GM’s Bankruptcy (Union Payback) Deal…by John Allen
With word of GM’s Obama-mediated bankruptcy yesterday, a few thoughts came to mind:
- How do you think Ford is feeling right now? Despite having financial trouble only slightly less dire than GM and Chrysler, Ford didn’t beg for a government handout. And, because of that, they will be put at a huge competitive disadvantage. The government gave GM a $50 billion advantage over Ford. They also bribed the UAW to trim their labor contracts (with GM only) in exchange for a disproportionately large ownership stake in the company. How can Ford compete with higher labor costs and without the bottomless well of taxpayer provided capital? And imagine if you are the poor Ford employee (executive, middle management or even factory line worker). You work hard, earn a paycheck and see government take a bite out of that paycheck and hand it to your competitor. You are literally spending a certain percentage of your time every workday to pay taxes to subsidize GM and Chrysler. You are funding your own demise. The new American way, I guess.
- The President likes to talk about fairness and sacrifice. In whose definition of fairness do bondholders who hold $27 billion of GM’s debt get a 10% ownership stake in the company while the UAW, who hold $10 billion of debt get awarded 17.5% of the company? I have not heard the President or any of his supporters give a reasonable justification for this. It looks like pure political payoff. Not surprisingly, it’s the same type of union payoff that occurred in the Chrysler settlement. Why did the union receive special treatment? (That’s a rhetorical question. We all know why the unions scored so big in this deal. It’s all about who they support politically). And, why would anyone purchase bonds from GM or Chrysler knowing how little regard the government has for investor rights? It will be very difficult for these companies to raise capital from private investors. But, hey, who needs capital from private investors when you can always loot from the taxpayers?
- Will the President and his auto task force actually make decisions based on what is in the best interest of GM from a financial standpoint, or will he make decisions based on what is best for him and Democrats from a political standpoint? This is exhibit A on why government shouldn’t be running companies. Even if Obama was someone who had business experience and was a brilliant CEO (and, of course, he’s not), it still wouldn’t matter because he has different priorities than the executives and management of GM. Obama’s priorities are mainly political while GM management priorities should be the bottom line.
Talk about a situation that is ripe for government meddling and influence peddling. Will Obama make decisions to close plants and put people out of work if that’s what the company needs, or will he decide that he can’t afford to put people out of work in key battleground states that he needs for re-election? If Congressman facing re-election put pressure on Obama to keep plants open in their districts will he make decisions with political goals in mind? Will Obama decide against cutting union jobs if the UAW kicks his re-election campaign a little extra money? And, of course, the environmental lobby will play a huge role in influencing product lines, whether they make financial sense for GM or not. Government should not be in the business of running companies, period. Too many conflicts of interest.
- The taxpayers have already put $50 billion into GM, how much more are we going to be asked to contribute now that we own the company? Also, it is my prediction that between now and 2012 GM and Chrysler will never show losses in their quarterly earnings reports. Obama is the de facto CEO of both companies now (GM more than Chrysler, but plenty of influence at Chrysler too). If these companies don’t appear to be profitable, it makes Obama look like his interventions were a big failure. He won’t let that happen. He will keep pumping taxpayer money into the companies so they can claim they are profitable. If GM is anticipating a quarterly loss of, say, $3 billion then Obama will slide $5 billion of taxpayer money their way and then claim they made a profit of $2 billion for the quarter. It will be a shell game to paper over the losses and let Obama claim credit for turning the car companies around.
- Fuel-efficient cars account for about 17% of GM’s sales while trucks, SUVs and vans account for 83% of their sales. Obama doesn’t care. GM will produce small, fuel-efficient cars even though America doesn’t want them (even last summer when gas prices soared to over $4.50 a gallon the small, fuel-efficient car sales only jumped to 20%). So, how do you get people to buy something they don’t want? Easy. Bribe them. Government will most likely give out tax credits of $5,000 to $7,000 to consumers who buy one of the “green” cars. This sets up a situation where money is taken from the taxpayers left pocket to finance the production of these cars and then more money is taken from the same taxpayers right pocket to pay their fellow citizens to buy the cars. And then, after subsidizing the production and the purchase of their automobiles, Obama can claim that GM is profitable. In reality, without the government subsidies, building cars that the public isn’t demanding would be a joke of a business model.
-Finally, everybody has to make their own decision on this but I will never, ever buy a GM or Chrysler automobile as long as government has an ownership stake in the companies. I will buy Ford (maybe) or I might buy Toyota or Honda. They make cars in America, provide jobs to Americans and can make them cheaper and better without union labor. My own personal boycott to protest creeping socialism.
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