ORTEL: Public deserves to know true costs of failed GM bailout

ANALYSIS/OPINION:

When Mary Barra, chief executive officer of General Motors, testifies before a House committee on Tuesday and a Senate panel Wednesday, the American public should hear the whole story about the purported “rescue” of her storied enterprise, not simply details concerning the growing raft of recalls and product liability claims.

In a succinct letter to the Wall Street Journal titled “God, GM and Honest Government,” John Carlson of Boulder, Colo., cracked open a line of inquiry that should be broadened significantly. Noting that Ms. Barra only recently assumed the top management position at GM, Mr. Carlson suggested calling “the former CEO, the treasury secretary and the car czar to explain why billions of dollars of GM stock was sold to the public without adequate disclosure” of the product-recall liability.

We should go much further and delve back into the entire GM rescue timeline, concentrating on the first moments in 2008 when management began making pleas for government support.

An ongoing investigation suggests that the GM rescue in no way is a victory for taxpayers who did not and will not recoup sums invested in and supplied to the reformed GM and Ally Bank, let alone earn a financial return commensurate with the enormous risks that the federal government assumed.

Congress, the Senate, the mainstream press, and the general public now need to push harder to out the whole truth, and then punish any wrongdoers (especially those operating at senior levels and in political capacities). Afterwards, the private sector and market forces can try to bring vehicle production costs and American production capacity closer to balance with demand in the U.S.

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The importance of accurate disclosures about GM

The U.S. Securities and Exchange Commission says it best: “Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.”

The period from January 2009 forward has been unusual in two important respects, which GM refuses to highlight using meaningful financial and operating measurements.

First, the federal government supported General Motors directly and indirectly many ways. In addition to loans and badly needed equity funds, General Motors benefited when state and local governments favored GM, when companies such as GE announced large purchases of GM’s disappointing Chevrolet Volt, and from initiatives such as “cash for clunkers.”

Second, the Federal Reserve Bank kept interest rates at historic lows, making it easier for end-use customers to stretch and shoulder car loans and leases, while also lowering dealer financing costs as well as GM’s debt burden.

“With all this help since 2009, GM’s core profits are still not increasing when viewed as a percentage of world-wide revenues. We also have no way to know the geographic breakdown of GM’s financial and operating results so that we may learn just how much America gained from this bold exercise in crony capitalism.

Moreover, conditions in geopolitical and capital markets call into question how much longer the federal government and the Federal Reserve System will be able to support such debt-addicted industries as automobile manufacturing.

GM and the Obama administration owe us answers

With the Obama administration’s credibility on foreign policy in tatters, and a final day of reckoning now looming on the costs and benefits of the president’s “signature” reform of our health-care system, a deep dive into what actually happened at GM from before bankruptcy right up to the present truly seems called for, even though it surely compounds political worries for the Obama administration.

This inquiry should be empowered to compel testimony, it should have all monetary and professional resources required and it should deliver a complete report to the public before November’s elections.

After all, the frequent assertion in 2012 that “GM is alive [and Osama is dead]” was a resounding centerpiece in the Democrat campaign that secured re-election of President Obama.

The path forward, restoring credibility, is no longer possible using empty slogans and bold obfuscation. Many eyes are watching, inside and outside America.

• Charles Ortel serves as managing director of Newport Value Partners (newportvalue.com), which provides economic research to executives and to investment firms.