Why was GM paying dividends all these years?

Most states have laws that protect car dealers.

 

GM is heavily owned by institutions many of which require dividend payments.

 

What's the difference between US auto manufacturers and Overstock.com?

Overstock.com has a viable business model.

 

LOL. Overstock is a joke.

Having worked in the auto industry, and at GM years ago, I can say they do (did) have a viable business model. Unfortunately, many here on ET are 'challenged' at comprehending the most basic business concepts. Why did GM focus on SUV's? Simple -- that's where the profit was and that's what the public (soccer Mom's, families, etc.) demanded!! And any viable business will go towards maximizing profits. When gas went to $4/gallon last year suddenly the public wanted fuel efficient cars. Whoops -- none to be had.

Before some of you guys post at least try to understand the basic business model.

 

DHOHHI you are correct they did have a working business model a few years back. I worked half of my 35 years in IT in the auto industry in the finance area before I retired (as a manager). The one thing these manufacturers all depended on was a sound financial system to sell cars and finance manufacturing. The loss of financing was a knife in the back to them.

During the 1990s and this decade GM and Ford both tried to be models for Wall Street in order to keep financing of long and short term manufacturing debt to the lowest possible levels. This meant building a façade to look normal for stocks, bonds and short term obligations. GM had been paying dividends for decades. In their hay day of manufacturing in the 1950s and 1960s they were noted for their big “extra” dividends used to finance new stock offerings to build new models and plants. People are unaware of how much debt it takes to keep any form of manufacturing healthy. Building plants and new models takes enormous amounts of capital. The current bank failure eliminated all lines of finance to the auto companies.

The second half of the auto finance equation is a sound car financing system. If you can’t sell cars expenses shoot out of line and cause problems that must be filled with raising money (which we have seen is non existent today except through government). All of these car makers had gone to big vehicles in the US for a host of reasons. First the US public would not buy small cars from anyone, US or foreign (there is a long trail of small cars from US and foreign makers no one wants). So they all got caught selling the big cars and SUVs in the Oil crunch followed by the finance crunch.

Now we are in the next phase. Obama is forcing GM and Chrysler into bankruptcy to become socialist UAW experiments (UAW retirees get ownership). The word in street here in Detroit is these new entities will last a few years and then be swallowed up by foreign makers. Ford is the only exception. This is a crap shot depending on the concessions the UAW makes as part of GM and Chrysler bankruptcies.

 

I was with GM until the EDS acquisition and then stayed a few more years, prior to trading as a full time endeavor.

What continues to astound me is the auto companies are asking for pennies relative to what the financial companies got. Further, if one looks at how little we actually produce here in the US, with so much outsourced to China etc. you'd think there would be more focus on 'fixing' those few remaining manufacturers, autos being a prime example. But Obama isn't going to alienate the UAW by forcing anything on them as he wants and needs their vote in 4 more years.

 

You were at EDS, my, what a small world we live in. I was working for Cadillac at Clark Street as a DBA when EDS and Perot turned my world upside down. I left EDS when they assigned me to Plano along with 3000 other technical people. I later came back to manage all the DBA’s at GM financial before I retired to trade full time.

I agree with your assessment of GM. Obama’s hand was force by this. If Chrysler or GM were to go into bankruptcy without his control then the secured creditors would be the ones holding all of the cards. From meetings I was in during early 2000’s the secured creditors have an air tight contract with GM to be 100% owners. Obama is trying to override this with government loans.

Obama knows the securitization scheme and it I why he lent money to GM and Chrysler and set this precedent. Obama is forcing the bankruptcy to judges to try to give the UAW a large stake in these companies. Without Obama the UAW retires would have been secondary creditors and could have lost huge. The reason the loss could have been huge is the full pension system was not scheduled to be transferred until 2010. This means GMs assets that would have been for retires would go to the secured creditors. This is the same battle in the Chrysler bankruptcy today.

I have talked with several GM mangers I used to work with. They say the bankruptcy system clearly states who has precedent for GMs assets. The law clearly states if GM goes to bankruptcy that the management is no longer responsible to shareholders but must make decisions for the secured credit holders. Obama has other ideas.

 

This cartoon says it all.