Dear American Taxpayer and Part Owner of GM:
Good news! Government Motors has now invested $400 million in junk bonds being sold by the French automatker Peugot.
The worthless paper you can now light your cigars with is from a company that is bleeding red ink -- and isn't even American to boot.
In a move little noticed outside of the business pages, General Motors last week bought more than $400 million in shares of PSA Peugeot Citroen - a 7 percent stake in the company.
Because U.S. taxpayers still own roughly one-quarter of GM, they now own a piece of Peugeot.
Peugeot can undoubtedly use the cash. Last year, Peugeot's auto making division lost $123 million. And on March 1 - just a day after the deal with GM was announced - Moody's downgraded Peugeot's credit rating to junk status with a negative outlook, citing "severe deterioration" of its finances.
In other words, General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds.
GM has said the deal is designed to give GM access to Peugeot's expertise in small car and hybrid vehicle technology and ultimately allow both GM and Peugeot to save money by pooling their resources. But auto industry analysts find the deal mystifying.
An analysis by auto industry consultants IHS said 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."
The deal will allow the Peugeot family to reduce its share of the family business. The family, which Forbes estimated to be worth more than $2 billion, still owns about 30 percent of the company. The Peugeots declined the opportunity to buy a piece of GM.
What's so "mystifying" about it? As far as small, ugly, underpowered cars go, Peugot is at the top of the class. Soon, we Americans will also enjoy the benefits of Peugot's mismanagement and stupidity. Given GM's huge, um, success in marketing the Volt, just think of the possibilities.
Peugot and Government Motors: Building cars no one wants at prices no one can afford.