Although General Motors still owes U.S. taxpayers $25 billion, that didn't stop the Detroit automaker from investing more than $400 million in a French car company that’s “drowning in red ink.”
Yep. As of last week, GM has a 7 percent stake in PSA Peugeot Citroen. And because U.S. taxpayers still own approximately one-quarter of GM, they technically own part of Peugeot.
“Peugeot can undoubtedly use the cash,” ABC News report, “Last year, Peugeot’s auto making division lost $123 million.”
Make matters worse, on March 1 (one day after GM spent over $400 on the French company) Moody’s downgraded Peugeot’s credit rating to junk status with a "negative outlook," citing “severe deterioration” of its finances.
Translation: "General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds," ABC reports.
What was the reasoning behind this investment?
According to GM, the deal supposedly gives them access to Peugeot’s "expertise in small car and hybrid vehicle technology" and will allow both GM and Peugeot to "save money by pooling their resources,” ABC's Jonathan Karl writes.
“But auto industry analysts find the deal mystifying,” he adds.
An analysis by auto consultants IHS reads:
It is “somewhat baffling that GM is willing to get involved in an alliance that it frankly does not need for size or complexity, while still avoiding any public plan to rationalise its European production, cut costs, or deal with labour rates.
Indeed, it seems everyone is having a hard time making sense of GM's investment decision.
“So let’s get this straight,” Ed Morrisey of Hot Air writes, “As soon as GM got freed up a little from its own irrational production costs and could deal a little more effectively with its own labor rates, it took cash that it still owes taxpayers and sunk it into a car company whose problems in the exact same areas are as bad or worse as GM’s was before the bailout.”
In so many words, yes.
“What a great investment! Why, that sounds amazingly like the kind of investment expertise that cost taxpayers $535 million in Solyndra,” Morrisey adds.
There may be a lesson to GM's Peugeot investment. As Morrisey writes:
This is what government bailouts buy. Instead of clearing the decks at GM and freeing their assets through normal bankruptcy so that more competent hands could put them to better use, the government intervention maintained the same status quo and funded it with taxpayer assets. It’s no great surprise, therefore, that the leadership at GM would toss away money owed to taxpayers to buy a stake in another failing enterprise.