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Why The U.S. Needs to Forgive General Motors Company (GM)

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Long, long ago, in a world nearly forgotten, Detroit and its three automakers were once the pride of America — an exhibition of our raw industrial power. The companies believed they could do no wrong and were sure to dominate the industry as far into the future as their imagination could dream up. If only executives today could go back and warn their predecessors what their mind-set would cost them and our nation — if only they could enlighten them.

Before the recession, Ford Motor Company (NYSE:F) teetered on the verge of collapse and bankruptcy — losing nearly $2,000 on every vehicle sold. It would have joined its crosstown rivals in bankruptcy if not for the vision of CEO Alan Mulally. By this point, Ford Motor Company (NYSE:F) had long since forgotten that it was once an American icon that revolutionized the way our nation manufactured products.

As General Motors Company (NYSE:GM) finishes writing the end of its worst chapter in history, it’s time to look back and see how much the bailout really cost us and see if we can begin to put the past behind us as investors, consumers, and above all — Americans.

Ford Motor Company (NYSE:F) assembly line in 1931. Source: ford.wieck.com.

The bigger they are, the harder they fall
In the once-thriving Motor City, surging behind its automakers, the population reached 1.85 million in 1950, making it our nation’s fifth largest. Following the gradual decline of its automakers, the city dwindled to just over 700,000 in 2011, according to the U.S. Census.

The moment that Detroit’s population peaked marks the time when Japanese rivals Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC) entered the market with a radical idea — high-quality, fuel-efficient vehicles. Detroit scoffed at the idea and was certain the American consumer wouldn’t buy in. They were wrong. Dead wrong.

By the time they acknowledged years of strategic mistakes, it was too late for General Motors Company (NYSE:GM) and Chrysler, which had to be saved through a government bailout, funded by us taxpayers. Here’s how much it cost, and how much we lost.

By the numbers
When the government swooped in to save GM from a painful death, it tossed the company a $49.5 billion lifeline. As part of the agreement, General Motors Company (NYSE:GM) was to restructure, return to profitability, and repay the funds by buying back shares purchased and held by the United States.

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