Posted By Arnold Ahlert On
August 17, 2012
Daily Mailer
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 2012Malibu.
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.
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Article printed from FrontPage Magazine: http://frontpagemag.com
URL to article: http://frontpagemag.com/2012/arnold-ahlert/obamas-gm-success-story-headed-for-bankruptcy/
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