“We have heard of the impious doctrine in the old world, that the people were made for kings, not kings for the people. Is the same doctrine to be revived in the new, in another shape - that the solid happiness of the people is to be sacrificed to the views of political institutions of a different form? It is too early for politicians to presume on our forgetting that the public good, the real welfare of the great body of the people, is the supreme object to be pursued; and that no form of government whatever has any other value than as it may be fitted for the attainment of this object.” — James Madison, Federalist No. 45.
One of the main points Obama makes in his numerous and redundant campaign speeches is that he saved the American Auto industry and thousands of jobs with his bailout of General Motors. He continually talks about the jobs he saved and that GM is making cars in the United States that people are buying. This is one of his numerous big lies.
Readers with long memories may recall that Charles E. Wilson, president of General Motors and nominee for secretary of defense, got into trouble when he told a Senate committee, “What is good for the country is good for General Motors, and what’s good for General Motors is good for the country.”
That was in 1953, and Wilson was trying to make the point that General
Michael Barone, Senior Political Analyst for the Washington Times, deconstructs one of President Obama’s favorite talking points on the campaign trail in his latest column. While the president likes to take credit for “saving” General Motors and the American auto industry, Barone points out that billions of dollars later, GM may actually be worse off:
“Things are different now. General Motors’ market share in the U.S. is below 20 percent. It has gone through bankruptcy and exists now thanks to a federal bailout. But Barack Obama seems to think that it’s as closely aligned with the national interest as Wilson did.
When the American auto industry was on the brink of collapse,” Obama told a campaign event audience in Colorado earlier this month, “I said, let’s bet on America’s workers. And we got management and workers to come together, making cars better than ever, and now GM is No. 1 again and the American auto industry has come roaring back.”
His conclusion: “So now I want to say that what we did with the auto industry, we can do in manufacturing across America. Let’s make sure advanced, high-tech manufacturing jobs take root here, not in China. Let’s have them here in Colorado. And that means supporting investment here.”
Obama talks about the auto bailout frequently, since it’s one of the few things in his record that gets positive responses in the polls. But he’s probably wise to avoid probing questions, since the GM bailout is not at all the success he claims.
GM has been selling cars in the U.S. at deep discount and, while it’s making money in China — and is outsourcing operations there and elsewhere — it’s bleeding losses in Europe. It’s spending billions to ditch its Opel brand there in favor of Chevrolet, including $559 million to put the Chevy logo on Manchester United soccer team uniforms — and just fired the marketing exec who cut that deal.
It botched the launch of its new Chevrolet Malibu by starting with the green-friendly Eco version, which pleased its government shareholders, but which got lousy reviews. And it’s selling only about 10,000 electric-powered Chevy Volts a year, a puny contribution toward Obama’s goal of 1 million electric vehicles on the road by 2015.
“GM is going from bad to worse,” reads the headline on Automotive News Editor in Chief Keith Crain’s analysis. That’s certainly true of its stock price.
The government still owns 500 million shares of GM, 26 percent of the total. It needs to sell them for $53 a share to recover its $49.5 billion bailout. But the stock price is around $20 a share, and the Treasury now estimates that the government will lose more than $25 billion if and when it sells.
That's in addition to the revenue lost when the Obama administration permitted GM to continue to deduct previous losses from current profits, even though such deductions are ordinarily wiped out in bankruptcy proceedings.
It's hard to avoid the conclusion that GM is bleeding money because of decisions made by a management eager to please its political masters -- and by the terms of the bankruptcy arranged by Obama car czars Ron Bloom and Steven Rattner.
Rattner himself admitted late last year, in a speech to the Detroit Economic Club, that "We should have asked the [United Auto Workers] to do a bit more. We did not ask any UAW member to take a cut in their pay." Nonunion employees of GM spin-off Delphi lost their pensions. UAW members didn't.
The UAW got its political payoff. And GM, according to Forbes writer Louis Woodhill, is headed to bankruptcy again.”
President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.
Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on August 15th. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.
Woodhill writes:
“Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.
It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling. It would be too embarrassing politically. Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.
GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.
In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market. For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011. With a loss of market share comes a loss of relative cost-competitiveness. There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.
To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu.
The Malibu is GM’s entry in the automobile market’s “D-Segment”. The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord. The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.
Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment. This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.
GM is in the process of introducing a totally redesigned 2013 Chevy Malibu. It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).
Automobile technology is progressing so fast that the best vehicle in a given segment is usually just the newest design in that segment. Accordingly, if a car company comes out with a new, completely redesigned vehicle, it had better be superior to the older models being offered by its competitors. If it is not, 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”.
Woodhill Continues:
“As a company, General Motors peaked in 1965, when it commanded 50.7% of the U.S. market, and made a stunning-for-the-time $2.1 billion dollars in after-tax profits. Adjusted by the GDP deflator to 2011 dollars, GM made $12.1 billion in after-tax profits on $117.9 billion in revenue.
In 1965, Volkswagen was tiny compared to GM. It produced only 1.6 million vehicles, about 22% of GM’s 7.3 million. VW’s total revenues were only 11% of GM’s. The most powerful engine you could get in VW’s volume family car, the Beetle, had 40 horsepower. The biggest engine you could get in GM’s equivalent, the 1965 Chevy Impala, had 425 horsepower.
In the first half of 2012, Volkswagen sold almost as many vehicles as GM did, 4.6 million vs. 4.7 million. And, its total revenues were much higher, $119.2 billion vs. $75.4 billion for GM. Part of this is the result of currency exchange rates, but VW had a significantly higher operating profit margin than GM, 6.8% vs. 5.7%.
Under the leadership of Ferdinand Piech, who is kind of like a German-speaking, automobile industry version of Steve Jobs, Volkswagen is determined to become the biggest and most profitable car company in the world. And, right now, they are eating GM’s lunch.”
Woodhill concludes with a comparison between Volkswagen and General Motors of their engineering and management styles:
“One way to answer that question is to compare the 2013 Chevy Malibu against the 2012 Volkswagen Passat, as Car and Driver did. Results: VW, first out of six; GM, dead last. However, additional insight can be obtained by looking at how GM’s CEO, Dan Akerson (63), stacks up against Professor Doctor Martin Winterkorn (65), the man handpicked by Ferdinand Piech in 2007 to be his replacement as CEO of Volkswagen AG.
Akerson has an engineering degree, but he also has a Master’s Degree in Economics, and his first big job was as CFO of MCI. Akerson was CEO of General Instrument, and then of Nextel, and then of XO Communications, which went bankrupt in June 2002. He joined the private equity firm, the Carlyle Group, in 2003.
Akerson got his first job in the automobile industry when he was named CEO of GM in late 2010. Recently, he has been hiring and firing top GM executives at an alarming pace, and he is understood to be working on a major reorganization of the company. Akerson recently gave a televised speech to GM employees on the need for “integrity”.
Martin Winterkorn has a PhD in Metallurgical Engineering, and he has spent his entire career in the automotive industry. At the 2011 Frankfurt Auto Show, Winterkorn was caught on amateur video sitting in, and studying Hyundai’s newly introduced i30, a competitor to VW’s best-selling family car, the Golf. Here is an excerpt from a story about this incident published along with the video by The Truth About Cars, an auto industry blog:
“(Martin Winterkorn) pulled on the adjuster of the steering column, and heard – nothing. At Volkswagen, there is an audible (“klonk!) feedback whenever the steering column is adjusted.
Immediately, Klaus Bischoff, head of Volkswagen Brand Design was summoned. He pulled on the adjuster: No sound. “Da scheppert nix,” exclaimed Winterkorn in his heavy Bavarian accent. “There is no rattle!”
Winterkorn was livid: “How did he pull that off?” He, the blasted Korean. “BMW doesn’t know how. We don’t know how.” He, the blasted Korean, must have found out how to battle the dreaded Scheppern.
Tension is high. This could affect careers. Someone quickly explains that there had been a solution, “but it was too expensive.” That gets Winterkorn even more enraged. “Then, why does he know how?” For less money. He, the Korean. There is no answer. Hyundai has beaten Volkswagen at the Scheppern front.
Winterkorn measures the A-pillar, runs his hands over the plastic. He walks away, his entourage trots after him. Deeply in thought and very worried.”
Uh-oh. While Dan Akerson is busy rearranging the deck chairs on GM’s Titanic, Martin Winterkorn is leading VW to world domination via technical excellence.
“The game isn’t over until it’s over”, but if President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again. And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.”
When it comes to jobs once again Obama has failed with his GM bailout. One of Obama’s big lies was that by pouring money down the rat hole of General Motors he saved thousands of good paying jobs in the auto industry. This is pure baloney.
According to TradeReform GM producing 70% of autos outside U.S. Dan Akerson states that seven out of 10 GM automobiles are built outside the U.S. hey have 11 joint ventures with Chinese government controlled auto manufacturers. Also they are moving their R&D to China.
According to a report in the Wall Street Journal General Motors is open to deepening its relationship with China's SAIC Motor Corp and could expand the collaboration beyond existing tie-ups in China and India, GM Chairman and Chief Executive Dan Akerson said in a recent interview:
“The pairing with SAIC, China's largest domestic auto maker, is critical to GM's global strategy, not just its plans in China, Mr. Akerson said. He is in Shanghai this week where the GM board is holding its first-ever monthly meeting in China, the world's largest auto market.
A far-reaching partnership with SAIC is a central part of GM's strategy to manage business in China, where conditions are increasingly challenging as global auto makers and local manufacturers jostle for market share and must contend with government regulation. On Tuesday, the two companies agreed to jointly develop a new all-electric car for the Chinese market and which could be sold around the world.”
When the federal government bails out an industry or provides tax incentives or subsidies, or when state economic development agencies do the same, there need to be terms that benefit the U.S. in terms of production and job growth. We can’t subsidize offshoring. Producing here and selling to our wealth producing consumer market need to go together. Once Obama lies about saving jobs in the auto industry.
GM, like Solyndra and other failed Obama energy programs, is not only a flawed investment for the American Taxpayer, it is a disaster. We will never get our money back and eventually GM will have to restructure itself under the rules of the free-market. Obama’s proclivity for picking winners and losers based on his devotion to his union and crony capitalist supporters is nothing short of a crime. He is stealing our money to bolster failing companies to garner votes from people who have no idea as to what he is really doing.
I am sure none of the moderators will bring this subject up in the coming presidential debates. This would focus on Obama’s miserable record and we know they don’t want to do that. After all abortion, women’s rights, free contraception, and gay marriage are much more emotional, though irrelevant, topics than how the government wastes our money.
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