The Great Obama: Pulling A GM Profit Out Of His ‘Box of Cash’

Gerrit Lansing / June 04, 2009

From June 4th’s Wall Street Journal:

Like a magician who artfully controls his audience’s attention, the government’s General Motors investment is all about financial diversion.

Here’s the fancy trick: It won’t be very hard for a revamped GM to succeed at making a buck. Its debts will be cut from about $73 billion to about $17 billion. Its labor costs will be reduced by as much as $2 billion a year.

On Wednesday, GM got even more help. GMAC, which funds dealers and car buyers, began issuing $3.5 billion in three-year debt backed by the federal government. This should cost GMAC about 2.2% annually. Ford Motor Credit just priced a five-year bond. It’s paying 8%.

“New GM” will thus have a far easier road to turning a profit over the next 12 to 18 months. And you can bet that first profitable dollar will be cause for celebration in Washington and Detroit.

But let’s break the magician’s credo and show how the trick works. Beneath the magician’s table is a black box. It happens to be stuffed with about $65 billion in cash. (more…)