To the editor:

Your Jan. 26 editorial “Road to recovery” outlines the steps taken by General Motors (GM) and the federal government to make the company profitable, and it is a welcome story for those who are still employed by the company and by its suppliers.

There were, however, a few phrases in the editorial that deserve attention: “an unsustainable business model,” “prevent the collapse,” “minimizing job loss,” and “forcing management to adopt a viable 21st century business model.”

What you describe sounds to me very similar to what a private equity firm would have done if it had the financial resources: Identify a troubled company, take an equity position, reorganize — shedding workers and unneeded factories — and take it public.

There are, of course some big differences with private equity, the largest being the opportunity for profit, both for the private equity firm and its investors — some being wealthy individuals, and others being state and local pension plans, industrial pension plans, university endowments, unions and other organizations.

Then there is the question of GM’s outcome. With the stock price closing at $24.72 on Jan. 26, investors at the IPO price have lost money, and the very substantial equity stake that the government took during the bankruptcy proceedings is well into negative territory.

You report that GM sold 9.03 million vehicles in 2011, and made a profit of $8.1 million. That’s less than a dollar of profit per vehicle sold, which is better than a loss, but not much better. The road to recovery will be a long one.

George Maling,
Harpswell

letters@timesrecord.com

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