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Wednesday, May 27, 2009

Taking down the auto industry

By Dennis Byrne
Chicago Tribune

If you think you're so smart, then you try doing it.

After the private sector screwed up the domestic auto industry, President Barack Obama and his minions will try running it, fully convinced they can do a better job.

So now, Obama will:

-- Tell his car companies how to conform to the unrealistically high auto emissions standards that he has ordered. Good luck.

-- Make his cars simultaneously lighter, but safer.

-- Explain to organized labor why his GM will export production and jobs to low-wage countries like Korea and China.

-- Show everyone how to be tough when negotiating with the United Auto Workers union -- part of his political base -- who as co-owners of GM and Chrysler will be sitting on both sides of the table.

-- Borrow money in the credit markets after he has stiffed the car companies' bondholders. Unless, of course, he plans to finance the companies with more of our money, further increasing our "ownership share" in the turkeys that the president is creating.

No doubt, automakers are privately saying, "If you think you're so good, then you do it," and waiting to laugh at the results.

Obama is rushing in with hands flying and legs akimbo, from firing executives to dictating creditor terms. This isn't shaping up to be a disaster; it already is a disaster, from which we have no way to extract ourselves.

Think not?

What started out last year under President George W. Bush's administration as "loans" to GM and Chrysler of $17.4 billion, now has ballooned, by some estimates, into a commitment of more than $100 billion and climbing. Every day brings another loan, grant, subsidy or whatever they choose to call the cash Obama launches into this festering garbage dump.

As I write this, Obama's Treasury Department is ready to pour $7 billion more into GMAC LLC, GM's financial services arm. That would bring total government aid to GMAC to $14 billion and, perhaps along with it, government ownership.

Changing the General Motors name into Government Motors no longer is a joke. And the folks who won't be laughing at all are organized labor, a key part of Obama's political base. GM reportedly is not only thinking of exporting manufacturing jobs to low-wage countries by making cars in those countries (instead of making them here and exporting them) but also by importing cars made in those cheap labor countries to this country. On this score, the unions might have felt betrayed, but on another front, they come out on top. People who have made secured loans to the companies will come out with less value than the unions and their members will retain. Many bondholders are the ma-and-pa types who thought they were putting their savings into a rock-hard retirement investment, secured by the companies' assets. Instead, they have to stand in line, according to the Obama equation, behind unsecured lenders.

Last year, I suggested that instead of a government bailout with all its troubling implications, the companies should go into bankruptcy with a federal judge and his appointed trustee reorganizing them in a fair way, using established federal bankruptcy laws and case law.

Instead, Obama is virtually making things up as he goes along, basing his decisions on political considerations, as much as anything. Obama has taken the hash he was given and turned it into slime. But, but . . . the country was told then, bankruptcy would be disastrous. So, tell me what's different now. Thousands have been laid off, creditors have been stiffed, suppliers hurt, stockholders and bondholders left with virtually nothing. Everything's the same, as bad as predicted, except that this mess has cost taxpayers and future generations $100 billion and counting. This involves more than just money. What nailed the significance of it all came a few weeks ago when the Tribune published a couple of full page ads from auto dealers, addressed to and pleading with Obama not to shut down so many franchises. They argued that their existence doesn't add to the manufacturers' costs because they were, in effect, the manufacturers' customers. Makes sense.

But whatever the merits of their argument, the unprecedented sight of private sector entrepreneurs pleading to the president of the United States to keep their businesses and jobs was a shocker. Nothing like this is authorized by the Constitution. But it no longer matters. Washington governs, not by the consent of the governed, but by the whim of the autocrat.

3 comments:

Anonymous said...

I will just start with a universal truth: If one is ignorant of the facts, one shouldn't write about it. Case in point here: "As I write this, Obama's Treasury Department is ready to pour $7 billion more into GMAC LLC, GM's financial services arm. That would bring total government aid to GMAC to $14 billion..." Your ignorance is exemplified by the false statement that GMAC is GM's financing arm. GMAC and GM are completely separate legal and financial entities, but, of course, it sounds better if you twist that to your advantage. Subterfuge (or lying) can really bolster an argument sometimes.

You also show your ignorance when you say that the government will stiff the creditors. They can try all they want, but the same bankruptcy judge that you would have liked them to go before last fall will have to approve the plan. There is no pre-packaged bankruptcy without the consent of the secured creditors.

As far as letting the car companies go bankrupt last fall, I don't necessarily disagree with your position. However, unless you wanted to guarantee the warranties, as the government is now doing, it would have certainly meant the virtual demise of the US auto industry. Companies operate during reorganizations, but unlike most industries, nobody would have bought a single automobile while GM or Chrysler were reorganizing. We'd be left with Ford, maybe.

And maybe that would have been the right and just result. Somehow, Ford has pulled itself through this. Maybe they should have been the sole survivor. But I'll bet you would have not liked the fact that about 90% of cars sold in the US going forward would have been foreign, either.

The long and short of it is this: You don't really mind the bailout. You just don't like the winners, especially the UAW. I'm not sure why that is, though. Employee ownership is a wonderful thing... think ESOP.

Dennis Byrne... said...

If your point is that GM and GMAC are as separate as, Wal-Mart and Honeywell, you've missed the boat. You might want to check out that equally "ignorant of the facts" Wall Street Journal, at http://online.wsj.com/article/SB124285476839840701.html

"Employee ownership is a wonderful thing"? You might want to ask the employees of the Chicago Tribune if they agree.

Anonymous said...

To the earlier anonymous:

If subterfuge bolsters Mr. Byrne's argument then denial is surely your bully pulpit. Denial is not a river in Egypt! I am sure that you deny that Barney Frank and Chris Dodd ran the House Banking Committee that ran Freddie and Fannie into the ground. I am sure that you deny the government run health care system called Medicare is a financial wreck. If you deny that long enough you will be able to talk yourself into government run health care period. Because why? Because they are going to save us money by streamlining administrative costs! I am sure that you deny that the government has been taking monies from your paycheck to "set aside" for your retirement and has spent it all on just plain old living expenses. Our government makes Bernie Madoff look like a dime store pick pocket. All this denial makes it easy to deny that GMAC is the financial arm of GM. I guess that is why they only lend on General Motors products. Your denial borders on insanity with your insistence that the government will not stiff the creditors. It has already done so. Forcing bondholders to settle for 30 cents on the dollar.

I do mind the bailout! Every "stimulus" that George W. Bush passed out failed miserably, no matter how targeted they are. Oh, wait, I almost forgot, they would have worked if they would have just been bigger. Isn't that the liberal battle cry, "We need funding." No one has made any attempt to bail out my construction company. We have laid off over 100 people in the last year, that is 60% of my workforce. Those tax dollars that are going to GM are coming out of my pocket, your pocket, our children's pockets. I do mind. I also mind the government picking and choosing the winners and losers. They have no business doing any of these things. Yet you allow it. You encourage it. You are not going to like the lot they leave you my friend.

Do you have a voter registration card?