An American Auto Bailout for France
Attention U.S. taxpayers: You now own a piece of a French car company that is drowning in red ink.
That’s right. In a move little noticed outside of the business pages, General Motors last week bought more than $400 million in shares of PSA Peugeot Citroen – a 7 percent stake in the company.
Because U.S. taxpayers still own roughly one-quarter of GM, they now own a piece of Peugeot.
Peugeot can undoubtedly use the cash. Last year, Peugeot’s auto making division lost $123 million. And on March 1 – just a day after the deal with GM was announced – Moody’s downgraded Peugeot’s credit rating to junk status with a negative outlook, citing “severe deterioration” of its finances.
In other words, General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds.
I'm no expert in this industry, but this article seems to be written just for the sake of being controversial.
GM had a great performance last year, on the US market, but lost (and has been consistently loosing) money on its European operations. It also approached Fiat earlier in the year for a similar move. On the other hand, yes, Peugeot is cash-strapped. So it sounds like a win-win deal rather than a simple bailout...
"General Motors last week bought more than $400 million in shares"
"In other words, General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds."
I think someone needs to explain to ABC the difference between debt and equity.
Also, while there are a few differences, there didn't seem to be the same anger when Fiat (yes the Italian car maker) took control of Chrysler during their bankruptcy.
I'm not sure I'm inclined to disagree with Dan Akerson on this one. If anyone knows how to bring a distressed investment back to life, it's an ex-Carlyle guy.
Hell, the US taxpayer might even be getting a decent deal on this. After all, a PE firm charges a big management fee for turnarounds. GM shareholders get it for free.
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