What do you know about AMTRAK, no really. Okay, let me ask this then, did you know that in 1971, when railroad passenger travel was considered too big to fail, it started receiving government bailout money to keep it afloat? Well, actually what the government did was set up their own railroad under the Rail Passenger Service Act of 1970. What you didn’t know is they used $40 billion dollars of tax payer money and $100 billion dollars in secured bonds. The government also stipulated that Amtrak would not be managed directly by the government, but through private hands, other rail carriers, but would receive government appropriations every year to offset operating and capital programs. Yup. Really. Do you know what Amtrak has done since 1971? The answer is hemorrhage money. In fact, The Amtrak Reform Act of 1997 was supposedly passed so Amtrak would be obliged to break even in five years; but Congress gave up the will to enforce it after four years when it plainly was not about to happen. Cash crunches arrive more often than the trains do. In 2001, the company mortgaged part of New York’s Penn Station, generating 16 years of debt payments to get through a three-month cash shortfall. In 2002, it borrowed $100m from the Department of Transportation. Here is the real kicker, the GAO released a study, last month I think, that stated how much money Amtrak food and beverage was losing over the course of the last decade. Again the answer is shocking when you consider over the last ten years Amtrak has lost over $830 million dollars on food and beverage service alone. And yet the government keeps giving them piles and piles of tax payer money to stay afloat that will never, ever get paid back to us. Wow, who, who does that sound like. Oh, yeah. GM.
GM or government motors as I’ve heard it called many a time filed for a governmental managed bankruptcy, costing the taxpayer some $50 billion. The vast majority of that cash was never paid back by GM. In November 2010, GM issued a new initial public offering at a price of $33 per share. Today, GM stock is trading at approximately $19.36, down about 40% from its initial price. Yet, they can’t stop producing the cars the government wants them to produce, the environmentally friendly Chevy Volt, which no one drives and even fewer people are willing to buy. In June of this year they has sold slightly more than 7000 of the things, compare that to the 5500 Corvettes they sold. Sure they sold more Volts, but look at the difference in price, a Corvette base price is 15,000-20,000 dollars more than the wildly overpriced $40,000 Volt. Heck GM sold 9,000 Sonics, whatever the hell that is, in July. But they keep pushing money into the volt a garbage car people aren’t interested in buying. Shouldn’t they really be producing things people want so they can pay back their bailout? Nah, that would make sence.
Edmunds says that GM’s growth in the month of July will be essentially flat. Additionally, GM is losing domestic market share at a rapid rate. From January to April 2012, GM lost 11% of its market share – about 300,000 vehicles of market share. Cadillac was down almost 25%. How did GM respond? By spending almost $600 million dollars on an advertising campaign…in Europe. Yup, GM spent $600 million to put their logo on the jerseys of Manchester United. One of the biggest advertising costs in history. The result so far? Fans are angry and investors believe that logo will make the team look bad. What does it say about your company when a sports franchise is worried about their image when taking you on? How does a jersey logo overseas translate to boosting lagging domestic auto sales?
The long and short of it is simply this, much like Amtrak, GM won’t be a viable business just because the government cut it a check. This is not a long-term solution, it is like keeping a brain-dead person on a respirator and saying their quality of life is just fine. No, because clearly the only thing keeping them alive is the outside force propping them up. Gm will just become another taxpayer money pit producing stuff we don’t want or is too outdated to be of use, just like Amtrak does. The government will continue to pump money in it because of the too big to fail line and we’ll end up owning another worthless asset. Yay government.