From Bailouts To Bonuses

From Bailouts To Bonuses

General Motors and Chrysler each received Government bailouts in order to survive and escape bankruptcy. The two mismanaged companies now announce that they are handing out bonuses to their employees and management.

Bloomberg reports:

“GM plans to pay bonuses to most managers equal to 15 percent to 20 percent of their annual salary and as high as 50 percent to less than 1 percent of its 26,000 U.S. salaried employees, said one of the people, who asked not to be named revealing internal plans. Bonuses for Chrysler’s 10,755 salaried workers will average about $10,000, with a small group getting as much as half of their salary, one of the people said.”

It’s amazing that the two companies that combined received over $60 Billion in bailout funds from the (bankrupt) Government are now in a position to reward bonuses to their employees. One should keep in mind that not only did the Government bail them out directly but in addition to that provided billions of dollars in incentives to artificially increase the demand for cars. Without government guarantees for car loans, government purchasing new vehicles, and the controversial cash-for-clunkers program the two companies would still be struggling.

General Motors reorganized itself in bankruptcy in 2009 and received nearly $50 Billion in Government bailout funds. GM earned $4.77 Billion in the first three quarters of 2010 and awarded an average bonus of above $3,000 per salaried employee. Despite posting a loss of $652 million in 2010, Chrysler awarded an average of $10,000 to its employees while still not having repaid its $12 Billion in bailout funds.

Ford didn’t need bailout funds from the Government and made a profit of $6.5 Billion in 2010. Ford employees were awarded bonuses of $5,000 per employee.

On top of that, Chrysler CEO Sergio Marchionne just recently apologized after he complained about the terms of the loan that Chrysler received in its bailout. He considered the interest rates on that bailout loan unreasonably high as rates have dropped since Chrysler received the bailout funds. He used the terms as “shyster” to describe the loan his mismanaged company received to remain in business.

It’s not surprising that the two companies that took Government funds that have yet to be repaid are awarding their workforce bonuses. Why pay back debt and cease to reward yourself with bonuses when you can continue to mismanage the company and count on future bailouts down the road?

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This post was written by:

Leonardo Abaci - who has written 13 posts on WTF Finance.

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