American Elephants

Who is Writing the Big Bestseller on the Automotive Fiasco? by The Elephant's Child

There is a huge exposé begging to be written about the scandalous Auto Bailout. An inexperienced, and naive new president, who had little understanding of the responsibilities of the office, and no respect for the separation of powers, was faced with — not an industry — but two car companies that were in deep financial trouble. Naturally, he assumed his job was to rescue them from bankruptcy.

General Motors and Chrysler were faced with crippling government regulation, unduly high labor costs, exorbitant pension requirements. American bankruptcy laws had been devised to deal with just this sort of situation. A company would get temporary relief from their debts, and skilled bankruptcy judges would, under temporary protection from creditors, reorganize the company. Has a long, mostly successful history, though not all companies survive.

Bankruptcy carefully follows the laws, so bond investors get first calls on available funds in a reorganization.  Oops! Obama decided to stiff the bondholders.  It will be interesting to find out how many laws were broken and by whom.

Problem is, it would — also reorganize union participation. Obama wanted to give the unions a big chunk of the company, force the companies to accept partial union management, give a big chunk of Chrysler to Fiat.  All actions completely illegal for a president to do. And he wanted to force GM to make and sell the Chevy Volt, which GM did not believe was ready for prime time.

For unknown reasons they decided to get rid of most of the GM and Chrysler Dealers, at least the smaller ones. The relationship of the car companies to their dealers is interesting. If I understand it correctly, the sales arm for the entire car company consists of small private businesses who buy their stock of automobiles from the car companies with a line of credit from the car companies’ finance arm. But the dealers are privately owned businesses. So Obama, or whoever was in charge, cut off the line of credit to the dealers and just shut them down.

What? The President of the United States just shuts down hundreds of private businesses — fires all the people, around 10o per dealer, dumps their carefully built customer relations, the repair shops, lifetime investment, all that just shut down? That’s legal? What were they going to do about it. Some got on the phone  to their congressmen and got  “waivers”— those instruments that were to become so useful for the Obama administration.

We had a succession of CEOs for what came to be called” Government Motors”, none of whom seemed to be car people; but they came and went in short order. Delphi was the major supplier of auto parts. They seemed to get reorganized too. The Union workers at Delphi’s jobs were saved, their pensions saved, their health insurance continued. The unions contribute to Obama’s campaign, you see. Treasury Secretary Tim Geithner apparently decided to stiff the salaried workers. The salaried people were left to go hang. No jobs,  no health insurance, and pensions cut way back.  Here’s what some Delphi people have to say.

Add on the brilliant idea of “Cash for Clunkers.” This was an interesting program where taxpayers gave people who were ready to buy a new car a big discount on the car, for no discernible reason, if they would just turn in their old car. Folks with quite recent cars rushed to turn them in to take advantage of the windfall. The cars, supposed to be “clunkers” that is old gas-hogs emitting nasty fumes, weren’t. They were ordinary used cars, and when they were immediately crushed, it wrecked the market for used cars for years, used car parts and those dealers, and all those people who depended on used cars, found the market diminished and the prices raised beyond reach. Big waste of money as well.

The whole thing has gone dramatically bad. Assorted CEOs assured us that GM was returning to profitability, but that wasn’t true. The Volt was a remarkable flop, too expensive, even with taxpayer subsidies, and nobody wanted them.

The most recent revelation is that GM has been making subprime car loans to jack up their balance sheets while Obama announced on the campaign trail that GM was back on top, Number one in sales in the world. There is no sign that the taxpayers will ever be paid back, and GM stock is dropping like a stone.

Think of all the juicy stories that lurk behind these broadly sketched events, by someone who has no understanding of the workings of the internal combustion engine. I hope someone is writing it all up. It should be a huge bestseller.

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