In a Friday report at the Associated Press on Friday with a celebratory headline ("2 YEARS AFTER IPO, GM IS PILING UP CASH"), Auto Writer Tom Krisher described bailed-out General Motors as "thriving," but didn't identify one of the important reasons for that characterization.
In paragraphs about the company's profitability and cash stockpile, Krisher failed to note that the company still hasn't paid any U.S. income taxes since emerging from bankruptcy, or why that's the case (bolds are mine throughout this post):
BIG PROFITS: GM is making money - nearly $4 billion so far this year. Most of that came from the U.S., where GM cars and trucks are selling for almost 6 percent more than they did in January of 2011.
... CASH PILE: GM, which nearly ran out of cash at the end of 2008, ended the third quarter with $31.6 billion in cash and securities. Bankruptcy wiped out old GM's debts and burdensome contracts, and the new company's cars and trucks have sold well around the world. The cash allows GM to invest in products and restructuring. It even bought a U.S. auto finance company, which helps it to offer low-interest loans and cheap leases. GM also is bidding for international assets of Ally Financial, GM's former finance arm, to help make cheap loans in Europe and elsewhere.
The "wipeout" of "burdensome contracts" cites is a myth -- at least the union contracts. The fact is that then-UAW President Ron Gettelfinger bragged in mid-2009 that that the union's post-bankruptcy contract with GM required "no loss in your base hourly pay, no reduction in your health care, and no reduction in pensions" for currently employed members.
A significant portion of the cash stash cited (even before including interest) is due to a gift from the Obama administration's Treasury Department, as Curt Levy at Fox News reported in May:
GM’s tax break arises from the Obama administration’s distortion of legitimate tax provisions which allow companies to use prior-year losses – of which the Old GM had plenty – and certain other costs to reduce their current-year federal income taxes. In Section 382 of the tax code, Congress limited these "net operating loss" (NOL) carry-forwards to discourage the buying and selling of tax deductions.
As a result, New GM could not have written off the Old GM losses that were discharged in the bankruptcy. However, as Harvard Law School Professor J. Mark Ramseyer and Indiana University’s Dalton Professor of Business Eric Rasmusen explain, the Obama Treasury Department “‘solved’ this problem by issuing a series of ‘Notices’ in which it announced that [Sec. 382] did not apply [here].”
Because companies like GM that file for fast-track bankruptcy without affording due process protections to creditors don’t normally get to preserve NOLs, Treasury’s unprecedented Notices allowed GM “to retain the cake while eating it,” notes Duke Law Professor Jeffrey Coyne.
... "the Treasury Department 'had no legal or economic justification for these Notices,' according to Professors Ramseyer and Rasmusen ...
... Are we supposed to be reassured by knowing that GM only stiffs American taxpayers?
The truth is General Motors and the Obama administration didn’t need a justification, because they counted on this unprecedented tax break being too arcane for reporters to understand or write about. So far, they’ve been right.
That they have. The AP's Krisher probably understands this, but in this case and many others in the past several years has chosen not to write about it.
Because of his failure to report this tax break, Krisher misrepresented where U.S. taxpayers stand in terms of their chances of breaking even on the government's GM "investment":
STOCK PRICE: Shares of GM sold for $33 when the company re-entered the stock market on November 18, 2010. ... (The stock is) almost 30 percent below the IPO price. That means the U.S. government can't sell its 500 million shares in the company without losing billions. The government got its stake in exchange for a $49.5 billion bailout almost four years ago. But the taxpayers are still $27 billion in the hole on the investment, and GM shares would have to sell for $53 each for the government to break even.
That's not true. If the lost taxes due to the government's extralegal maneuver are included, the tab is currently $45 billion, or about $600 for every family of four in America -- all to save something on the order of 60,000 GM jobs. Cost: $750,000 per job saved, even before considering other much smaller costs to the federal government (e.g., the $7,500 tax credit buyers of the Chevy Volt receive on their returns).
So GM is "stockpiling" cash at taxpayers' expense. Exactly why should the large majority of Americans be celebrating that?
Cross-posted at BizzyBlog.com.
