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Treasury says auto bailout tally drops to $20.3 billion

In December, the US Treasury announced that it was going to sell all of its shares in General Motors within 12 to 15 months. The first tranche of the 500-million total shares was purchased by GM, which took 200 million of them at $27.50 per share. That price represents an eight-percent premium over the market price at the time. The remaining 300 million shares will be sold "through various means in an orderly fashion."
Of the $418 billion disbursed through the Troubled Asset Relief Program (TARP), a report in Automotive News indicates that "about 93 percent" has been paid back, and the latest figures put Treasury's loss from the program overall at $55.58 billion. That's a $4.1 billion improvement on the last figure, when the expected red ink added up to $59.68 billion. The auto industry's portion of that loss is estimated to be $20.3 billion, a 16-percent drop from the earlier estimate of $24.3 billion.
The Treasury now owns 19 percent of GM, but if all goes well, there will be no more cause for anyone to utter "Government Motors" by the end of Q1 next year. A loss of some kind is still expected, however. Although GM's stock price is close to $29 at the time of this writing, that's still $4 below its IPO price and well below the $72 share price necessary for the government to come out even on its GM investment. On second thought, maybe the ribbing will continue.

Buy Ford and GM stock and make 5%

Want to make a five-percent return when 10-year treasuries are paying around two percent? Ford (F) and General Motors (GM) have solid balance sheets, strong cash flow, solid earnings, and growing markets. By all accounts, they are smart investments. But the market is down on these stocks. Why? Some of the stupid excuses include: They are cyclical companies The Detroit 3 have lost 3.5 million in sales since 2000 The world economy is shaky GM recently filed for bankruptcy Their markets have peaked They haven't changed their ways Let's take these criticisms one by one: They Are Cyclical Companies Yes, they are cyclical. Every company is cyclical. Every industry is cyclical. Some more than others, but not every company is immune from swings in the market. Banks used to be 'non-cyclical' leader, not anymore. Airline stocks are just as cyclical as auto stocks, yet they are trading at multiples greater than the auto industry. Why? And what accounts for the irrational stock price for Tesla (TSLA)? At least Ford (F) and General Motors (GM) make money and have positive cash flows. In fact, both companies have a net positive cash position. They have more cash on hand than liabilities. Auto sales in the United States hit a record 17.5 million vehicles in 2015. During the Great Recession, Ford (F) and General Motors (GM) cut their break even points to 10 million vehicles per year. Anything above an annual U.S. volume of 10 million vehicles is profit. And what a profit they make. Sales of Ford's F-150 continues to be the best-selling vehicle in the United States for over 30 years. Detroit 3 Have Lost 3.5 million in Sales Since 2000 Automotive News reports General Motors (GM), Ford (F) and Chrysler (FCA) have lost a combined 3.5 million vehicles sales since 2000. So how can they be making more money? Two big reasons – Fleet Sales and the UAW. Fleet Sales The Detroit 3 used to own car rental companies to keep their factories running. Ford owned Hertz (HTZ), General Motors owned all of National Car Rental and 29 percent of Avis, and Chrysler, the forerunner to Fiat Chrysler (FCA), used to own Thrifty Car Rental and Dollar Rent-A-Car. The Detroit 3 owned these rental companies to have a place to sell their bad product and keep their factories running. These were low margin sales, and in many cases, were money losers for the Detroit 3. They no longer own auto rental companies.

UAW ratifies FCA contract

The second time was apparently the charm for the proposed contract between the United Auto Workers and FCA US as 77 percent of union members have ratified the four-year deal, it was announced Thursday. "This agreement represents an investment in our US workforce and recognizes its contributions to the company's growth over the past six years." the automaker said in a statement. Now, the UAW must move forward on new arrangements with Ford and General Motors. After members rejected the original offer, UAW president Dennis Williams (pictured above, right) was positive about the new deal's acceptance. "The resolve of our membership and the dedication of our negotiating team has produced an agreement that affords UAW members a strong wage package and job security while still allowing the company to competitively produce high quality vehicles for our customers," he said in a statement. In contrast to the last offer, the new contract largely eliminates the two-tier wage system, and it's now it's possible to attain the same $29 per hour pay over eight years of employment. According to the Detroit Free Press, the deal also no longer limits FCA US from hiring entry-level workers. The original plan for a healthcare co-op across the Detroit automakers is also axed from the latest arrangement. While the strategy was supposed to lower costs, the potential changes weren't explained well to union members, and they rejected it. UAW FCA MEMBERS RATIFY NEW CONTRACT Featured / Negotiations / October 22, 2015 DETROIT – The members have voted to ratify a new four-year collective bargaining agreement with FCA by a 77% majority. The results of the voting are as follows: • Production workers – 77% • Skilled Trades – 72% • Salaried Bargaining Unit – 87% President Williams stated, "The recent bargaining process that took place on behalf of our members at FCA is a testament to the UAW's democratic values and commitment to our members. The resolve of our membership and the dedication of our negotiating team has produced an agreement that affords UAW members a strong wage package and job security while still allowing the company to competitively produce high quality vehicles for our customers." "UAW members at FCA have obtained a strong agreement that provides substantial wage gains, fairness in the workplace, and job security.