American Elephants

You’re Going to Lose Even More Than You Thought! by The Elephant's Child

You already knew this, didn’t you?  Yesterday the Treasury Department revised its estimate of how much taxpayers are going to lose on the bailout of Government Motors.  It’s not a pretty story. In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.3 billion. This is largely due to the decline in GM’s stock price.

Taxpayers still own about a quarter of the company.  The government’s special bankruptcy package allowed write-offs that could add up to as much as $15 billion in tax savings that the company would not have had, had it gone through a normal bankruptcy.  So add another $15 billion, which would make the loss to taxpayers add up to about $38.6 billion.

GM has been doing quite well in China and North America with profit margins that are among the best in the industry at 10 percent.  Their new competitors are Hyundai and Kia who concentrate on the small car market and do not offer a full product line, so GM and Ford’s most profitable vehicles — the hated gas-guzzling SUVs and pickup trucks — are to a degree insulated from downward price pressure. But don’t breathe a sigh of relief just yet, the Obama administration wants Government Motors to change their product mix away from big greenhouse-gas emitting vehicles to money-losing hybrids and electric cars which could promptly put GM in a deeper hole.

Well, you put in an administration that has neither experience nor understanding of how business works and you end up with a strategy for the destruction of the American auto industry.  Obama, who seems to live in a different reality, has assured us that our investment in Government Motors would cost us “not a dime”.  He was recently in Michigan claiming that the “investment had paid off.” And now that the auto companies are rescued, it won’t be long, he said, before Detroit is back as well. Good luck with that one.

Well, Detroit is running out of money. Insolvency is coming up in April when they just plain run out of money. Their options are daunting.  Stephen Henderson lays out in  the Detroit Free Press just how dreadful Detroit’s problems are.

Things Are Not Going Well For General Motors by The Elephant's Child
July 7, 2011, 4:59 pm
Filed under: Capitalism, Economy, Liberalism, Politics | Tags: , ,

Government Motors General Motors has a glut of unsold trucks sitting on dealer’s lots. Two automobile plants in Indiana and Michigan are idle.  And  GM’s problems are being made worse by — regulations from the Obama administration.  Taxpayers still own 33% of General Motors.  The car maker has 280,000 Silverado and GMC Sierra pickups on dealers’ lots around the country.  The inventory is 122 days worth of average sales. The outlook isn’t good, said analyst Peter Nesvold:

It’s unbelievable that after this huge taxpayer bailout and the bankruptcy, that we’re right back to where we were,” said Nesvold, who has a “hold” rating on the stock. “There’s no credibility.” In a research note, he asked: “Is GM falling into old, bad habits?”

The EPA is requiring automakers to increase their fleet-wide average fuel efficiency standards to a level of 34.2 mpg by model year 2016 for passenger cars, light-duty trucks and medium-duty passenger vehicles.  The re-engineering is expected to add at least $1.000 to the sticker price of passenger cars.

GM shares have declined by 7.3% through Friday from their $33 initial public offering price. The Treasury which holds more than 500 million GM shares is waiting until at least August for another stock sale.

The 62 mpg standard proposed for 2025 would further drag down car sales,  leaving more vehicles on lots and more workers laid off.  The EPA does quite a job of killing off the jobs that the Obama administration claims to be trying to create. But no one has praised this administration for its competence.

Will You Buy a Lemon at an Exorbitant Price? by The Elephant's Child

There will be something new at this month’s World Series:  Government Motors will launch their new electric plug-in lemon, the Chevy Volt, with a big ad buy.  In the middle of the televised spectacular of America’s pastime’s crowning event, Government Motors will use taxpayer money to buy premium ad time to pitch the Washington approved, money-losing, taxpayer-subsidized, green car to Americas well-to-do green true believers.

The idea is to drum up some enthusiasm for the General Motors bailout in time for the elections.  The bailout proved that the government wipe out the debts of a company in trouble and then prop it up with a big injection of taxpayer money. With enough public money, this is a foregone conclusion.

Mr. Obama was supposed to surprise us by being a smart regulator who would rescue America’s most important business.  Economists and engineers for a generation have been telling us that the fuel economy mandate called CAFE standards created only perverse results and was a failure.  It forced automakers to throw capital at cars they could not deliver profitably, and undermined their reputation for quality.

Americans didn’t want small fuel-efficient cars, they wanted bulky SUVs to protect their children and move their stuff around.  The correct question was do Americans want to pay higher gasoline prices in order to create a demand for small fuel-efficient cars?  But that is not the answer they wanted.

Even Alan Mulally, widely considered a winner in turning down a government bailout, said he was surprised, when he arrived from Boeing, at how “CAFE standards distort the market, requiring Ford to make and sell small cars at a loss so “we could also make and sell cars customers really wanted.”

Next month will be the General Motors Initial Public Offering, to pay back all that money invested in Government Motors.  The U.S. Government gave GM $50 billion in exchange for 62% of its shares.  The Canadians chipped in nearly $10 billion more for another 12% of the shares.  Both governments will sell some of their shares immediately so that their taxpayers can begin to be repaid.  Full repayment would mean that the new GM have a total market capitalization of about $70 billion or about 30% more than the company’s peak market cap.

That doesn’t even begin to account for the government money plowed into the car industry.  Electric cars,  battery factories, tax credits, stimulus funds, the list is endless, and now, big ad buys for a car nobody wants in the most expensive advertising time of the year.  But that’s not all — Government motors is making campaign contributions.  According to data released by the Federal Assistance Commission  last week GM has given more than $90,000 to political campaigns.  Most of the contributions went to Midwestern congressmen and senators from states where GM has a presence, evenly distributed between the parties.

The Obama Administration Overreaches Again! by The Elephant's Child

On Sunday, a report was released by the special inspector general for the TARP bailout program. Neil Barofsky’s report raised questions about whether the Obama administration’s auto task force considered the job losses from the closings while pressuring the companies to reduce costs.

Treasury didn’t show why the cuts were “either necessary for the sake of the companies’ economic survival or prudent for the sake of the nation’s economic recovery,” said the audit by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, the $787 billion stimulus program known as TARP.

“Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses,” investigators said.

Those decisions resulted in “potentially adding tens of thousands of workers to the already lengthy unemployment rolls — all based on a theory and without sufficient consideration of the decisions’ broader economic impact,” the report said.

Obama administration officials said they strongly disagreed with the findings and said the audit focused solely on element of a painful restructuring.

The automobile dealerships were privately owned small businesses, who bought the cars they sold from the car companies.  It was never clear just how the government had the right to put all these privately owned franchise dealers out of business. They had to buy their franchise in the first place. I do not understand how eliminating dealers improves the bottom line of the company, when most of what keeps an automobile company from being profitable are excessively rich union contracts and government regulations, the two factors that remained untouched.  The unions were heavy supporters of the Obama campaign.

Representative Darrell Issa (R– CA), said the audit “should serve as a wake-up call as to the implications of politically orchestrated  bailouts and how putting decisions about private enterprise in the hands of political appointees and bureaucrats can lead to costly and unintended consequences.”

The initial plan from GM called for a gradual reduction of 1,650 of its 5,750 dealers by the end of 2014. Chrysler’s plans were similar.  Treasury rejected those plans, and the two companies agreed to quickly reduce their dealerships. Chrysler agreed to quickly close 789 dealers by June 2009, and GM promised to cut dealer ranks by 1,454 by October 2010.  Following an angry lobbying campaign by dealers, Congress required arbitration for closed dealers. GM reinstated more than 660 dealers, reducing the number planning to appeal. Chrysler agreed to restore about 80 franchises.

GM put out a statement extolling “the new GM” and a stronger dealer network, but we recall their earlier claims about paying back taxpayer funds that turned out to be less than accurate. Chrysler kept quiet.

Robbing Peter to pay Peter? by The Elephant's Child
April 25, 2010, 7:21 pm
Filed under: Capitalism, Economy, Politics | Tags: , ,

A very big deal was made of Government Motors paying-off its bailout debt.  Senator Charles Grassley (R-Iowa) has accused the Obama administration of ‘misleading’ American taxpayers about General Motors’ loan repayment, saying the struggling auto company was only able to repay its $8.1 billion bailout money by dipping into a separate pot of bailout money.

The charge was backed up by the Inspector General of the Troubled Asset Relief Program (TARP), Neil Barofsky. Barofsky told Fox News, as well as the Senate Finance Committee that GM used bailout money to pay back the federal government.

Grassley wrote to Treasury Secretary Timothy Geithner asking why this appeared to be nothing more than an elaborate TARP money shuffle. He called on Geithner to provide more information on why the company was allowed to use bailout money to repay bailout money. The TARP loans were not repaid with money GM earned selling cars as the administration and GM have claimed in speeches, press releases and television commercials.

The Administration is Very Anxious to Control More of the Economy. Be Nice if They Knew What They Were Doing. by The Elephant's Child
February 26, 2010, 9:57 pm
Filed under: Capitalism, Democrat Corruption, Economy | Tags: , ,

Mitt Romney’s new book,  No Apology” The Case for American Greatness apparently makes the claim that “government is calling the shots on every major decision at GM, including which plants to expand and which to close.”

According to long-time Detroit newspaperman and political cartoonist Henry Payne:

White House spokesman Matt Lehrich told the Detroit News: “While the president will continue to monitor the taxpayers’ investment in these companies, he has enough on his plate to have no interest in running them. Decisions and management are handled by the company alone.”

Payne lists the ways in which Washington isn’t running GM.:

  • The Obama administration forced GM into Chapter 11 last March and rejected its first restructuring plan as inadequate.
  • The Obama administration fired GM CEO Rick Wagoner.
  • The Obama administration appointed new GM board chairman, Ed Whitacre.
  • The Obama administration forced GM to reverse a decision to build its new small car in Asia.  To satisfy UAW demands, the car will be built in Orion Township, north of Detroit.
  • Rep. Barney Frank (D-MA) strong-armed GM into keeping open a facility slated for closure in his district.
  • Congress has balked at GM’s dealer streamlining plans, passing a law requiring dealer arbitration.
  • And just today, the Obama administration GM announced that it would discontinue the gas-hungry Hummer.

Makes sense to me.  Once again, Obama’s ideology trumps the facts.  He believes firmly that oil and gas are dirty and evil, that “clean green” policies will save the planet, in spite of all evidence to the contrary.  Or perhaps it is just payback for the environmental organizations that supported his campaign.  The Chicago Boys are very big on paying back your supporters.  It’s called “crony capitalism.”  Used to be called “graft.”

And What Is the Future of the American Automobile Industry? by The Elephant's Child
November 10, 2009, 12:55 am
Filed under: Capitalism, Economy, Progressivism | Tags: , , ,

peel-p50-1This picture is here because it makes me laugh.  I don’t know what those things are. We once called them Pelosimobiles. From Greg Pollowitz writing in Planet Gore at NRO:

Fox News reports:

Chrysler has disbanded a team of engineers dedicated to rushing a range of electric vehicles to showrooms and dropped ambitious sales targets for battery-powered cars set as it was sliding toward bankruptcy and seeking government aid.

The move by Fiat SpA marks a major reversal for Chrysler, which had used its electric car program as part of the case for a $12.5 billion federal aid package.

As late as August, Chrysler took $70 million in grants from the U.S. Department of Energy to develop a test fleet of 220 hybrid pickup trucks and minivans, vehicles now scrapped in the sweeping turnaround plan for Chrysler announced this week by Fiat CEO Sergio Marchionne.

Government Motors is still planning on producing the Chevy Volt, which GM in its day thought was not marketable.  It goes 40 miles on an electric charge (in theory) and costs around $40,000.  Then it turns into a regular fossil-fuel burning car with a very small engine.  But somewhere in this process of the government running the car companies with union advice there must be something that works.  Or then again maybe not.

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