20%. However, if the shareholders and employees are not willing to do this, then why should the rest of us?

Take Ford. They are in much better financial shape, so they say. Some reports have them asking for only $1 billion. With 2.35 billion shares outstanding, that comes to only $0.43 a share. That is well under Thursday's closing price of $2.82. With 87,700 employees, that comes to $11,403 each. Spread that out over 1-2 years of payroll deductions, again with compensation in company stock, and the problem finds a possible solution. They don't even need to take a pay cut. That is, provided the company does not fail and the stock not become worthless. These workers might just be the next generation of 'Google millionaires' if the company manages a turnaround of its fortune, which is much more likely than the other two companies, especially considering that it is not seeking emergency aid. This is how people become rich in America. they get ownership in companies. The Democrats don't push this, but here is a clear opportunity for blue-collar workers to get a piece of the pie that they have been complaining about others having...

And lets take Chrysler. This company is privately owned by Cerberus Capital Management (80.1%) and Daimler AG (19.9%) so there is no share data. But there is nothing to say that they can't start issuing shares to other private investors or even to their 58,000 employees. However, the killer here is that they need about $14 billion to stay alive. That's over $241 thousand an employee. So even if the employees take no pay this next month, while the factories are closed, it really won't make a decisive difference in saving the company. (Employees will earn about 90% of their salaries while the plans are closed.)

There is no real easy answer in all of this, but thinking of the long-term health of the overall economy, I think it might be best to not get in the way of any of these three companies plunging into bankruptcy. It is not fair to the companies that are doing well. It also makes other options less viable, such as letting these companies be taken over by new owners who think they can do better. Sure it is a horrible thing that many people are likely to lose their job, but if the companies were able to add and reduce staff according to need, instead of according to labor contracts, then perhaps so many jobs would not be at risk now, having been slowly reduced over time. And perhaps if that was able to happen over time, these companies might be in much better shape than they are now. (I am not faulting the union here. The fault lies with the union and the companies who agreed to the union's demands)

Anyway, if the Government is going to give the auto companies all this money, how about doing it by actually buying cars.

"Where's My Bailout?" - 30 Oct 08
Mortgage Deadbeats Protest For More Money! - 28 Oct 08
*** Lining Up For The Next Bailout... *** - 13 Oct 08
Credit Crisis 'Bailout' More Expensive than the Iraq War - 3 Oct 08
Bailout Thought: As if Deadbeats Were Going to Pay a Government Mortgage - 30 Sept 08
If Nancy Pelosi Believes What She Is Saying... - 29 Sept 08
*** No Bailout for Homeowners in Trouble *** - 6 Sept 08

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1 comment:

Gail said...

This whole auto bail out as with the original TARP bail out is a complete betrayal of the American people. We need to stand up to this abuse, boycott all union products, including television, newspapers, American made automobiles and any other product that can be identified as union made.

Best regards,
Gail S