Posted on 09/10/2012 7:24:13 AM PDT by SeekAndFind
The Democrats have decided to run in 2012 as the bailout party. It is an odd choice — the 2008–09 bailouts were deeply unpopular among the general public, and even their backers were notably conflicted about the precedent being set and the ensuing moral hazard. But Democrats have nonetheless made one of the most abusive episodes in the entire bailout era their economic cornerstone: the government takeover of General Motors.
The GM bailout was always an odd duck: The Troubled Asset Relief Program (TARP) was created in order to preserve liquidity in the financial markets by heading off the collapse of key financial institutions that had made catastrophically bad bets on real-estate securities — nothing at all to do with cars, really. GM’s financial arm, today known as Ally Financial, was in trouble, but GM’s fundamental problem was that its products were not profitable enough to support its work-force expenses. A single dominant factor — the United Auto Workers union’s extortionate contracts with GM — prevented the carmaker from either reducing its work-force costs or making its products more efficiently. And its hidebound management didn’t help.
Admirers of the GM bailout should bear in mind that it was the Bush administration that first decided to intervene at the firm, offering a bridge loan on the condition that it draw up a deeply revised business plan. President Obama’s unique contribution was effectively to nationalize the company, seeing to it that the federal government violated normal bankruptcy processes and legal precedent to protect the defective element at the heart of GM’s troubles: the financial interests of the UAW. It did this by strong-arming GM’s bondholders into taking haircuts in order to sweeten the pot for the UAW. The Obama administration also creatively construed tax law to relieve GM of tens of billions of dollars in obligations — at the same time that Barack Obama & Co. were caterwauling about the supposed lack of patriotism of firms that used legal means rather than political favoritism to reduce their tax bills. Mitt Romney’s proposal for a structured bankruptcy would have necessitated considerable federal involvement, too, but with a key difference: The UAW contracts would have been renegotiated, and GM’s executive suites would have been cleaned out, placing the company on a path toward innovation and self-sufficiency rather than permanent life support. Which is to say, Obama did for GM what he is doing by un-reforming welfare: creating a dependent constituency.
The Democrats cling to the ridiculous claim that the bailout of GM and its now-Italian competitor, Chrysler, saved 1.5 million U.S. jobs. This preposterous figure is based on the assumption that if GM and Chrysler had gone into normal bankruptcy proceedings, the entire enterprise of automobile manufacturing in the United States would have collapsed — not only at GM and Chrysler but at Ford and foreign transplants such as Toyota and Honda. Not only that, the Democrats’ argument goes, but practically every parts maker, supplier, warehousing agency, and services firm dedicated to the car industry would have collapsed, too. In fact, it is unlikely that even GM or Chrysler would have stopped production during bankruptcy: The assembly lines would have continued rolling, interest and debt payments would have been cut, and — here’s the problem — union contracts would have been renegotiated. Far from having saved 1.5 million jobs, it is not clear that the GM bailout saved any — only that it preserved the UAW’s unsustainable arrangement.
Bill Clinton bizarrely tried to claim that the bailout has been responsible for the addition of 250,000 jobs to the automobile industry since the nadir of the financial crisis. Auto manufacturers and dealerships have indeed added about 236,000 jobs since then, but almost none are at GM, which has added only about 4,500 workers, a number not even close to offsetting the 63,000 workers that its dealerships had to let go when the terms of the bailout unilaterally shut them down.
Ugly as the bank bailouts were, the federal government appears set to make its money back on most of them, with the exception of some smaller regional banks and CIT. Even AIG, one of the worst of the financial basket cases, is set to end up being a break-even proposition for U.S. taxpayers. But tens of billions of dollars will be lost on GM. The federal government put up more for a 60 percent interest in the firm than GM is worth today.
At their convention, Democrats swore that GM is “thriving,” but the market doesn’t think so: GM shares have lost half their value since January 2011. And while the passing of the Great Recession has meant growing sales for all automakers, GM is seriously lagging behind its competitors: Its sales are up 10 percent, a fraction of the increases at Kia, Toyota, Volkswagen, and Porsche. With its sales weak, its share price crashing, and its business model still a mess, some analysts already are predicting that GM will return to bankruptcy — but not until after the election.
The Obama administration talks up all of the “jobs” it saved at GM — but jobs doing what? Manufacturing automobiles that are not competitive without a massive government subsidy? Propping up an economically unviable enterprise just long enough to get Barack Obama reelected? As much as it will pain the hardworking men and women of GM to hear it, it is not worthwhile to save jobs at enterprises that cannot compete on their own merits. So long as the federal government is massively subsidizing the operation, a job at GM is a welfare program with a fairly robust work requirement. (And we all know how the Obama administration feels about work requirements.)
We have bankruptcy laws and bankruptcy courts for a reason. It may make sense to expedite the proceedings for very large firms such as GM in order to prevent disruptions in the supply chain that would, as Ford’s executives argued, harm other, healthier firms. But bankrupt is what GM was, and bankrupt is what GM is, a fact that will become blisteringly apparent should the government ever attempt to sell off the shares it owns in the company.
The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. No wonder the Democrats are campaigning on a fictionalized account of it.
GM would be doing better if they hadn’t been forced to manufacture the Volt. That “car” is such a losing proposition.
Speaking of the VOLT, here’s an interesting read:
GM loses $49,000 on each Chevy Volt it sells
EXCERPT:
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This is Obamanomics at work. Make a worthless POS hybrid — not to make a profit but to employ union auto workers.
Reuters:
Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.
Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.
And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.
GM’s basic problem is that “the Volt is over-engineered and over-priced,” said Dennis Virag, president of the Michigan-based Automotive Consulting Group.
And in a sign that there may be a wider market problem, Nissan, Honda and Mitsubishi have been struggling to sell their electric and hybrid vehicles, though Toyota’s Prius range has been in increasing demand.
GM’s quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs - which will be difficult to bring down until sales increase.
But the Volt’s steep $39,995 base price and its complex technology - the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine - have kept many prospective buyers away from Chevy showrooms.
Some are put off by the technical challenges of ownership, mainly related to charging the battery. Plug-in hybrids such as the Volt still take hours to fully charge the batteries - a process that can been speeded up a bit with the installation of a $2,000 commercial-grade charger in the garage.
In the financial press there has been a steady stream of articles predictong that GM would be forced to file for bankruptcy again soon.
The automobile industry is not America, it’s only one industry...and perhaps the most hamstrung. It’s become representative of the kind of world Obama wants to create, a union world. A school of dorkfish, turning together on command, and swimming right into the progressives net.
Driving past GM dealerships - those that are left, anyway - the lots are full of cars, but very few of them belong to prospective customers. They remind me of Flea Markets still trying to sell “Beanie Babies”. No one wants them anymore.
Flyers come in the mail from local dealers, promising to get financing for those with low credit scores, stating that “bankruptcies and foreclosures dont matter”...that’s how “bubbles” are created.
Union reps are now on the GM board of directors - can anyone say, “conflict of interest”?
And for all this turmoil, for all this money spent/lost...we get “the Volt”.
If nothing else shows obamas lack of business sense, this certainly does.
If Obama “saved” the automobile “industry”, as he claims, it’s because people deserted the bailouts and went to those manufacturers who DIDN’T participate in the bailouts, like Ford, and the foreign car makers.
It’s all Obama-hype, just like everything else he says. Obama has always, and will always be, for Obama. Like a mummy wrapped in linen, Obama is wrapped in ego.
If he doesn’t go in November, America will.
Well all the other car companies took money from the taxpayer too! /S
Even Ford.../S
Well, the Democrat slogan is :
“Bin Laden is dead and GM is alive”.
We are urged to boil down all of these complicated matters to slogans.
Has everyone heard that Obama made the gutsy call to take out Bin Laden? Not sure if they talked about that at the convention...............(sarcasm)
Osama is dead and
GM is on life support
The GOP’s biggest problem is that they underestimate the stupidity of the American people.
If it happens, I predict they delay it until after the election. How would that look if Obama’s claim that GM is alive is sullied by a bankruptcy???
“Bin Laden is dead and GM is alive”
Enemies foreign, enemies domestic.
Socialism Is Legal Plunder - “The Law” - Frederic Bastiat 1801-1850
But, but, but, ..., Obama SAVED the auto industry...
You know, as I watching this “Seal” explain his story that he wrote about killing Bin Ladn I was wondering if this wasn’t part Barry O’s PR and the whole thing os just another “fairytale”.
I could swear the entire team was on a chopper and blown out of the sky.
But this guy pops up with his story ?
I’m gonna sit on this a while but I’m inclined to to think is another Three Card Monte...
BTTT!
“The GOP’s biggest problem is that they underestimate the stupidity of the American people.”
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If we could only power our vehicles with excess stupidity! The “DOLT” would usher in a new golden age for America.
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