Zombie companies like GM stink up the marketplace like a dead skunk on a Georgia country road. Bury the corpse we say. Otherwise the same corrupt, failed policies continue. Legally obligated expenses like inflated bonuses and cushy retirement packages, big brand advertising campaigns (such as the company name on a sports stadiums), union costs, health insurance, and over-capacity of office space, all must be paid… and the bill is being handed to the US taxpayer!

Then there are the lost opportunities for innovators and entrepreneurs who could pick up the pieces and create real value. Instead, the birth of new technologies and products is put on hold.

And consider the long term effects of retaliatory bailout policies from foreign governments. They are compelled to prop-up their national industries to stay competitive with free-money-financing from the US government. That’s the way it is with government intervention in the marketplace. The effects are so complicated and far-reaching the average bureaucrat couldn’t possibly fathom it.

GM has spent around $1 million a month on lobbying Washington over the last few years. This includes the first quarter 2009. In return, the company got $13.4 billion in bailout money. That’s a helluva of ROI. But it stinks to high heaven.

Under the restructuring plan GM detailed last month, government loans would convert to stock in the automaker, making Uncle Sam the majority owner. GM also owes the United Auto Workers Union $10 billion for a trust fund for retiree healthcare. If that were converted to stock the union would get a 39 percent stake in the restructured company.

With these two business geniuses as the new owners, the UAW and the US government, we’re sure the new restructured GM will be a great success… a big shining tribute to bailout culture.

“It is not my job to hire and fire, but what I’m trying to suggest is that you need to have new teams in place,” Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, said today on “Good Morning America”.  “If you are going to restructure a company you can’t be asking the people frankly, many who were involved in creating the problems we’re in, to be involved in restructuring.”

That’s just one of several possible strings attached to a bailout to the Big Three – General Motors Corp. (GM), Ford Motor Co. (F), and Chrysler Corp. The first is that the $34 billion requested could be turn out to be about $15 billion. Another could be forcing GM to cancel its long-established dividend. (Ford suspended its dividend last year.)

Another could be additional concessions from the United Auto Workers union, Reuters reported.

Another possible change that will no doubt garner some attention is the creation of a government-appointed “car czar” to oversee the bailout. The New York Times reported Sunday that Democrats were drafting legislation that would call for the strict government control of a czar-controlled oversight board comprised of five cabinet secretaries and the head of the Environmental Protection Agency.

Whatever concessions are on the table, some form of bailout is likely to pass, the Associated Press reported.

“It sounds like we have agreement on those basic principles that would be required for a bill that the president could sign,” White House press secretary Dana Perino told reporters today.

So far, the carmakers have proposed a wide range of changes to help persuade lawmakers to approve the bailout money, the carmakers proposed a wide range of changes. Among the highlights:

• Executive salary cuts: Ford announced that the salary of Ford CEO Alan Mulally would be cut to $1 a year if the firm actually borrowed money from the government. General Motors said that Wagoner, the CEO, also will accept a $1 salary. Chrysler’s Robert “Bob” Nardelli is already being paid only $1 a year, according to the Chrysler plan. Mulally had a base salary of $2 million and total compensation of $21.7 million last year, according to the company’s filings. Wagoner received base pay of $1.6 million and total compensation of $14.4 million. Closely held Chrysler does not disclose executive pay.

• Financial restructuring: GM intends to renegotiate its outstanding debt with lenders and bondholders. As of the third-quarter’s close, the firm had more than $30 billion in unsecured debt. GM said it anticipates making all of the roughly $28 billion in payments it owes its suppliers.

• Product streamlining: As part of its cost-cutting efforts, GM suggested that two of its brands – Pontiac and Saturn – could be dropped from its product mix. Pontiac – known in the past for such cars as the Firebird, Trans-Am and GTO – could become a niche brand sold by other dealerships. GM would look for alternatives for dealers of the Saturn, which revolutionized the industry with its no-haggle pricing policies. The company has already said it was considering the sale of its Hummer vehicle line.

• Union concessions: GM intends to seek additional changes in the labor contract it has with the United Auto Workers union – enabling it to modify retiree health care plans and job guarantees the company says it can no longer afford. Money Morning previously reported that national union leaders with all three of the U.S. automakers are planning to hold an emergency meeting in Detroit today (Wednesday).

• New alliances: Chrysler, which a year ago was sold by German automaker Daimler AG (DAI) to the U.S. private equity group Cerberus Capital Management LP, said it remains focused on “developing partnerships, strategic alliances or consolidations” as part of its long-term plans. Chrysler leaders say the firm could save between $3.5 billion and $9 billion a year if it merged with another automaker. GM last month said that it had halted discussions about a possible combination with Chrysler to focus on its own turnaround efforts.

• More hybrids, no corporate jets: Each of the Big Three pledged an accelerated introduction of hybrid vehicles. Ford yesterday promised to put “a family of hybrids, plug-in electric vehicles, and battery-electric vehicles” on sale by 2012, BusinessWeek.com reported. The specific plan calls for a battery-powered electric commercial van in 2010 and a battery-powered retail sedan in 2011. The company is also believed to be developing plug-in versions of its Focus and Fusion cars by 2012-2013. By 2010, Ford said 80% of its investments will be in cars and so-called “crossover” vehicles-as opposed to trucks and SUVs. That’s up from 60% in 2007. Ford and GM also announced plans to get rid of corporate jets. Mulally, Wagoner and Nardelli were all criticized at a House hearing last month – and ridiculed in the media afterwards – when they admitted they had each flown their corporate jets to Washington to ask for rescue money. According to CNNMoney, Ford promised to sell its five corporate jets, while GM vowed to sell four of its seven – and to transfer the leases on the remaining three to another operator. Chrysler spokesman Ed Garsten says Chrysler does not own any private aircraft but instead leases them on an “as-needed” basis. The CEOs apparently learned their lessons well, albeit a bit late: When they return to Washington to beg for the loan money later this week, Mulally and Wagoner will be wheeling hybrid vehicles made by their companies; Nardelli will also drive a hybrid in his return to Capitol Hill, published reports state.

Not on that list: Replacing current CEOs. And GM said putting Wagoner on the chopping block isn’t a constructive solution, despite Dodd’s suggestion.

“GM employees, dealers, suppliers and the GM board of directors feel strongly that Rick is the right guy to lead GM through this incredibly difficult and challenging time,” GM spokesman Steve Harris told the AP.

Source: Auto Bailout Could Have Strings Attached: Ousting CEOs, Appointing Car Czar

• Shareholders of The Bear Stearns Cos. Inc. (BSC) approved the government-assistant $2.3 billion acquisition by JPMorgan Chase & Co. (JPM), Bloomberg reported. The all-stock deal is expected to close today (Friday), though shareholders who sought more than the buyout’s price of $10-a-share may file suit.

• Shares of Sears Holdings Corp. (SHLD) – owner of Sears and K-Mart department stores – dropped 3.6% yesterday (Thursday) as the company posted a net loss of $56 million, or 43 cents a share, for the quarter ended May 3. “Given that we do not expect any significant near-term improvement in the overall retail environment, we believe that our sales and gross margin for the balance of fiscal 2008 will continue to be pressured,” the company said in a statement.

• Meanwhile, the same economic slump that’s crippling Sears has benefited warehouse retailer Costco Wholesale Corp. (COST), which posted a estimate-beating profit gain of 32% for its fiscal third quarter, Reuters reported. Net income was $295.1 million, or 67 cents a share, as shoppers took advantage of its members-only discounts on clothes, gasoline, food and big-ticket items such as televisions and furniture.

• Taiwan’s economy grew an estimate-beating 6.06% for the first quarter, as exports grew more than expected and consumer spending continued its strength. Bloomberg reported that Taiwan joins Japan, Hong Kong and Malaysia in having reported GDP growth that exceeded expectations.

• General Motors Corp. (GM) announced yesterday (Thursday) that 19,000 workers accepted voluntary buyouts, MarketWatch reported, as the struggling automaker looks to cut costs. The departing employees represent 24% of GM’s Auto Workers Union-represented staff.

Source: Global Investing Roundups Friday, May 30th, 2008