GM Bailout- Good questions

Back in B-school, one of our recurring problems was to set the value of a company. That's a standard business school exercise and it's not as easy as it seems.

One method is to multiply the value of the common stock times the price per share. If you buy 51% of the commmon stock, you've bought the business. You can elect yourself CEO. According to Yahoo! Finance, GM has 610 million shares of stock outstanding. They're currently trading for $2.89 per share, so you could theoretically buy the whole company for 1,762.9 million dollars. Shift a couple of decimals and that becomes 1.762 billion dollars. It's a bargain.

However, the stock price doesn't reflect the salvage value of the company. All that steel's got to be worth something. The land has residual value. Going back to the Yahoo! Finance page linked above tells us that GM has an enterprise value of 34.22 billion dollars, with a total debt of 46.5 billion dollars.

So, they owe more than they're worth, and they're bleeding cash.

The question becomes: Why would anyone want to bail them out?

The answer is fairly simple:

It's a huge interface with millions of voters- and their livelihoods, savings, pensions, debts, mobility, their health...

The only thing that makes GM valuable at this price is that it is a ready made conduit, all set up. What for? Delivering loyalty payments from "the government" to reliable voters. Buying new loyalty from stockholders. Buying gratitude from the workers kept on who aren't paying their way. Patronage, from contracts and positions.

Now, it's all starting to make sense.