Obama Campaign Centerpiece

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This is from Michael Becker of the Liberty News Network. It dissects the auto industy bailout. This is expected to be the centerpiece of the Obama campaign.  He can’t campaign on the stimulus bill or ObamaCare, so this is it. His big accomplishment for three years. Michael Becker presents some of the real truths of the bailout.  I can’t really imporove on Becker’s work.

Have you noticed a curious thing about this Administration?  OK, that’s a stupid question, of course you have.  Probably lots of them.  But I’m talking about one specific thing that they’ve done with incredible consistency.   Every fiscal report they’ve published is revised at least once, sometimes multiple times, and every revision makes the report look worse.  They report quarterly GDP numbers and then a month later, on a Friday, they downgrade them.  I don’t follow Vegas  odds, but I’d be surprised if they don’t have some kind of over-under on the GDP revisions.  Oh well.

Given that auspicious start, let’s talk about one of the early highlights of the Obama Administration, the auto industry bail out.  We’ll start a an annotated history.  GM, Ford and Chrysler have, since the 50s, been engaging in a practice with the UAW that should have caught the attention of a RICO prosecutor along the way.  It’s called “pattern bargaining”.  In simple terms, in order to avert strikes, the “Big 3” agreed to rotate the company that would be negotiating with the UAW each time the contract was up.  That one company would reach a general agreement that would be adhered to by the other two.  In any other industry that would be called “collusion”.

Pattern bargaining is foundation of the problems the US based part of the auto industry has faced for the last three decades.  The problem here should be obvious, the Big 3 had no need to actually “negotiate” with the UAW because the companies understood that the labor component of their cost would stay relative no matter what they agreed to and they could just pass the increased labor component along to the American car buyer.  After all what were they going to do about it?  The Big 3 controlled about 95% of the North American automotive market, and everybody knew that was never going to change.

Well, that assumption turned out to be an oopsie when, in the early 60s, a renegade German car company started bugging the Big 3.  Sure they only sold a handful of cars their first year, but before long the cute little inexpensive VW Bug caught on.  The auto executives, and the union executive, were arrogant enough to make fun of the little car and ignore the obvious – the American consumer was tired of big, overpriced, poorly made cars.  Enter the Japanese in the 70s.  You know the rest of the story.  The Big 3 went from a 95% market share (GM had 60% by themselves), to begging for help from the government to stay in business.  But two things remained, the total arrogance of the auto and union executives and pattern bargaining.

The Big 3 one day woke up and discovered they had a problem their foreign (although the Japanese were building their cars in the US) competitors didn’t have.  An element in the cost component called “legacy cost”.  The cost of providing their retirees incredible benefits, guaranteed by the contracts that had been cranked out under pattern bargaining.  Combined with the cost of benefits to their current employees, the Big 3 had become the Bloated 3.

Enter what was announced as the “end of an era” in 2008.  It looked like GM and Chrysler would have to file for bankruptcy protection.  And, the UAW finally got serious about their position and the fiscal insanity of their contracts.  They got serious because they understood a basic fact.  If the auto makers filed a BK the first thing the federal court would do is void their contracts and oversee the negotiation of a new contract that would put the manufacturers in a competitive position in the marketplace.  Gone would be the “legacy”.

The executives at the UAW did what you would expect union executive to do when face with doom.  They called in their chit.  They called Barack Obama and reminded him that they’d just been instrumental in getting him elected President and it was payback time.  Mr. Obama didn’t blink, he knew where his loyalties lie.  Over the next few months, the federal government installed an “auto czar”, got a federal judge – one Ruth Bader Ginsberg – to rule that in a structured bankruptcy that would be funded by the federal government secured bonds could be written off and the union contracts could be untouched, and finally Mr. Obama wrote a check out of your account for about $80B.  The unions gave in a little on new hires but got to keep the contracts that had destroyed the auto manufacturers, and they also got effective control of the Board of Directors of GM.  GM’s stock price went to zero, “old GM” went out of business, the institutional pension funds that held the bulk of GM’s stock got hammered, bond holders got hammered and the UAW made out like bandits.  Literally.

As Investor’s Business Daily noted in a November 19,2011 editorial…

A year or so ago, about the time of GM’s post-bailout IPO, President Obama said that “American taxpayers are now positioned to recover more than my administration invested in GM.”

That promise was reiterated last month when White House economist Gene Sperling, who called the bailout a “very, very positive story,” told CNN’s Erin Burnett that “the taxpayer is making a profit.”

Like every other “promise” Mr. Obama has sold to the American tax payer, this one “Changed” too.  By the way, “Hope” is not a plan.  Mr. Obama is now running around touting his “success” with the auto bailout and citing the “millions” of jobs he saved with it.  In fact, that claim is also a pile of [edited].  There is almost no probability that either GM or Chrysler would have shut down.  Would a few jobs have been lost?  Undoubtedly, but given the inefficiencies of the contracts they were working under, that would have been a good thing.   What would have happened is that the UAW would have taken a haircut on their contracts and their retiree benefits and they would still be working, just at a lower cost to the companies.

Keep in mind that Mr. Obama was touting the US taxpayers would “make a profit” on the bailout.  From an MSNBC report

A report by the president’s National Economic Council noted that as Detroit automakers rebound, the taxpayers’ loss from the bailout will be about $14 billion, or less than 20 percent of the $80 billion that the Bush and Obama administration used to prop up the companies in 2008.  The Treasury Department had expected losses closer to 60 percent.

The report was part of a carefully devised strategy by the White House to draw attention to an industry that’s on the mend and whose footprint is most noticeable in key presidential battleground states. In recent days, Vice President Biden and Treasury Secretary Timothy Geithner have both promoted the government’s GM and Chrysler interventions as risky moves by President Barack Obama that paid off.

Got that?  According to the Administration’s mouthpiece, MSNBC, the Treasury Department was expecting a $48B loss to the taxpayer.

One of two things is going on here.  Either the President wasn’t listening to the Treasury Department, they weren’t talking to him, or they did mention it in passing and he didn’t hear it, it didn’t register as a big deal or he’s just lying about it.  Personally, I find any of the above to be credible.  And also note, “The report was a carefully devised strategy…”  Oh, and who did that strategy pay off for?  Well, the UAW, they kept everything and got control of GM.  And the Democratic Party who can expect to reap $100MM plus for their reelection coffers from the forced dues paid by union members.  The secured bond holders and the taxpayers didn’t make out so well.

Well, that brings us up to November when the Administration fessed up that the hit wasn’t going to be $14B, it was going to be more like $23B because of the drop in GM stock, which sold at $33/share for their IPO and was in the low $20s (closed yesterday at $24.23) and they ratcheted up the estimate by another paltry $175MM or so last week..  But hey, that’s not all.  Reason magazine noted back in November…

The $23.6 billion represents a 25 percent loss on the feds $60 billion direct “investment” in GM. But that’s not all that taxpayers are on the hook for. …Uncle Sam’s special GM bankruptcy package allowed the company to write off $45 billion in previous losses going forward. This could work out to as much as $15 billion in tax savings that GM wouldn’t have had had it gone through a normal bankruptcy. Why? Because after bankruptcy, the tax liabilities of companies increase since they have no more losses to write off.

This means that the total hit to taxpayers, who still own about a quarter of the company, could add up to $38.6 billion.

And my prediction, $38.6B is the tip of the iceberg.  Reason goes on to note that the government – the far Left leaning bureaucratic part of it – and their environmentalist friends are pressuring, and will ramp up that pressure, GM to move away from SUVs and trucks where they can make money and build more money-losing hybrids and electrics.  Combine that with GMs huge cost problems in Europe – yes, they’re labor related and in collusion with the European governments – and as Europe’s economy heads for the tank Europe will turn into a hole to dump money.  We haven’t seen the last of the fiscal mess at GM.  “We” still own 500MM shares of GM and in all likelihood those shares won’t be sold anytime soon given that the stock price is going down and dumping 500MM shares onto the market would even further depress the price.

This is going to be another long and expensive lesson in why the concept of “moral hazard” needs to not be ignored.  The next time the auto manufacturers, the banks, the Europeans or any one of a dozen blue states come with their hands out, we need to say “NO”.

Or maybe “Hell NO.

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UPDATE

And just as I was getting ready to publish, lo and behold, USA Today pops this little gem into my inbox…

Despite the bailout money still owned taxpayers, President Barack Obama is going to try to ride his rescue of General Motors and Chrysler to a reelection victory.

Proof? Look no further than his surprise visit to the Washington Auto Show today where he took a close look at some of Detroit’s new models.

The Associated Press says for Obama, the auto bailout is a case study for his efforts to revive the economy…

Not much else I can add to that fairy tale.

-Michael Becker

Comments (5)

  1. Chris J. says:

    The union busting full court press continues. Anything that levels the playing field between management and labor is attacked by the corporatist Republicans and their spinmeisters like Mr. Becker.

    It was unions that built a strong and vibrant middle class in this country. They had to fight tooth and nail for every benefit they have ever earned, benefits that all of us (union member or not) enjoy. Basic things like the 40 hour workweek and overtime pay, paid vacations, health insurance, retirement plans, workplace safety requirements, and on and on. Management didn’t offer these benefits out of the goodness of their corporate hearts… they were collectively bargained for by unions at the negotiating table.

    I’m not suggesting that management, and the corporations they represent, are somehow evil or immoral. It is simply true that management has a fiduciary responsibility to only one group, ownership (whether it’s private ownership or public shareholders). And they only have one basic goal – maximizing profits. So it is no surprise to see the corporatist Republicans attacking unions.

    The Phoenix-like rise of the US auto industry is a success story that the President and the American people can celebrate. If we’d have followed Mitt Romney’s advice, the American auto industry would have collapsed, costing many many jobs at the American auto companies themselves, many more at the thousands of suppliers that depend on these companies and even endangered the jobs of those at foreign automaker’s operations in this country. All of this would have happened at a time when the policies of the previous Republican administration were already causing the loss of 750,000 jobs a month!

    By following the policies of the Obama Administration, the American auto industry is again #1 in the world. American auto workers are producing some of the best cars and trucks in the world and the marketplace is rewarding them with a larger market share than they’ve had in years. The US has now had private sector job gains in 23 straight months. That is a record to continue to build upon and be proud of.

    • admin says:

      Unions played a very important role in their time. Now that role is pretty unnecessary. They just got a Catipillar plant closed permanently in Canada. The collect dues to give to democrats so they can be reelected and favor the unions. Cmompetition will keep wage rates reasonable today. If unons were as important and you describe why are they going away and why aren’t there more non-public white collar unions?

      Unions killed the car companies and now they own them. Thanks to your president who owes everything to the unions. Let’s see if they can get him reelected. Let’s see how the Wisconsin recall comes out.

  2. Chris J. says:

    Oh, and by the way, why doesn’t Mr. Becker ask the 1,800 people in and around Belvidere, Illinois that will soon have jobs at Chrysler’s plant there if they think saving the US auto industry was a good idea. Maybe he could talk to those that have benefited from Chrysler’s $700 million investment in this plant.

    http://www.chicagotribune.com/business/ct-biz-0203-belivdere-20120203,0,2201678.story

    There was one shift and less than 200 workers at this plant in 2009. When the hiring of these 1800 additional workers is complete, the plant will have 4,500 employees and be running three shifts.

    • admin says:

      Please divide 1,200 jobs into Mr. Becker’s total for taxpayer money to bail out the two companies, what is the cost per job to the taxpayer?

  3. Doug Gordon says:

    Apparently Consumer Reports would differ on the characterization of the American Auto industry as being #1 in the world.

    From the April 2011 issue, special auto issue every year, on page 16 there is an article entitled “Who Makes The Best Cars?”. Thirteen automakers are ranked. Slots 1-5 are Honda, Subaru, Toyota, Volvo, and the NOT bailed out Ford with “overall scores” ranging from 74 to 67. Slots #12 and 13 are GM and Chrysler, scoring 56 and 43 overall. That would seem to place the Obama bailed out aces of the auto industry are running dead last according to at least one independent source.

    I’ll say it again, in true capitalism, there are creation, destruction, and re-birth phases. In the current flavor we suffer from, especially with the current occupant of the White House, the destruction phase is rigged to reward your friends and punish your enemies, and the result is not the most efficient/effective enterprise that “rises from the ashes”, merely the politically expedient one. Wait for bankruptcy Part Deaux.

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