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Welcome to GM (Government Motors)
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Welcome to GM (Government Motors)

To: Fritz Henderson, Chief Executive, GM
Sergio Marchionne, Chief Executive, Chrysler

Gentlemen:


It is somewhat ironic that, while most of us in this country quit buying your cars, we have now decided to buy your companies instead. As your new owners, we wish to discuss with you some of our concerns.

First, of course, there is the concern that car companies, particularly those purchased through government intervention, have not done very well. The British government failed at Leyland Motors. Fiat failed in this country and quit selling here in 1983 (welcome back). Daimler could not make a go of Chrysler, and neither could the masters of the universe over at Cerberus Capital Management, the private investment firm that had an equity stake in Chrysler until recently.

So as new owners, we are nervous. After all, we now find ourselves in the position of owning 60 percent of General Motors and 8 percent of Chrysler. Those people who have chosen to be owners of Ford did so voluntarily and without government mandate. That raises another concern, too. With General Motors and Chrysler, we have as our biggest investment partner the United Auto Workers. Union-owned manufacturing operations do not have a very long track record of success in this country (airlines come to mind). Most analysts who have attempted to explain why GM and Chrysler had to seek bankruptcy protection generally agree that union-demanded health and retirement costs put these companies at a $1,400 per vehicle handicap compared to other car companies. We would not have chosen the union as co-owners given that we have to negotiate wages and benefits with the union in the future.

Certainly the efforts at restructuring are late, but called for. The sale of Hummer to the Chinese company Sichuan Tengzhong, a firm mostly known for its manufacture of cement mixers, is appropriate. Hummers are heavy. Likewise, your sale of Opel and Vauxhall to a Canadian auto parts company (Magna, backed by a Russian bank) gets Opel off your back. Saab has been shopped to a specialty custom car designer backed by the Swedes. All of these adjustments are similar to the ones that Ford made on its own several years ago.

Our investment in GM alone will top $70 billion, and at that rate, GM would have to reach a market cap of $100 billion just for taxpayers to break even. At GM’s peak in April of 2000, it traded for more than $93 a share and had a market cap of $56 billion. The situation at Chrysler is even more dire.

According to GM’s bankruptcy filing, it has $172 billion in debt and only $82 billion in assets. And while this performance was so awful that the president of the United States removed GM CEO Richard Wagoner (though we’re still paying him), all of the other members of the company’s stellar management team remain in place, including Fritz Henderson, the former COO and now CEO. Ford, on the other hand, is not in bankruptcy and has received no federal money.

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