Giving the left the benefit of the doubt, maybe they didn’t know about this. Because I’m sure, just as they blasted Wall Street for paying bonuses after receiving bailout money and TARP funds, they’d be keen to be consistent and do the same to GM.
Less than two years after entering bankruptcy, General Motors will extend millions of dollars in bonuses to most of its 48,000 hourly workers as a reward for the company’s rapid turnaround after it was rescued by the government.
The payments, disclosed Monday in company documents, are similar to bonuses announced last week for white-collar employees. The bonuses to 76,000 American workers will probably total more than $400 million — an amount that suggests executives have increasing confidence in the automaker’s comeback.
But the comeback was and is still financed by taxpayers money and borrowing. What in the world is GM doing paying out bonuses when it still owes at least $40 billion in loans? That $400 million would be a nice chunk toward that payback, wouldn’t it?
But the bonuses drew criticism from an opponent of the auto industry bailout in Washington who said GM should repay its entire $49.5 billion loan before offering bonuses.
"Since the taxpayers helped these companies out of bankruptcy, the taxpayers should be repaid before bonuses go out," said Republican Sen. Charles Grassley of Iowa. "It sends a message that those in charge take shareholders, in this case the taxpayers, for a sucker."
Yeah, kind of hard to argue otherwise, isn’t it? And no, for you that believed all the hype, GM hasn’t paid back its loans despite the commercials it made claiming it had. It isn’t even close to paying them off.
That said, I’m sure, once the story gets out that the left will be just as consistent in slamming GM for paying bonuses without repaying its loans as it was with taking Wall Street (properly I might add) for precisely the same reason. (HT: Maggie’s Notebook).
Oh, and by the way:
Ford Motor Co. announced plans last month to pay its 40,600 U.S. factory workers $5,000 each, the first such checks since 1999. The Dearborn, Mich., company, which avoided bankruptcy and did not get a government bailout, made $6.6 billion last year.
Ford also plans to pay performance bonuses to white-collar workers in lieu of raises, but it would not reveal the amounts.
Good for them and congratulations.
And, as you might imagine, it’s all politically driven:
G.M. said that it would offer both common stock and preferred stock in the offering, which could begin as early as October, when the Obama administration will be seeking to portray its aid to the auto industry as a success before midterm elections in November.
How neat and nice. Claiming a profit from the "turnaround", something which has been debunked since, GM hopes to free itself from being called "Government Motors", which, it says is hurting sales. Additionally GM is still hemorrhaging money with a negative cash flow in the millions per month.
Given all of that though, I loved this:
The Treasury is expected to sell enough stock in the initial offering to bring its overall ownership position in G.M. below 50 percent — freeing the automaker of the stigma of being called “Government Motors,” which executives have said is hurting its reputation in the marketplace. G.M.’s 734-page filing said taxpayers would “continue to own a substantial interest in us following this offering.”
Got that? Treasury is going to sell enough stock to bring its overall ownership position in GM below 50% – however:
The Treasury, in a statement on Wednesday, said it would “retain the right, at all times, to decide whether and at what level to participate in the offering.”
The statement said the offering would not include the government’s preferred G.M. shares, worth $2.1 billion.
Read that however you wish to read it, but that says BS to the first part of the claim where I come from. The way I read it is Treasury has assumed “the right” to interfere (by buying more stock, not just selling it) at any time it deems it necessary to do so.
So – given the way the last group of investors was treated when GM went into bankruptcy and the fact that government “retains the right” to interfere – why in the world would I want to invest my money in Government Motors?
You could also entitle it "meet the new boss, same as the old boss". What I’m talking about is a recent meeting between UAW bosses and GM workers. To say it didn’t go well would be a vast understatement)(via Sweetness and Light):
Workers at a General Motors stamping plant in Indianapolis, Indiana chased United Auto Workers executives out of a union meeting Sunday, after the UAW demanded workers accept a contract that would cut their wages in half.
As soon as three UAW International representatives took the podium, they were met with boos and shouts of opposition from many of the 631 workers currently employed at the plant. The officials, attempting to speak at the only informational meeting on the proposed contract changes, were forced out within minutes of taking the floor.
The incident once again exposes the immense class divide between workers and union officials, who are working actively with the auto companies to drive down wages and eliminate benefits.
Actively working with the auto companies? They are part owners now of the auto companies – they’re "management" for heaven sake.
Interesting how it suddenly looks when you’re on the "other side", huh? And in the face of vociferous opposition, the UAW officials abandoned the podium.
All of this was written up at the World Socialist website. There’s also a video which gives real credence to the story. In the beginning someone from the local is speaking. He or she (I really couldn’t tell which) then introduces the UAW international drones at about 2:48. As you watch it, it will remind you of some of the townhall meetings of last summer:
The article goes on to say:
Workers at Local 23 voted 384-22 in May to reject reopening a previous contract, which had guaranteed that wages would remain intact in the event of a sale. GM first announced its intention to sell the plant in 2007, threatening to close it if it did not find a buyer.
Despite overwhelming opposition by the rank-and-file, UAW executives secretly continued negotiations with JD Norman, which they outlined in a document sent to workers last week.
Pretty bad when your union which is now management sells you out, isn’t it? To paraphrase one worker, “they’ll still have their jobs while they sell ours out”. Wow – wasn’t that the argument against the hated “management?” Heh …
Irony – it’s really something to be appreciated sometimes, isn’t it? The UAW always wanted control of the auto companies didn’t it? Now it has it – sweet, huh? And private sector unions wonder why their membership is dropping like a rock.
And, it’s actually worse than first imagined. First the background:
Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn’t, the company, which couldn’t raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, “The GM Bailout: Paid Back in Full,” most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.
Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. (It asked for only a 7% interest rate–a very sweet deal considering that GM bonds at that time were trading below junk level.) The vast bulk of the bailout money was transferred to GM through the purchase of 60.8% equity stake in the company–arguably an even worse deal for taxpayers than the loan, given that the equity position requires them to bear the risk of the investment without any guaranteed return. (The Canadian government likewise gave GM $1.4 billion as a pure loan, and another $8.1 billion for an 11.7% equity stake. The U.S. and Canadian government together own 72.5% of the company.)
So GM “paid back” only the $6.7 billion it got in the “pure loan”, not the full $49.5 billion it is on the hook for to taxpayers, or the $1.4 billion it got in a “pure loan” from Canada’s government.
When this story was first reported, it was claimed that TARP money was used to pay the loan. That’s true, but not exactly how you might have imagined it. Remember, GM reported a $3.4 billion fourth quarter, and a loss for the year. Where did it get $6.7 billion to pay off the loan? Here’s where:
As it turns out, the Obama administration put $13.4 billion of the aid money as “working capital” in an escrow account when the company was in bankruptcy. The company is using this escrow money–government money–to pay back the government loan.
Yes, that’s right, they used a taxpayer funded escrow account to pay off the loan. And, as Forbes points out, the GM claim that being able to do so shows progress, it’s hardly worth the hype it received – except that’s not the whole story. In fact, it’s not a show of progress at all. GM did it for a very specific reason:
Sean McAlinden, chief economist at the Ann Arbor-based Center for Automotive Research, points out that the company has applied to the Department of Energy for $10 billion in low (5%) interest loan to retool its plants to meet the government’s tougher new CAFÉ (Corporate Average Fuel Economy) standards. However, giving GM more taxpayer money on top of the existing bailout would have been a political disaster for the Obama administration and a PR debacle for the company. Paying back the small bailout loan makes the new–and bigger–DOE loan much more feasible.
Or, as Forbes sums it up:
In short, GM is using government money to pay back government money to get more government money. And at a 2% lower interest rate at that. This is a nifty scheme to refinance GM’s government debt–not pay it back!
You may have seen the announcement yesterday by GM’s CEO that it was paying back a portion of the money it had been loaned by the taxpayers (who borrowed it to loan it) to keep the company from going under and providing it the room for the government to own 61%.
No one was cheering louder than the White House about General Motors’ repayment of $6.7 billion in loans from the federal government.
First thing this morning, Press Secretary Robert Gibbs alerted his 56,000 followers on Twitter of “BIG NEWS.”:”GM pays back US $6.7 billion used to save jobs,” Gibbs exulted. But he had more.
“BIGGER NEWS,” he trumpeted. “Payment was 5 years ahead of schedule.”
Uh, not so fast. If you were skeptical, you had a right to be.
Jamie Dupree brings us the rest of the story:
The issue came up yesterday at a hearing with the special watchdog on the Wall Street Bailout, Neil Barofsky, who was asked several times about the GM repayment by Sen. Tom Carper (D-DE), who was looking for answers on how much money the feds might make from the controversial Wall Street Bailout.
“It’s good news in that they’re reducing their debt,” Barofsky said of the accelerated GM payments, “but they’re doing it by taking other available TARP money.”
In other words, GM is taking money from the Wall Street Bailout – the TARP money – and using that to pay off their loans ahead of schedule.
“It sounds like it’s kind of like taking money out of one pocket and putting in the other,” said Carper, who got a nod of agreement from Barofsky.
“The way that payment is going to be made is by drawing down on an equity facility of other TARP money.”
Translated – they are using bailout funds from the feds to pay off their loans.
Somehow this exchange never made it to other media outlets.
With this administration, question everything. Heck, with any administration, question everything – but it seems it is an especially important thing to do with this one. And when it comes to politics take nothing the press says at face value – ever.
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
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.
The usual suspects have blamed the usual suspects in the GM bailout:
Austan Goolsbee, a senior economic adviser to President Obama, said the administration’s options were sharply limited by President Bush’s handling of the auto industry, and accused the prior administration of running out the clock.
“They shook up the can. They opened the can and handed [it] to us in our laps,” Goolsbee said on Fox News Sunday.
“When George Bush put money into General Motors, almost explicitly with the purpose — how many dollars do they need to stay alive until January 20th, 2009, there was no commitment to restructuring, to making these viable enterprises of any kind,” said Goolsbee, who serves as staff director and chief economist of the Obama’s Economic Recovery Advisory Board.
All of that is probably true, but the BS flag is thrown at the implication that the Bush administration left them with few options such that it had to funnel more and more bailout money into GM.
There was a clear second option – back off, tell GM that bankruptcy and restructuring are the best option and let the system take care of it. But they didn’t. They made the case that GM was “too big to fail” and that the “downstream impact” in terms of unemployment was unacceptable.
The continued bailout had two outcomes that the Obama administration wanted but won’t admit. One – they got a majority equity stake in the company. And they manipulated the bankruptcy proceedings to preserve that majority.
Secondly, it saved the jobs of a favored special interest group, the UAW, until such a time they too could be handed an equity stake in the “new” company through the manipulated process.
Without the Bush administration’s bailout, none of that would have been possible. And, of course, previous to taking office, Obama had lauded the handling of the GM problem.
So the Goolsbee blame shifting is more than nonsense, it’s nonsense on stilts.
UPDATE: Keith Hennesy, a member of the Bush administration who dealt directly with this subject and the incoming Obama administration throws a very detailed BS flag of his own. [HT: Rick Caird]
Politics and special interests now run General Motors – a company which should be making business decisions based on what is best for the company and its future and not what is best for some politician:
Rep Barney Frank (D-Mass.) won a stay of execution on Thursday for a General Motors plant in his district that the automaker had announced it would close.
No other lawmaker has managed to halt the GM ax. As chairman of the House Financial Services Committee Frank oversees the government’s bailout program, known as TARP. Frank’s staff said the lawmaker spokes with GM CEO Fritz Henderson on Wednesday and convinced him to keep the Norton, Mass. plant open for at least 14 months.
Because what happens in about 14 months boys and girls?
The 2010 midterms. And who controls all the bailout programs? Why the guy who was able to change Government Motors mind on the plant in his district.
Of course had some backbench freshman congressman from a red state district made the same request, what do you suppose the answer would have been? It doesn’t get any more blatant than this — but who among our “leaders” has the stones to call him on it?
About the only thing you could hope for in this instance is a bankruptcy judge would say “no dice” and force GM to carry out its original plan, but as stagemanaged as this whole bankruptcy procedure is, I doubt something like that would happen.
Dan Neil, an LA Times entertainment writer, takes this lesson from the GM bankruptcy:
The final chapter of that merger plays out this week as GM weathers a reorganization that will leave the federal government owning 70% of the company. In the midst of the deepest recession since the 1930s, it’s hard not to see GM’s bankruptcy as a signal moment in a larger history. If mighty GM can fail, cannot also the United States? And the answer is, absolutely.
This is the lesson of GM’s bankruptcy, and it has little to do with market share and miles per gallon. It’s a rebuff of the notion of exceptionalism. Any organization that fails to sufficiently safeguard its means of self-correction and reform, that forsakes long-term investment for short-term gain, that piles up debt year after year, will eventually fail, no matter how grand its history or noble its purpose. If you don’t feel the tingle of national mortality in all this, you’re not paying attention.
While I essentially agree with the thrust of his point, I don’t think the term “exceptionalism” as it is used when speaking of America, has anything to do with flouting the laws of economics. They are called “laws” for a reason, and no one has yet to find an “exception” to them. We have, however, discovered over and over again that attempts to make exceptions to them fail miserably.
The exceptionalism most speak of when they use the term in conjunction with America has to do with law, ethics and philosophy of life – the foundations of the country that make it exceptional. But economics? Of course we can “fail” if we do the stupid things we’re doing. And, unfortunately, we seem bound and determined right now to prove that point. But that has nothing to do with our “exceptionalism”.
In this podcast, Bruce and Dale discuss discuss the president’s announcement of legal indefinite detention, and the economy.
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