The Chevy Cobalt: GM past, present, future?                                           General Motors photo by: Emile Wamsteker/Via Bloomberg News.
The Chevy Cobalt: GM past, present, future?                                           General Motors photo by: Emile Wamsteker/Via Bloomberg News.

Would we bail out General Motors Co. if it went broke a second time? Should we?

The premise for rescuing the automaker during the 2008 financial crisis was to prevent traumatic job losses and save the U.S. auto industry, including the parts manufacturers that GM would have taken down had it gone out of business. The reasons for GM's failure stretched back decades, including a bloated cost structure and pension obligations that it couldn't afford to pay.

GM's finance arm got into the subprime-mortgage business, made lots of bad loans and needed its own government bailout. But GM's fundamental problem was that it made lousy cars. The last straw came when the economy tanked in 2008 and customers shunned GM's vehicles for fear that the company wouldn't be around to service them.

The Treasury Department sold its last GM shares in December 2013. Almost five years after GM emerged from bankruptcy, its financial condition is much improved.

GM had $42.2 billion of shareholder equity (or assets minus liabilities) as of March 31. To be sure, about half of that figure consisted of so-called deferred-tax assets that only have value if you assume GM will remain profitable. And the company's earnings have been slipping. GM reported $5.3 billion of net income for 2013, which was its second straight year of declining earnings. Last quarter its net income was a mere $280 million.

Most worrisome, the new GM looks a lot like the old GM in one crucial respect: It still has trouble making good cars.

Today GM recalled 2.7 million vehicles to fix an array of defects, including faulty brake lights that have spawned hundreds of complaints. It has recalled 11.1 million cars and trucks since February, including models with defective ignition switches that GM has linked to at least 13 deaths.

This isn't a sustainable path. If GM keeps this up, it will put itself on course for another death spiral due to the simple fact that consumers won't want to buy its products. The U.S. government then would find itself with the same choice it faced in 2008: Save the company or let capitalism take its course.

The government lost $11.2 billion on its TARP investment in GM, according to an April 30 report by the Troubled Asset Relief Program's inspector general. Quite literally, taxpayers paid for GM to have a second chance. The company shouldn't get a third. GM's incentives to mend its ways would be far greater if the company's management and board knew with certainty that it wouldn't get one.


To contact the writer of this column: Jonathan Weil at jweil6@bloomberg.net.

To contact the editor of this column: Paula Dwyer at pdwyer11@bloomberg.net.