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Government Motors: How to Run a Business into the Ground—and Get Paid for It

Tuesday, March 12th, 2013
By for Profit Confidential

How to Run a Business into the Ground“Here’s what’s new about GM’s Strategy this year: Nothing. Our 2003 plan is the same as 2002.” This quotation was taken from General Motors Company’s (NYSE/GM) annual report in 2003, and it says a lot about what would become of the automaker. Governments have always helped the automakers, but looking back, it’s still flabbergasting to think of the amount spent in government bailouts.

General Motors (GM) is now worth $38.0 billion after receiving government bailouts and re-listing on the stock market. The company’s numbers come out in late April, and Wall Street analysts expect a three-percent gain in revenues. Ford Motor Company (NYSE/F) has a similar outlook (no government bailouts, but it got a line of credit instead). Chrysler is now owned by the Italian automaker, Fiat, which also makes “Ferraris.”

The first vehicle I drove was my father’s Ford “F-100,” the sixth-generation F-series pickup truck produced between 1973 and 1979. Being 12 years old and living in the countryside, it was fun wreaking havoc in fields and on gravel roads. When I got my driver’s license, we used to go to the drive-in theater, back the truck into a spot, and sit in the bed on lawn chairs to watch the movie. It was the ultimate “redneck” experience. I miss those days, for sure; they were the best.

My next vehicle was a clapped-out 1979 Jeep “Grand Wagoneer,” made by American Motors Company. Chrysler bought that automaker in 1987. I loved that Jeep. Both the truck and Jeep were reliable. The only problem they had was that they rusted out early—and bad, too. My Jeep had rust holes in all four foot wells, which made things pretty interesting while driving.

I like Detroit iron and the GM vehicle I drive now, even after repair bills and government bailouts. Nowadays, a lot of people drive cars from foreign-owned automakers, but to me, they just don’t have the same feel. German cars are great, but pricey, and their electronics fail over time. Japanese and South Korean automakers are typically reliable, but you can die of boredom. But that’s neither here nor there; to each their own.

GM, AIG, Bank of America, Citigroup—all too big to fail? I’m tired of that question. Domestic automakers are still a big part of the economy, but I’m on the fence as to whether government bailouts were the right thing to do for that specific industry.

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GM didn’t listen to its customers, and quality was problematic for the automaker. It didn’t plan for the spike in oil prices, and its management was totally arrogant. They just asked for government bailouts to make it all better.

History keeps repeating itself. Government bailouts will happen again. I just wish I had that old Wagoneer today; it would plow through anything.

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Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. is a Senior Editor at Lombardi Financial specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles