The Investor
The Collectivist Fix Is In
Once a symbol of the success of American capitalism, once the world’s largest industrial company, GM is now subsisting on $15.4 billion in federal loans and asking for $11.6 billion more.
I don’t want to sound like an old geezer, but I remember the days when General Motors had no trouble creating plenty of excitement and glamour each fall with its annual model changes.
My idea of a good date back then on a September night was to ride around to the local car dealers and climb the cyclone fences to get a sneak peak at the new models before they hit the showroom floors.
It was a time of Pontiac Bonneville convertibles, Thunderbirds, Mark V Continentals, Corvettes, new suburbs, growing prosperity and a sky’s-the-limit American cockiness, the late '50s and early '60s, and Cadillac was tinkering with V-16 engines and ever-bigger tail fins in its concept cars.
Gas was cheap, the chrome was thick, Bobby Darin was on the radio, and I had a 1959 Chevy Impala convertible, the one with the spread wing trunk. It was three-tone — fire engine red car, white wings, black cloth top.
Mechanix Illustrated was impressed: “This big Impala (and it’s bigger than the Cadillac of ten years ago)” has “the most radical styling of the new model year,” a bold design that “will be the talk of the automotive year.”
“The rear-deck treatment is pure Louis Armstrong —gone, man, gone!” continued the Mechanix review. “The view from the rear is strictly Spaceship 1989. It carries tremendous horizontal fins which hover over teardrop-shaped tail light clusters to give the whole thing a kind of two-story effect. My first reaction when I saw this rear flight deck, which curves downward from either side in a slow V, was — what a spot to land a Piper Cub!’ It’s crazy, but craziness is good taste.” Not “craziness in good taste.” It said “craziness is good taste.” Even Mechanix Illustrated was feeling the vibrations of the coming liberation of the '60s.
Now it’s begging time, following several decades of building nondescript cars with overpriced labor, a line of GM cars all sharing the same bodies, universally boring, so you couldn’t tell a Pontiac from an Oldsmobile without reading the name on the trunk.
Mark LaNeve, head of sales and marketing at General Motors, wrote the begging letter last November to GM’s 6,500 dealers across the nation, asking each one to call, write or e-mail their representatives in Congress to ask for money.
With GM saddled with $62 billion in debt and bleeding red ink last year at the rate of $85 million per day, LaNeve asked the dealers to go to the federal government with cups in hand: “As we’re in the midst of the deepest crisis our industry has ever faced, GM’s priority is on seeking support from various U.S. government agencies and Congressional leaders.”
Once a symbol of the success of American capitalism, once the world’s largest industrial company, GM is now subsisting on $15.4 billion in federal loans and asking for $11.6 billion more.
A shell of its former self, a company that once controlled more than half of the U.S. car market, GM is now offering a revamping plan for the approval of its federal overseers that includes the elimination of another 21,000 union jobs, i.e., a 30 percent cut from the current level of its factory workforce, the closing of another 13 plants, a reduction of nearly 50 percent in its number of dealerships, the killing of the Pontiac brand, a halt in Saturn production by the end of the year, and the selling off of Saab and Hummer. Only Chevy, Buick, Cadillac and GMC will remain.
When it’s all over, General Motors expects to have only 38,000 union workers, i.e., less than 10 percent of its 395,000 unionized workforce in 1970, and hopes, somehow, to not fall below its current 18 percent share of the U.S. car market.
As part of its restructuring plan, in order to get relief from pension payouts that cost more each year than GM’s capital spending for new models, GM would pay stock to a trust fund managed by the United Auto Workers union to pay for retirees’ health care costs. That would leave the union owning an estimated 39 percent of the company.
Add another 50 percent of the company that will go to the Treasury in exchange for forgiving approximately $10 billion in federal loans and GM becomes Collectivized Motors, 89 percent owned by the U.S. and the UAW.
And that’ll stop the red ink? The inefficient will somehow turn efficient?
About the Author
Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise and an associate professor of economics at Robert Morris University in Pittsburgh.
El Rey| 5.7.09 @ 7:30AM
More than anything else, the UAW killed GM and Chrysler. Or course, the union was aided and abetted by the Democrats who passed legislation that essentially gave the goons a free hand to intimidate spinless management.
After Obama finishes his makeover of those two car companies, I hope Americans resolve to avoid their products like the plague. I sure will.
Bram| 5.7.09 @ 7:36AM
I really like the new Camero. After GM pays back every penny of bailout funds they received, I might buy one.
SLG| 5.7.09 @ 8:26AM
As a proponent of Free Speech, I don't want the supercilious fool (David Mathews) 86'd. But isn't it easy to skip thru, slide thru his ridiculous rants. Thank God they're not contageous.
But I'm amused by his latest comment about wanting the car makers dead -- two reasons: What about his Democrat buddies in the union? Are they to be unemployed permanently? And, how will Mr. Mathews get around? "Light rail" serve his neighborhood?
It might be laughable if not so tragis -- totally sick (or nonexistant) reasoning...
That said, the only reason those SUVs sold, were because PEOPLE WANTED 'EM.
The UAW did cause the demise of GM and Chrysler. Ford seems to be doing okay.
jack| 5.7.09 @ 8:34AM
Best way to destroy UAW? do not buy anything made by GM or Chrysler,of course thats what we have been doing the past 20 years.
Much of the SUV craze was caused by tax breaks on those vehicles.
the problem is no matter how incompetent and moronic the UAW and gov are, can they produce worse products than Detroit has been giving us the past forty years? I think they can. Hope and pray gm doesn 100 to 1 convert and then short to oblivion
Dave| 5.7.09 @ 8:49AM
Oh Jack, "Much of the SUV craze was caused by tax breaks on those vehicles."
What tax breaks? I didn't get no stinking tax break on my SUV. (Which, BTW, gets 29 mpg highway.)
Robert Rosencrans| 5.7.09 @ 8:53AM
As soon as Chrysler and GM took the government pay outs they were doomed. They make some decent automobiles but few will buy them now. Not only is the public savvy enough to figure out the union owns a majority stake in the companies, the public will also realize the quality will go down. In short GM and Chrysler will have difficulty convincing the public to buy cars from companies who may not be around. GM may survive but they will be much small and much more specialized. Basically, SAAB of America.
Indiana Alex| 5.7.09 @ 9:03AM
This goes to show just how stupid liberals are. Getting fat and lazy off of SUVs means "making money", whereas building hybreds, even for an industry leader like Toyota is a money loser.
Of course for liberals making money is not a businesses purpose.
jerryofva| 5.7.09 @ 9:05AM
One of the biggest myths is that the US automakers only make big cars and SUVs. GM makes some good, if boring high mileage cars. They just can't make any money on them.
Another myth is that the Japanese make only small fuel efficient cars. This is nonsense. Toyota, Honda and Nissan make most of their money on their high-end Lexus, Acura and Infinity lines, especially on their SUV models. Toyota's product profile is the same as GM's except they aren't saddled with the UAW.
Ford better clear its corporate offices out of the United States and re-incorporate in some business friendly place like the Netherlands or Switzerland. Government Motors and the UAW cannot tolerate a successful private rival. Our Fascist gangster President will work hard to break Ford.
Mattled| 5.7.09 @ 9:07AM
Mr. Reiland,
It's all about starting a Command Economy. Has nothing to do with cars.
Banks first, then the engine/barometer of the economy, auto sales. Housing---been there, done that.
Look to the old Soviets for his Highness' next move.
Nittany| 5.7.09 @ 9:24AM
Time to re-read ATLAS SHRUGGED...yes, it is a long slow sog through 900 pages of florid prose but the slow read is part of it's genius. Your mind will have time to recognize the reincarnation of the old "evil" (envy?) in our society. You will meet an Obama or David Matthews and other cowardly weaklings in every chapter. It took previous great generations 200 years to build our wealth and it is now the craven desire of human leeches from within and without our borders who will try to loot it from it's owners. And I'm afraid that we need to find a response and a leader very very soon.
1Freeman| 5.7.09 @ 9:29AM
I'm torn here folks. On one hand we have the super liberal UAW subsidizing the selfish grab for a paycheck they don't earn and contributing huge dollars to the liberals who caused the financial melt down. Workers with a high-school education making as much money as a college professor driving the cost of an American automobile through the roof. Toyota can build a car and ship it to the USA at a profit while competing with the prices of Detroit. The UAW will be the death of the American automotive industry. So... from that point of view: let them die the financial decline and bankruptcy they deserve. Unions have become so selfish that they are like a parasite killing it's host.
On the other hand, we are talking about an American industry with American workers, aren’t we? If only the unions would be disbanded and the corporations could be held to a decent standard of compensation but not so much that it kills the industry... if only. But the Americans working up there want their pound of flesh at any price. OK, I know they took a pay cut recently. But a pay cut of even 30% from a salary in the high-5 to low-6 figure range for a dude who sprays undercoating on a car all day is still obscene. Remember the planned obsolesces of the 80's? Toyota cars ran over 200K miles while the crap out of Detroit would self destruct at exactly 90K miles. Americans planned that scheme and I know Americans can build a car that can last as long or longer that the Japanese if they wanted to. Are you trying to make me believe Ford can’t build a transmission that can go past 100K miles but the Nipponese can? We build spaceships that go to the moon for Crying-out-loud! My patriotism only goes so far. Should GM and Chrysler should be allowed to be self corrected by the market forces and the unions defanged? The arrogant greed of the unions and the poor management of the company have definitely hurt Americans just as if they were terrorists themselves. Why do I, as a tax payer, have to subsidize a car company I don't buy cars from? This is a liberal scam in support of corrupt unions snd failed business practices.
See, I told you I was torn.
JAck | 5.7.09 @ 9:38AM
Not many folks seem to be very excited about buying a car from GM (Gettlefinger Motors) or Chrysler. Are rebates and other coercive rewards enough to push folks to make an (investment)? I think not. Just knowing that tax dollars conficated from us are to go to overpaid, underskilled, militant union members who destroyed their own livelihood makes us sick.
Bram| 5.7.09 @ 9:54AM
Dave,
If your SUV gets 29 mpg, it is probably a cross-over, not a true body on frame SUV. The big SUV's, Suburbans, Expeditions, etc..., are technically considered "farm vehicles" like pickups for tax purposes. This means they get certain tax breaks including exemption from "gas-guzzler" taxes that an equivalent car would be hit with.
BIll Hussein O'Stalin| 5.7.09 @ 10:07AM
Here are the political consequences of this syndicate.
http://mises.org/story/3439
The fact that the UAW has played a role in GM's decline could create further discontent with the socialist/syndicalist plan for GM. The UAW has exploited its position as a monopoly supplier of labor to GM, Ford, and Chrysler. For decades now, UAW workers have squeezed GM shareholders for as much as they can. The socialist/syndicalist plan for GM could end up serving as a means for GM workers to extract rents from the general taxpaying population. The general taxpaying public is too large and dispersed to effectively organize to lobby the government against UAW interests. To put it simply, it is too costly for "citizens" to lobby against the UAW on a day-to-day basis. The UAW will own 50% outright under this plan, and will likely capture the other 50% through lobbying. Consequently, the socialist-syndicalist plan for GM will likely mean socialized costs and syndicalized profits. That is how GM will likely be managed, should this plan become a reality.
$26 $23
"This plan would also set a dangerous precedent for American industry in general."
While taxpayers cannot meet the UAW on equal political terms on a day-to-day basis, it is possible for the electorate to win on this issue. Taxpayers can win a one-day fight against the UAW. A strong and immediate public reaction against this plan could kill it before it gets implemented. Or a strong reaction against this plan after it gets implemented could reverse this plan.
The socialist-syndicalist plan for GM would have dire consequences for the American auto industry. This plan would also set a dangerous precedent for American industry in general. Socialism is a failed and unworkable system. Syndicalism ends up politicizing industry, as different workers use governmental power in efforts to exploit each other. The one good thing about the socialist-syndicalist plan for GM is that its costs are obvious enough to provoke a response to kill it.
Dustoff| 5.7.09 @ 10:24AM
Anyone remember the Vega. 0-:
Mike| 5.7.09 @ 10:32AM
I own two GM vehicles and was in the process of buying my daughter a Saturn. My father is a retired Chevy Engineer and my brother is also an auto engineer. I will never buy a car from a UAW owned company and I will make sure my kids understand what unions are what kind of person is pro union. At least my kids don't regularly get to hear the death threat crank calls from high minded UAW members like my dad did in the 70's and the regular set of new tires every time the UAW went on strike...and that was a lot back then....move the industry away from the unions if the people wont get rid of the unions.
Teleprompter Messiah| 5.7.09 @ 11:17AM
Let Chapter 11 and the rule of law embodied in the Bankruptcy Code sort out this mess. No more "loans" to this turkey.
At present, General Motors is a lifestyle, not a business.
Achilles| 5.7.09 @ 12:11PM
In the past I have invested in car company stock and made money. I would never buy stock in these companies again. Obama is behaving like a thug and sticking it to the investors. After watching the antics of the UAW and this administration,I will not buy GM or Chysler vehicles again. I will learn to like the other cars out there.
Pat| 5.7.09 @ 12:19PM
As businessmen, the GM, Ford and Chrysler Big Dogs were perennial flops, same can be said for the UAW leaders. Boys who love cars grow into men who love cars and who want to work for a car company - kind of like the fat chef who owns his own restaurant - he enjoys eating his creations and figures that makes him qualified to run a business.
Read the automotive business news or analysis and you aren't reading adult literature, you're reading nostalgia pieces like "Ode to My 68' GTO - I Loved You with All My Heart". A love of cars, fond memories of those wonderful days when you were young and innocent, the excitement of the dragstrip and powerful engines, cruising along with your steady girl by your side and looking for friends in the Drive-in - yeah, it was all magical but what does it have to do with selling cars?
Same for the UAW boys. They had a single minded focus on increasing pay and benefits for their members - rightly so, and they did very well at it for a while. Disciples of Walter Reuther, they faithfully paid their campaign cotnributions year after year, mostly to Democrats, but always for one single purpose - protect the UAW with laws and regulations. And it worked too - bondholders will get crumbs, the UAW gets the lion's share of GM and Chrysler, and eventually of Ford as well.
But, over the long haul, the union steadily lost members until it's a mere shadow of its former self. And not all UAW members will sacrifice equally during the current rescue operation - retireees will lose some or much of their promised benefits, newer members with low seniority will be the first to be restrurctured out the door, plants will be closed and surviving members will have to move to one of a few remaining plants to retain their jobs and maybe not even then.
Running a business or building and maintaining a powerful union is no job for grown up teenagers who keep an old Road Runner with a hemi under the hood nestled in their garage to drive on week-ends. And it takes more than single-minded greed to keep a union strong and flourishing - just ask the Japanese union leaders - they'll explain it.
Joe B| 5.7.09 @ 12:22PM
GM and Chrysler are dead. The Obama Administration has simply propped up the corpses in the corner. They will use these zombie shell companies to launder tax money destined for the UAW and its membership, who who are responsible for this corporate double homicide.
Paul from SA| 5.7.09 @ 12:25PM
Where will GM get the money from, just to stay in business? What about those loans?
Where will the unions get more money after spending their share?
We should be able to drive larger, more powerful, more flexible, more convenient, safer vehicles -- if that is what we want. When you add big profits for the manufacturers, then liberals must intervene – create a false energy shortage (oil scarcity, no drilling), and create a false environmental problem (global warming, oops, I mean ‘climate change’ since global warming turned out to be false, like Area 51, Crop Circles and Alien Abductions, and other such hoaxes, for the fringe, where no evidence exists…) – and take over the operation.
I have a bad feeling this is going to keep getting worse and worse. GM will probably get an additional hundred billion before they finally shut all operations. Obama and the Dems will continue to fund the unions in exchange for massive campaign contributions.
jack| 5.7.09 @ 12:46PM
Dave, early in the decade the congress passed a tax break for suv buyers who were self employed. drs,lawyers,and so on. it was a huge boom. my family owns sev auto dealerships. it was a huge boon. I am self employed and had no idea,till I was in my bros show room and people were buying suvs hand over fist. they were all drs,accountants,lawyers and so on. full write off. sorry you missed it
JR| 5.7.09 @ 1:37PM
I don't agree that the unions will continue to be funded. The UAW is dying.
So they own 50% of a dead host? So what?
Parasitic bodies die without a living host. Live potential hosts are not about to indulge the UAW.
In any event, GM, Chrysler, and to some degree Ford, are vestiges of another era.
Sad--but it's over.
Stan Redmond| 5.7.09 @ 2:04PM
We've done fine without Hudson, Packard, Studabaker, Nash, AMC, and the other extinct American auto makers. We'll do fine without GM and Chrysler. The latest political spin on why GM and Chrysler are failing is pretty rediculous and misses a huge point. The spin is, "Americans don't want to buy cars from a company that might go bankrupt." WRONG. I think it is safe to say that 90% of Americans refuse to buy a car from a company that is pouring billions of tax payer dollars down a bottomless rathole.
Orgmanthu| 5.7.09 @ 2:10PM
Long live the SUV!!!
I like being in a large vehicle when I run over moronic, self-righteous, hate-mongering liberals.
The satisfying "splat" of puerile platitudes can be addictive.
Bullwinkles| 5.7.09 @ 5:08PM
Stan Redmond.....
The spin is, "Americans don't want to buy cars from a company that might go bankrupt." WRONG. I think it is safe to say that 90% of Americans refuse to buy a car from a company that is pouring billions of tax payer dollars down a bottomless rathole.
___________________
As well as simply not wishing to make a large financial commitment during a financial meltdown.
Pat| 5.7.09 @ 5:12PM
Like most national questions nowadays, the question of saving GM and Chrysler is very confusing. Are we simply saving two large businesses with taxpayer money, are we saving the "American automotive" industry or are we just playing politics?
It's a safe bet we're playing politics here; a business, like GM, which loses $6 billion in a quarter and sends out $113 million per day in cash more than they take in is in a clear and present danger of going belly-up and likely very soon. Saving their rotting carcass with infusions of taxpayer money while they return to health sounds good in theory but how realistic is that rosy picture of coming to fruition? If GM follows Chrysler into a marriage with a Euro tramp like Fiat then how is that saving the "American" automotive industry? Fiat is now "American" but Toyota and Honda which produce cars here are not?
But the UAW has given $25 million in campaign contributions over the past 10 years or so, 90% to the Democrats. The Dems have a large, but invisible, moral debt to the UAW, so we're actually saving the union and those active members and retirees who depend on the UAW. The question might be how much do we spend on saving the UAW versus just paying the social costs of unemployment and funding the retirees' health care and pensions? Unfortunately, that's a question that won't be asked because Obama has already devised his answer and his payoff to UAW loyalists among the Dems. Will it cost more to save the UAW than to just save those actual citizens who depend on the Big 3 automakers' continued existence? Don't ask.
Dustoff| 5.7.09 @ 5:16PM
Hey... I still want a new Corvette. (-:
1Freeman| 5.7.09 @ 7:34PM
Dear Bram,
My Toyota 4-Runner is a V-6 gas burmimg engine and it gets 29 MPG! No hybred here and I haul kids, groceries and everything else all over town... at 29 MPG!
Howard| 5.7.09 @ 9:53PM
Detroit was killed by a combination of overpriced labor, wages, benefits, pensions, and by timid unimaginative management. Each was equally destructive. Labor squeezed out every penny, and management presented cars that no one outside of the mid-west or car rental agencies would buy. It is true that back in the early Sixties we would look forward to the annual model change. Cars were cool. After the 1973-1974 oil embargo, it all changed. Detroit looked primitive, fat cars, poor workmanship. The Japanese and Germans moved in with efficient well built machines. RIP Detroit.
Christopher Holland| 5.8.09 @ 1:14AM
Why on earth does the AWU, or anybody else for that matter, want to own GM? If GM was a dog it would have been shot as a act of kindness long ago. Where are all the euthanasia fanatics when you want them?
JR| 5.8.09 @ 1:26AM
Energy cost is a major problem. Detroit was fine, even with the legacy costs, prior to energy costs skyrocketing. When fuel was affordable, (plentiful) our auto dudes made big bucks on large vehicles. That's what Americans want.
These were mostly good vehicles. I bought several vans and pickups and all were good. Still have an old Astro Van that won't die. Very useful car. Also have a Lexus RX and an RX8 Mazda....just in case. They are extremely nice cars also.
Democrats don't want affordable fuel prices, and that would appear to create some intense friction between the UAW and the Big "O".
Every time the Messiah says 'Green energy', hundreds of cars are being locked out of the market.
Just think, soon it'll be the remaining corporations priced out of our country. Glad I'm retired. Y'all remain gainfully employed if at all possible, y'hear! I'll like probably live a long time cause I don't smoke. I'll be a hundred years old and suddenly die from nothing! Y'all gotta pay my bills. The big O says I shouldn't suffer. I got rights. BTW, my motorhome is almost out of diesel fuel too. I expect a taxpayer subsidy ...I got my rights. Old man's gotta go to the Harrahs this weekend!!
Democrats = ignorance in their voting habits. How else does one desribe voting for the system that is destroying vital energy on which their jobs are dependant?!
Pingback| 5.8.09 @ 6:41AM
Topics about Car-dealers | The American Spectator : The Collectivist Fix Is In links to this page. Here’s an excerpt:
Pingback| 5.8.09 @ 6:44AM
Topics about Car-dealers | The Collectivist Fix Is In links to this page. Here’s an excerpt:
Jen| 5.8.09 @ 10:28AM
Comments made on here are very worrisome. If the American auto industry fails, it would have a devastating effect on your employment outlook. Most people don't realize how many components and technology goes into building a car...If the American manufacturing base goes to the wayside,
national security would be greatly hampered. Most of the people on here want to see the middle class disappear and turn this country into a nation of haves & have nots . Keep on supporting outsourcing and H1B visas soon you will be out of a job or working for peanuts.. If you had it your way you would go back to the time when you had to own land to vote...The thing that really is disturbing is when I see a Japanese car with American flags on it and bumper stickers that state they are an American Veteran....American Soldiers died at Pearl Harbor..They should be ashamed of themselves..
Parker| 5.9.09 @ 3:15AM
Why should the UAW worry about making a quality product at a competitive price when they can just buy the election of an eager socialist who will rape the tax payers to keep this UAW monstrosity alive - a la Weekend At Bernie's.
Chicago and Detroit politics merged. This matching certainly merits is own special level in Dante's Hell.
God help us all.
Lingerie | 9.12.09 @ 11:07PM
sexy lingerie wholesale lingerie
Steve| 3.23.10 @ 7:12PM
"When it's all over, General Motors expects to have only 38,000 union workers, i.e., less than 10 percent of its 395,000 unionized workforce in 1970, and hopes, somehow, to not fall below its current 18 percent share of the U.S. car market."
Keep on dreaming GM!
osram nightbreakers
James Hind| 2.11.11 @ 12:44PM
Amazing reading this article almost 2 years on and seeing what has actually happened to GM and what American companies have achieved, e.g.:
http://www.carbuzz.co.uk/Ford-Focus-New