According the NY Times, the debt markets are valuing the restructuring package for GM’s lenders at roughly $3.4 billion. The lenders will end up owning 10% of GM, which means the market is valuing the entire business at $34 billion.
Meanwhile, the government is investing $50 billion in GM in exchange for a 60% ownership stake. That values the company at $83 billion.
I’m having a hard time making the math work.
$34 billion seems like a high valuation for GM in its current, sorry state. But at least that’s a market number. The government’s implicit valuation is nearly 2.5 times higher. Call that the “UAW Premium.” (No, I don’t think the UAW is solely to blame for GM’s failure. Management deserves the other 100% of the credit.)
GM has been a dead man walking for 25 years. The recession simply laid bare the cracks in its foundation. The government’s overpriced investment defers GM’s reckoning, which is what the company itself has been doing since the mid-80s. This time, you and I are paying for it. And as with any problem, the longer we wait to solve it, the more it’s going to hurt.
Think of it this way: If the government gave you $50 billion, could you build a new auto company that didn’t have GM’s myriad legacy problems? My guess is that you could. And replace the space shuttle. And throw in a couple of new freeways to boot.
More auto industry comments to follow.