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Your Opinion: Will You Buy GM Stock or Cars?

This article was written by in Consumer, Investing. 25 comments.

In April, I noted that General Motors repaid taxpayers for the company’s government-initiated bailout loans in full. There has been quite a discussion about this repayment, but the main points are that the loans accounted only for a small portion of the bailout, and one could consider that the loan repayment was possible only due to more government money inflows.

Though the loan portion has been repaid, the U.S. Treasury still controls the company through its ownership of 61% of outstanding shares of common stock and $2.1 billion in preferred stock.

Whatever your perspective, GM is continuing its plans to move away from the Treasury’s controlling stake. They will buy the preferred stock back from the government, which has been earning taxpayers a 9% dividend. GM plans to re-introduce common stock to the public later this year and the Treasury will sell its shares on the open market. The company will pay its union debt and will soon open a significant credit line it doesn’t plan to use.

So here are the questions: Will you buy GM stock? Will you buy GM cars? And what do you think of GM’s bailout? Is GM even a relevant manufacturer today?

I have nothing against GM cars. I have no major experience driving one. My current car is a Honda Civic, the second Honda Civic I’ve owned. My first car was a very used Toyota Celica.

CNN Money, Chris Isidore, October 28, 2010

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GM Used Bailout Funds to Repay Loan: Mostly Irrelevant

This article was written by in Economy. 13 comments.

Update: According to news reports, GM paid back one loan in order to qualify for a new government loan at a lower rate. This basically negates my original opinion regarding the loan repayment announcement. Read further at your own risk.

Ever since General Motors announced that it paid back its $6.7 billion government loan, a number of people have pointed out that the company isn’t telling the full story. GM simply shifted the money it received through the TARP bailout and directed those funds back to the government. While there is truth to this matter of accounting, it doesn’t really matter.

First, the idea that the TARP bailout funds no longer need to be used for other purposes like balance sheet padding, capital expenditures, or operating expenses show that the company is in at least a slightly better position than it was when it received the loan. If the cash it has is better suited repaying a loan and reducing future interest expenses, then don’t leave it sitting in a bank account.

Second, there’s no reason TARP funds can’t be commingled. This is easily illustrated on a smaller scale, in your own bank account.

On Monday, you receive a gift of $100 from your friend and deposit it into your account. On Wednesday, you get paid for some work you performed and deposit $100 into your account. On Friday, you have $200 in your account and you can finally buy a $100 cell phone without danger of brining your bank account down to zero. Did you buy the phone with gift money or your income? It doesn’t really matter. Both sources helped you reach the point where the purchase was possible.

Now add a loan into the mix. On Tuesday of that same week, before you got paid for your work, you borrowed $100 from a friend. Rather than buying a phone on Friday, you repaid that friend $100 plus interest. Did you use the gift or income to pay back the loan? Once again, it doesn’t really matter. Once the funds are commingled, a dollar is a dollar.

It’s right to criticize GM. The company was too big and didn’t adapt to changing consumer needs. They should have been allowed to fail, and would have if it weren’t for the belief a GM failure would have significant repercussions throughout the global economy, already in a weakened state.

It does look bad if a company appears to use TARP funds to pay off a government loan, particularly when the CEO boasts about it publicly, but it’s not a major issue. GM is in a better position now, and although this loan is only a small portion of the funds received from the government, this is at least a move in the right direction.

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Best of Consumerism Commentary, June 2009

This article was written by in Administration. Add a comment.

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Best of Consumerism Commentary, June 2009

Here are some of the most popular articles, based on total visitors, published on Consumerism Commentary in June. If you missed them this past month, take a look.

  1. Comparing the Visa Black Card With American Express Platinum and Centurion Cards
  2. Extending the $8,000 First-Time Home Buyer Credit to $15,000
  3. Savings Mistakes That Cost More in the Long Run
  4. Microsoft Money Will Be Discontinued
  5. What General Motors’ Bankruptcy Means For You
  6. Consumer Reports Exposes Cool Surge’s Misleading Claims
  7. Changes to Student Loans Coming July 1
  8. The Cash for Clunkers Program
  9. Savings and Checking Account Interest Rate Updates
  10. Citigroup Employees to Receive 50% Pay Raise

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Would You Buy a Car From Wal-Mart?

This article was written by in Consumer. 19 comments.

After General Motors’ bankruptcy, there is no question that the automobile industry will change significantly. With less competition and higher costs of production, prices will increase. It will be more difficult and more expensive to find parts and service for some vehicles. The selection of vehicles will be more limited.

Perhaps more brands will opt to adopt the sales philosophy held by Saturn and Scion: the price advertised is the price you pay. At first, the concept seemed like a scam. You always negotiate car prices, but with Saturn’s entrance to the market, the manufacturers or dealers said, “Don’t negotiate with us anymore; it’s our price or no sale.”

This method, where cars were sold more like a commodity than a luxury, proved to be quite popular, especially with younger individuals who do not have haggling experience. Taken to the step beyond prix fixe voiture, cars could be sold “off the shelf” in retail stores rather than dealerships. According to US News & World Report, at least one retail outlet in Mexico sells cars in addition to other typical retail products, and the United States may follow.

Just about the only place to buy a car these days is a traditional dealership, thanks largely to powerful franchise laws in most states that keep other competitors at bay. But as automakers slash their retail networks, dealers are losing their clout. For new offerings such as minicars, and perhaps cheap Chinese imports, a big showroom with a dedicated sales staff might not even make sense. That could open the way for retailers like Costco or Wal-Mart to start selling cars.

Smart Cars

This may be the future of automobile sales: View the floor models in an open area of the massive store, talk to the salesperson, and as if the product were a high-definition television, let the salesperson try to talk you into the extended warranty and other options. Wait for him to bring the car from the stock garage in the back to the cashier, where you pay the price on the sticker. Perhaps you’ll put your purchase on your credit card (store credit will be offered) and earn loyalty points.

I expect most popular brands, like Honda and Toyota, might not accept this model. It may be suitable for lower tier brands and low-cost models not yet popular in the United States. The New General Motors may see this sales avenue as the path back to profitability.

Would you prefer to buy cars from retail stores like Wal-Mart or Costco if this new sales philosophy reaches the United States?

How buying a car is going to change, U.S. News & World Report, June 4, 2009
Photo credit: schoschie

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Savings Mistakes That Cost More in the Long Run

by Flexo

The economy is not out of the woods yet. Companies are still laying off employees; the automotive industry is just getting started. For many families, the pressure is on to find ways and make decisions to save more money in order to prevent going into or going deeper into debt. The situation presents a good ... Continue reading this article…

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