Free Markets, Free People


GM Update – It Really Is “Government Motors”

Greg Mankiw reminds us of this bit of fantasy:

What we are not doing — what I have no interest in doing — is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They — and not the government — will call the shots and make the decisions about how to turn this company around. – President Barack Obama

And this bit of reality:

Federal support for companies such as GM, Chrysler Group LLC and Bank of America Corp. has come with baggage: Companies in hock to Washington now have the equivalent of 535 new board members — 100 U.S. senators and 435 House members.

Since the financial crisis broke, Congress has been acting like the board of USA Inc., invoking the infusion of taxpayer money to get banks to modify loans to constituents and to give more help to those in danger of foreclosure. Members have berated CEOs for their business practices and pushed for caps on executive pay. They have also pushed GM and Chrysler to reverse core decisions designed to cut costs, such as closing facilities and shuttering dealerships.

As usual with this bunch, rhetoric and reality are miles apart. Intrusion by members of Congress into the decisions of the company are many, despite the promises of President Obama that “they” will call the shots:

Lawmakers say it’s their obligation to guard the government’s investments, ensure that bailed-out firms are working in the country’s interests and protect their constituents.

Executives say congressional demands gobble up time and make a rocky business environment even more unpredictable.

Or, to put it another way, GM now becomes another “constituent service” problem for members of Congress. And they really don’t care if GM’s business model dictates certain moves to regain profitability – if it hurts a constituent or their district, they just won’t stand for it:

In May, even before the government’s ownership became official, lawmakers erupted when GM disclosed it planned to produce a new subcompact car at its factories in China. Under congressional pressure, GM dropped those plans and promised instead to retool an existing U.S. facility in Michigan, Wisconsin or Tennessee for the new model.

Lawmakers from those states demanded and received high-level meetings in Washington to quiz GM on the criteria for site selection and to tout their states. GM in the end picked a site in Michigan.

The natural reaction to the above is to say “hey, that’s good, we saved or created jobs”? But is it good for the overall profitability of the company which is in hock for over 50+ billion to the taxpayer? Wasn’t the promise to infuse it with cash and allow the company to make the decisions necessary to move it into the black? Instead GM is beaten into line to serve the interests of Congress.

Additionally, closing dealerships has been questioned by any number of Congress members with GM reversing 70 closings. And serving its Democrat special interest groups is also a part of the meddling Congress has engaged in since the takeover:

In addition to the dealership issue, lawmakers have jumped into a union fight that pits GM and Chrysler against two trucking companies that haul new cars around the country. The auto makers want to give some of the work to cheaper nonunion contractors. But that raised the ire of lawmakers who support the International Brotherhood of Teamsters.

Rep. Dale Kildee, a Democrat from Michigan, sent letters on Sept. 30 to the chief executives of both GM and Chrysler, demanding they explain their positions and advising them to stick with their unionized carriers. At least four other lawmakers sent similar letters.

Chrysler defended its plans in an Oct. 2 letter, saying it would save $31 million over three years by shifting some of the work to other carriers. GM, then in the middle of contract talks, replied in its own letter that it had “no plans to phase out unionized hauling companies” but added that it was pursuing new contracts that made the most sense for the company.

So, as it turns out, President Obama’s statement was “just words”. Not only has government intruded, it is engaged in using GM as a tool for self-serving political needs. And that delays the company’s return to profitability and its ability to pay back the money it owes taxpayers. Ford posted a 1 billion quarterly profit recently (certainly driven by “cash for clunkers” but still, a profit). Ford took none of the bailout money. Ford, then, is engaged in running a profitable company which will be competitive in the auto market.

GM and Chrysler – don’t look for any of that to happen for them as long as government and Congress see them as a useful tool to further their own power base and help ensure they remain in office.  And as long as it remains useful for that, don’t expect the relationship to change – and you certainly shouldn’t expect the company to make a profit.  That’s simply not a priority for Congress.

~McQ

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20 Responses to GM Update – It Really Is “Government Motors”

  • I see the government treatment of Government Motors in much the same light as I see how government treats DOD.  Bases cannot close without the ire of one congress-critter or another – therefore they had to pass the Base Realignment and Closure (BRAC) Act in order to get the politics out of the base closure business.  And even with that process in place, you cannot realign forces or troops from one location to another without the same chorus of howlings from the local congress-critters.

    One interesting aspect is the possible application of the National Environmental Policy Act (NEPA).  NEPA states the federal government cannot make a decision on an action that has the potential to affect the environment without going through the NEPA process – Environmental Assessments and Environmental Impact Statements.  Government Motors now operates at the behest of the Federal government.  Should not their actions be required to follow the law as stated by NEPA?  Does NEPA apply?  Answer – The courts have ruled in the past that it is a function of The Money!

    Imagine Government Motors having to complete an Environmental Impact Statement (EIS), complete with Public Scoping Meetings and Draft EIS Public Hearings in order to close or open or even retool a plant, or to introduce a new line of automobiles.

    Boy, could we have fun with that one!! 

    • That is an interesting concept.  I believe the dollar total for NEPA is one dollar of federal involvement.  The  real stumbling block using NEPA would be the fact that after eight years of studying the effects, involving the public, studying alternatives, identifying stakeholders, and all the rest the outcome would be a FOSI, and the action, because NEPA was followed could then STILL go forward.  And the cost of the EIS would end up costing billions as well.  Would be nice though for whatever firm or firms got the contract from congressman/congresswoman/senator Leghorn.

    • Imagine Government Motors having to complete an Environmental Impact Statement (EIS), complete with Public Scoping Meetings and Draft EIS Public Hearings in order to close or open or even retool a plant, or to introduce a new line of automobiles.
      Boy, could we have fun with that one!!

      Essentially this has been happening already for decades.

  • Simple solution .. make everybody a GM stockholder … give the federal government’s interest to the “people”.

  • Not quite sure why we think it would be any different than Defense Programs/Bases, etc that the Pentagon tries to eliminate which Congress, in their infinite military wisdom, frequently decides must be kept (if not merely kept, by heaven, expanded!  my constituents demand employment and income!) open or under development.

    This is all the same old stuff, the same old tart with new lipstick and a different frock.

  • Don’t forget that Barney Frank was trying to keep the GM plant in his district open for another 17 months  (which was explained to me would mean it would probably last longer).

  • Did you notice how GM screwed over the German govm’t by rescinding the Opal deal a couple days ago?  The Germans are furious, and they’ve been taken to the cleaners for a billion or two that they’ve now been suckered out of for nothing.   Don’t think that they haven’t noticed who’s really running GM today.  (in unrelated news, the Obama administration denied having anything to do with this decision or with GM’s management in any way)

    • Did you notice how the players involved were expecting to get Opel at a fire sale price.  Fire’s over, for now.  Deal off.

      That simple.

  • This post has nothing to do with GM, but I can’t seem to find contact info for Bruce or any of the other guys, so I’m leaving this here.
    Please address in a post the fact that the President, the so-called Commander in Chief, failed to begin his remarks this afternoon with anything even resembling condolences for the tragedy that occurred this afternoon at Fort Hood. He started it with a shout out. I was horrified. But I am sure that when his remarks are viewed, only those lucky individuals who were watching the live streaming video will have seen this disrespect. If you can find the raw footage–maybe on youTube–please highlight it for your wider audience to view.
    Thank you.
    My thoughts are with the people of Fort Hood and every other service member.

    • His remarks where? He gave a speech in the morning, but the shootings didn’t happen until about 1:30 PM, and at about 5:00 PM he did make a statement about the shootings at  Ft. Hood. 

    • Another thing. The time stamp on your comment is 14:26, less than  one hour after the shootings took place. What makes you think Obama even knew about the incident so quickly?

      • The time stamp is Pacific time, timactual.  So when Caroline made her remarks, it was almost three hours after the event.

        • Doh!  Thanks . Now that you mention it, Texas is only 2 hours ahead of Pacific, I think. Still, where was Obama speaking between 1:30 and whenever? I have not been able to find his schedule.

    • Caroline,

      I watched his remarks from the Dept. of the Interior live on Fox and my co-workers and I were all apalled at his remarks.  He did start it with how great the conference was, and the shout out, smiling and laughing. 

      His remarks about the shooting looked forced and something that he did not want to be doing.  Granted, no body wants to make remarks like that, but he seemed truly disgusted.  And yes, the only remarks being highlighted are his few sentences about the actual event. 

  • as it happens I am in the market for another car. In the past I was very happy with Saturns and I owned three.  But I will not be buying a Government Motors vehical.  I will be looking at Honda and Hyundai primarily.

  • <i>Ford posted a 1 billion quarterly profit recently (certainly driven by “cash for clunkers” but still, a profit). Ford took none of the bailout money. Ford, then, is engaged in running a profitable company which will be competitive in the auto market.</i>

    Ford may have reported a profit, but also acquired about another 5-10 billion in debt on top of the 20+ billion debt they were already carrying from 2006.  That 2006 debt starts coming due in 2010.  Although they are getting help via TALF to perhaps transform that short term high interest debt to low interest long term debt.  However, they are kicking the can down the road via debt like GM and Chrysler were.

    GM’s biggest expense that gave nothing in return was managing its debt payments.  A debt load they managed in part by acquiring more debt at relatively high interest rates.  Bondholders were more than willing to step up to the plate to give GM more money because their payback was great.  When the Credit market seized, they couldn’t do what Ford did in 2006 and kick the can down the road, again.

    That debt payment has been removed for now.  And none of the burdens you’ve mentioned are as burdensome as the 2015 MPG requirements that Bush implemented and Obama accelerated.   This stuff is small stuff they’ve been hit with in the past.  They were forced to accept the union, hit with EEOC everyway you can think, a regulatory ass fucking from Carter they never really recovered from, sued at the drop of a hat, pollution regulations on their facilities that you can argue were retroactive.

    Caving in to build a plant to make 50,000 cars domestically vs. importing them is tiny in the scheme of government imposition past and future.

    Although I believe Congress hasn’t even gotten started and if the are still owned by the government 2 years from now, it will be the situation you described and the stuff that’s happened until today will pale.

  • Great Minds think alike McQ. Very alike.