Obama’s GM ‘Success Story’ Headed for Bankruptcy

WHEN OBAMA INTERCEDED IN THIS DEAL HE SCREWED THE BOND HOLDERS WHO HAD PRIORITY AND GAVE A SWEETHEART DEAL TO THE UNIONS. AS A RESULT HE USED TAXPAYER MONEY TO BUY THIS YEARS ELECTORAL VOTES IN OHIO. TED BELMAN

by Arnold Ahlert, FPM

On the campaign trail, Barack Obama’s signature definition of “success” is the government bailout of General Motors. “I said I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he told an audience in Pueblo, CO last week. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.” That pronouncement should send a shiver up the spine of every American, due to an inconvenient reality: according to Forbes Magazine, GM is likely headed for bankruptcy all over again.

The numbers are stark. The 500,000 shares of GM stock, comprising 26 percent of the company owned by the government–or more accurately the American taxpayer–sold for $20.21 on Tuesday. This left the government holding $10.1 billion worth of stock representing an unrealized loss of $16.4 billion. Even worse, in order to reach the break-even point, the stock would have to sell for around $53 per share.

The numbers remain in flux. As Investors Business Daily reveals, the Treasury Department continues “to revise upward the staggering losses inflicted on U.S. taxpayers.” They further note that the same day GM announced it was recalling 38,000 Impalas used by police in both America and Canada, due to a possible crash risk, a new Treasury report forecast that losses for GM were expected to reach $25 billion, which is $3.3 billion more than predicted earlier.

Furthermore, since that report was based on GM’s stock price at the time of the report–15 percent higher than it is currently–those losses are likely understated.

And even those numbers are somewhat misleading. In June, while the media was busy touting GM’s “success,” government purchases of GM vehicles rose a staggering 79 percent. And no doubt by sheer coincidence the purchase occurred only weeks before GM was to announce its 2nd Quarter earnings. GM also got an additional $2.7 billion from the Department of Energy (DOE) to reduce energy consumption in its door-making process. Still more? In a move reminiscent of that which precipitated the housing meltdown, GM has ramped up its uses of risky sub-prime loans to drive vehicle purchases. “The subprime market grew as a result of the recession,” said GM spokesman Jim Cain. “Our experience, however, is that with proper management they are very good risks.” That’s what Democrats like Barney Frank (D-MA) said about the housing market–just before it tanked and took the rest of the economy with it.

A report by the Heritage Foundation paints a devastating picture of how politicized the bailout of GM truly was. Heritage notes that even if one accepts president Obama’s premise that the bailout out GM was necessary to prevent massive job losses, “the government could have executed the bailout with no net cost to taxpayers. It could have–had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion–more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.” (Note that the subsidies are higher than the total loss currently attributed to the auto-maker.)

The preferential treatment had two primary components. Despite the fact that the UAW had the same legal status as other unsecured creditors, they recovered a much greater proportion of the debts GM and Chrysler owed the union. And even though bankruptcy typically brings uncompetitive wages down to market levels, UAW members took no pay cuts.

In short, the UAW an Obama administration picked both the “winner” in the deal–the UAW–and the “loser,” aka the American taxpayer.

Yet it gets even worse. Neil Barofsky, special inspector general for the $787 billion Troubled Asset Relief Program (TARP), reported to Congress that the forced closure of auto dealers was both unnecessary and politically motivated. “Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls,” Barofsky wrote, further emphasizing that ”dealerships were retained because they were recently appointed, were key wholesale parts dealers or were minority- or woman-owned dealerships.”

And then there’s GM’s inherent design flaws. The highest sales volume in a vehicle class is for “D-Segment” cars, which are mid-sized, mid-priced, family sedans, that accounted for 14.7 percent of the total U.S. vehicle market in 2011, and 21.3 percent during the first 7 months of 2012. GM’s D-Segment car is the Chevy Malibu, and it must compete for sales with cars such as the Ford Fusion, Honda Accord, Hyundai Sonata, Nissan Altima, Toyota Camry and the Volkswagen Passat. Forbes columnist Louis Woodhill reveals that, due to the speed of auto technology, “the best vehicle in a given segment is usually just the newest design in that segment” and that a newly-designed vehicle had better be superior to its older competitors or the company “will spend the next five years (the usual time between major redesigns in this segment) losing market share and/or offering costly ‘incentives’ to ‘move the metal.’” To make a long story short, the 2013 Malibu is not only inferior to its competitors, it’s not even as good as the 2012 Malibu.

In June, GM CEO Dan Akerson weighed in with an administration-like solution for GM’s sales woes. In an interview published in the Detroit News, Akerson talked about enacting a $1-per-gallon increase in the gas tax on top of the current federal gas tax in order to “encourage” buyers to opt for smaller, more fuel efficient cars. That’s not encouragement. That’s blackmail.

During that same speech in Colorado the president also insisted that “I don’t want those jobs taking root in places like China, I want those jobs taking root in places like Pueblo.” Yet as political consultant Karl Rove has revealed, GM employed roughly 252,000 workers in 2008. The “new” GM currently employs 45,000 fewer workers–131,000 of whom are currently “outsourced” in foreign plants.

As noted in the opening paragraph, the president sees GM as a template for every industry in America. Human Events’s John Hayward illuminates exactly what that means. “Taxpayers were compelled to rescue the company from bankruptcy, then they were compelled to buy its products, and Obama tells them it’s all a smashing ‘success’ that should be duplicated throughout the private sector,” Hayward writes, “Taken literally, as the President prefers his words not to be taken, this would mean the end of the private sector.”

Hayward may be too generous in his assessment. In this particular case, it is quite likely president is saying exactly where he intends to take America in the next four years should he be re-elected.

August 17, 2012 | 12 Comments »

Leave a Reply

12 Comments / 12 Comments

  1. @ yamit82:

    Unions have destroyed American industry.

    Yes they have Laura–together with meddling and over regulating Marxist politicians who think they need to control everything–who think they know best!

  2. Barack Obama gave his union buddies billions of dollars–while most of the rest of the people involved were left out–this was corruption from the beginning.

    The reality is–GM was not going out of business–they would have gone to bankruptcy court and reorganized their company–Barack Obama saved nothing–but he did make things worse for GM, for the American auto industry and for the American economy.

    No company is too big to fail–so be it if they fail–then someone else will do a better job.

    And recently Barack Obama told the American people that he wanted to do what he did with GM–with the rest of American industry–Barack H. Obama is a communist, he wants to take over everything!

  3. @ yamit82:

    Unions were always corrupt because of the apathy of their memberships

    Apathy was only a small part–they have been and are corrupt because their members are largely ignorant, corrupt and immoral!

  4. Each and everyone of Barack H. Obama’s Marxist economic policies have failed to improve the economy–as they were intended to destroy the economy from the beginning!

    Marxism whether it be cultural Marxism or economic Marxism–always destroys–it never builds up for good–it always tears down the good others have built!

  5. @ Laura:

    Unions were always corrupt because of the apathy of their memberships. In the end if they did not, contract to contract improve the working conditions and benefits to their memberships they couldn’t keep their memberships.

    As it is the average wage of the American worker adjusted for inflation is about where it was 30 years ago. Think where it would be today if their were no unions? Non union wages have to compete with union wages and standards and even non union shops are forced to pay a higher wage and benefits because of the union standards. They may earn less but considerably more due to union competition. When is the last time you saw industrial strikes?

    Most of American mega corporations making mega profits pay little or no taxes. Apple, Americas most profitable company manufactures it’s products in China paying slave wages and the American employees of Apple are mostly engaged in sales and marketing.

    Americans lost the bulk of their automotive share to the Japanese because of Japanese productivity and superior design and better options included in the base price. In other-words they out America’d America in production techniques and marketing. The Japanese traditionally are a cradle to grave enterprise for their workers, that in many ways give better and broader security benefits to their workers than even American unionized shops.

    Japanese and Chinese save up to 20% of their earnings which are recycled in their economies. At 0% in America nobody saves and banks charge customers for holding their money. That’s the Unions fault? The FED and the Treasury don’t want savings they want peole to invest in the markets and to buy stuff they don’t need.

    It’s not the Unions who are the cause of the American dysfunctional economic system it’s the Money Junkies and their politician stooges who historically have bought votes and enriched themselves by essentially giving the Unions and the Corporations what ever they demanded, knowing full well that when it came time to make good they will have been long gone and out of the picture.

    America does not owe 16 trillion dollars, they owe in terms of unfunded obligations around 130 trillion dollars.

    The only ans the Republicans can offer is strict and deep austerity. That could produce up to 30-50% unemployment, an automatic steep drop in government revenues, civil war on the streets and crime through the roof. I would not like to face retirement in what’s coming to America.

    College grads with degrees in nothingness will lead the anti government charge. Remember America can’t produce her way out because she has lost the bulk of her industrial capacity in favor of min wage jobs at Walmart and Romey’s “Staples” Dream job of every college grad: stocking shelve at Staples.

    My advice to you is to turn off and tune out Fox News. They lie and are owned by those who caused the problems.

    In the end it’s the unions who still have the organization to fight a complete government takeover of everything. That’s why all governments and political parties have sought to both demonize and limit the unions industrial power base.

  6. @ Laura:

    Unions were always corrupt because of the apathy of their memberships. In the end if they did not, contract to contract improve the working conditions and benefits to their memberships they couldn’t keep their memberships.

    As it is the average wage of the American worker adjusted for inflation is about where it was 30 years ago. Think where it would be today if their were no unions? Non union wages have to compete with union wages and standards and even non union shops are forced to pay a higher wage and benefits because of the union standards. They may earn less but considerably more due to union competition. When is the last time you saw industrial strikes?

    Most of American mega corporations making mega profits pay little or no taxes. Apple, Americas most profitable company manufactures it’s products in China paying slave wages and the American employees of Apple are mostly engaged in sales and marketing.

    Americans lost the bulk of their automotive share to the Japanese because of Japanese productivity and superior design and better options included in the base price. In other-words they out America’d America in production techniques and marketing. The Japanese traditionally are a cradle to grave enterprise for their workers, that in many ways give better and broader security benefits to their workers than even American unionized shops.

    Japanese and Chinese save up to 20% of their earnings which are recycled in their economies. At 0% in America nobody saves and banks charge customers for holding their money. That’s the Unions fault? The FED and the Treasury don’t want savings they want peole to invest (Gamble)in the markets ( Casinos) and to buy stuff they don’t need.

    It’s not the Unions who are the cause of the American dysfunctional economic system it’s the Money Junkies and their politician stooges who historically have bought votes and enriched themselves by essentially giving the Unions and the Corporations what ever they demanded, knowing full well that when it came time to make good they will have been long gone and out of the picture.

    America does not owe 16 trillion dollars, they owe in terms of unfunded obligations around 130 trillion dollars.

    The only ans the Republicans can offer is strict and deep austerity. That could produce up to 30-50% unemployment, an automatic steep drop in government revenues, civil war on the streets and crime through the roof. I would not like to face retirement in what’s coming to America.

    College grads with degrees in nothingness will lead the anti government charge. Remember America can’t produce her way out because she has lost the bulk of her industrial capacity in favor of min wage jobs at Walmart and Romey’s “Staples” Dream job of every college grad: stocking shelve at Staples.

    My advice to you is to turn off and tune out Fox News. They lie and are owned by those who caused the problems.

    In the end it’s the unions who still have the organization to fight a complete government takeover of everything. That’s why all governments and political parties have sought to both demonize and limit the unions industrial power base.

  7. Yamit at one time unions were a positive force and a necessity. They have become out of control and corrupt. I maintain the position that unions have driven away American industry.

  8. @ yamit82:

    …American governments encouraged the sell off of Americas productive capacity…

    Even more important; they paid no attention to the incredible know-how that was allowed to disappear.

  9. Of course it seemed to have occurred to nobody (in GM or government) that there may be many people who were rather miffed at GM, because they either (1) lost their GM stocks as a result of the brainless and arrogant way GM was reincarnated; many people lost all or part of their life savings, or (2) simply detested the government’s intervention in, and subsequent ownership of, GM. These people, like myself, will never ever consider buying a GM-made car.

    That depletes GM’s viable target market. Have nice cars. Nobody wants to buy them.

  10. @ Laura:

    Unions have destroyed American industry.

    My father was an electrician who worked for years for private contractors some who he had taught the trade and barely made a living. My aunt was the secretary to the president of the IBEW, who used her influence to get my father into the union which is one of the most difficult unions to get into. You practically had to be born into it. Once in they had all of the big construction jobs and my father was making 4-5 times what he was making for small private (Jewish) contractors. They sent my father to college and he he received an associate engineering degree. That put him into a higher category and his earning potential went up another few notches as did his pension and medical insurance policies.

    When dad retired, he retired with a good pension.

    Nobody forced American companies from shipping their businesses out of America. They did it for slave labor and bigger profits. Nobody forced globalization on America by lowering or eradicating tariffs. America is a big enough market that does not or need not be dependent on the rest of the world. Since America imports more that 2-3times what it exports and trade deficits accumulate monthly even in the best of times one should ask the question why American governments encouraged the sell off of Americas productive capacity in favor of mostly low paying service jobs.

    It was the unions that allowed and fostered the American middle class with a collective immense purchasing power. Private business would have not paid a cent more than they needed to for any employee but for organized labor. Organized Labor put the worker on a level playing field with greedy capitalists who in the end abandoned not only the American worker but America herself.

    What your idiots on FN won’t tell you that the stock-market is not the American economy and that in the 30’s during the depression America had a favorable trade balance and a strong industrial base which allowed America to finally to overcome the depression. Today America has neither, a favorable trade balance nor a strong industrial base. With the depreciation of the unions and Union strength so too the decline of the American middle class.

    You cannot long maintain an income and wealth disparity where 1% of the population own almost 50% of the American wealth and the top 20% own and control 85% of the American wealth. Even so called Banana Republics have a better ratio of wealth disbursement.

    I still remember with pride the labels “Union Made”

  11. A quick internet search reveals that in Feb/March 2012 some of the liberal media were cheering GM’s reporting record profits of $7.6 billion for 2011. See: LA Times http://articles.latimes.com/2012/feb/16/business/la-fi-mo-general-motors-profits-20120215

    CNN’s Ali Velshi used that information to criticize Romney and others who had been against the bailout as then having egg on their faces:
    See: http://newsbusters.org/blogs/matt-hadro/2012/02/17/cnns-velshi-opponents-auto-bailout-kind-have-egg-their-faces

    Nothing showed up from the liberal mainstream American media on the issues raised by Arhold Ahlert though it was covered on Fox TV recently.

    If Ahlert’s report is accurate, Ali Velshi of CNN is going to have to eat his words and report that it is Obama, not Romney who has egg on his face.

    It would be quite shocking however, if Velshi and the other Obama supporting liberal media organizations reported on this matter in a way that reflected poorly on Obama.