Is GM's Success for Real?

UPDATE (3/2/12)  General Motors has temporarily suspended production of its Volt electric car, the company announced Friday.  GM announced to employees at one of its facilities that it was halting production for five weeks and temporarily laying off 1,300 employees.

A few weeks ago I wrote about "Halftime in America" which tried to convince us that Detroit's auto industry was coming back.

Now we're being led to believe -- thanks to the same agenda driven media -- that GM had record profits and that we should thank President Obama for his rescue of the auto industry.  I may have graduated from Madison's journalism school 28 year ago, but that doesn't mean that I've forgotten the basic components of a news story.  This latest attempt to paint a rosy picture doesn't pass the ink test.

A sample of the hyperbole associated with the usual suspects like NPR, USA Today, NY Times and every major news broadcast gush the following praise: "GM Profits Soar to Record High," Obama Hails Record GM Profits.  The Wage Cutter In-Chief," "Resurgent General Motors Post Record $7.6 billion Profit," "Record GM Profits Could Make Romney's Anti-Bailout Message a Harder Sell," and  "UAW Bonuses on GM Profit May Lift Economy."

I'm always reminded by my wife that I'm an out-of-touch optimist, so believe me when I wish those headlines spoke the truth.  But they don't.

Media stretch number 1
"GM posts $7.6 million profit, surpassing the previous high of $6.7 billion earned in 1997." Seton Motley of Newsbusters had a great observation when he said that this profit is only possible because GM is paying no corporate taxes.  At a corporate tax rate of 39.2%, GM's profit of $7.6 billion would generate $2.98 billion in taxes.  Apply this tax -- like everyone else -- and you have profits of $4.62 billion, a far cry from 1997's record haul.

Since the press won't ask the obvious question, I will.  How is it possible that GM is not paying corporate taxes?  The answer is found in a complex, but interesting economics paper from Harvard Law Professors, J. Mark Ramseyer and Eric B Rasmussen.  In the paper, they reveal that the U.S. Treasury allowed the new GM to emerge from bankruptcy with something called "net operating losses" (NOL) intact.  Normally, when a company goes into bankruptcy, these NOLs can't be retained.   But because of an "exception" to normal tax law by the Treasury Department, GM was able to maintain these NOLs which today are offsetting corporate taxes that would be due.

Because of the Obama Administration's slight of hand -- a tax waiver no other business gets -- a large amount of wealth has been transferred to... (wait for it) ... GM's loyal United Auto Workers Union.   It is unconscionable to me that taxpayer money in the form of TARP money was used to buy GM stock; it's unforgiveable that the Obama Administration used our money to reward one of the biggest reasons GM was forced into bankruptcy in the first place:  the UAW.

But don't expect to hear any of this from the mainstream media.

Media stretch number 2
"GM's sales growth, market share, product trends and employee bonuses reinforce the idea that GM is getting stronger."  If the media are to be believed, GM has turned the corner to profitability and increased market share.  Looking closer, you will find that the auto industry as a whole did better in 2011.  Companies like Toyota, Volkswagen, Honda, Chrysler, Ford, etc. all reported much better profits from increased U.S. auto sales.  In fact, January 2012 continues this trend.  Automotive News just reported that U.S. auto sales rose 11 percent on the month to a total of 913,384 units, for an annual rate of 14.2 million units.

Yet, while nearly every automaker reported brisk upbeat sales numbers for the first month of 2012, GM didn't have much to cheer about.  GM sales were off by 6%, while Chrysler (now owned by Fiat) reported sales increases of 44% while Ford rose 7%.  Toyota and Honda also reported solid sales increases (7%-10%) nearly a year after the destructive March 11th earthquake devastated the country and one of its auto production bases.  So hold on to your party hats, ting tanglers and jang jigglers.  Maybe the improved profits can be attributed to an improving economy and production slowdowns at Toyota and Honda.

International sales in Europe and South America were also down again.  It's too early to say if GM is making a comeback -- perhaps it's just a natural expansion due to pent-up demand.  A better gauge of GM's success will be determined when it competes fairly with fully-operational Toyota and Honda, which have rebounded sharply going into the new year.

The Volt -- what were they thinking?

We are being told that the new Chevy Cruze and Volt are leading the company back.  This is only partially true, with the Volt continuing its miserable sales record.  Instead of meeting its goal of 10,000 sales by year end, GM had sold only 6,100 vehicles, despite being heavily subsidized by our government.

The Volt remains an expensive ideological gamble:  you get 40-50 miles out of the battery before the gasoline engine must kick-in.  You need four hours to charge (with a 240 volt charger) or 10-12 hours (with a 120 volt charger).  GM is planning to train 22,000 employees in an effort to manage expectations for new owners.  Apparently expecting the car to perform like a normal car is asking too much.  It costs GM $41,000 to manufacture the Volt (which when sold for $41,000 translates to $0 profit).  No wonder the Volt is struggling to lead GM into the next century.

 During the summer months, Volt sales had slowed to a trickle as GM shut down the Detroit factory where the car was being built.  Now we are being told that the factory was being retooled in order to boost the car's production volume.  Apparently it wasn't the car's cost or limited driving range, it was the factory's inability to produce it fast enough?  GM is saying that they will start selling a Volt version of the European Opel in the hopes of generating more sales.  The Opel has been "no es viable" for GM throughout Europe for more than a decade, and I don't think adding a Volt version will change its track record.

Despite the struggles with the Volt, GM continues to invest heavily in clean-energy technologies, with patents covering hybrid vehicles, fuel cells and solar energy.  And they plan to introduce Volt-like versions of the Cadillac and Buick models soon.

GM is having better success with the Chevy Cruze and Sonic, but they are much less profitable than trucks and SUVs.  With the price of gas potentially going through the $5 barrier, it bears watching to see if GM can continue to make enough money producing these less profitable cars.

I am being honest when I say that I'm glad GM is doing better than it was in 2008.  Whatever benefits come from keeping workers on the job is a positive.  But after 101 years, GM's practice of bad financial decisions (unions) and noncompetitive vehicles (Impala) caught up to it.  Looking at the government's decision to bailout GM denied the natural order of things.  GM was destined to go into bankruptcy -- even with the bailout, jobs were still lost, factories closed and dealerships shut down.

What the bailout did was prevent GM from rising from the ashes as a stronger, smarter company (minus all its baggage) capable of competing on the domestic and global stage.  GM was not "too big" to fail -- it was just too big to succeed in the corporate form it was.

The government bailout also prevented other companies from gaining ground on a competitor, who was down and out.  Toyota, Honda, Ford and Volkswagen didn't receive a bailout, therefore the natural order of the strong benefiting from the weak was altered.  I've heard many experts say it would have been the end of the auto industry, with more than a million jobs lost.  Ancillary companies would have been forced to close.  Not only is this a lie, it's not even creditable.  Other car companies would have absorbed many of those lost jobs, closed factories, and unfinished car designs.  People would have still bought cars -- keeping people on the assembly line -- just not GM's brand.  President Obama loves to talk about fairness.  Apparently, not when it comes to competition in the auto industry.

Why does it bother me so much that the media are lying about GM?  

Because Obama wants us to believe that he made the right choice by using $85 million dollars of taxpayer money to bailout GM and Chrysler.  The mainstream media now wants us to acknowledge his leadership in saving GM.  NBC News just "reported" that GM is now rewarding America's generosity with a record financial report for 2011.  Well, I'm not feeling any richer.  In fact I'm feeling ripped off by the political games being played -- by President Obama and the UAW leadership.

Speaking of paybacks, wouldn't it be great to get a $7,000 profit sharing check the way union members are this year?  The last time I checked, I haven't even received a "thank you" note from Government Motors, just a letter asking for another donation to Obama's 2012 re-election -- delivered by ABC, NBC and CBS.

Let me be the first say, "No thank you."

Glittering Jewels of Colossal Ignorance

I play basketball during my lunch hour to provide an outlet for my frustrations that develop over the first part of the day.  It's tremendously therapeutic to run full court, box out for a rebound and hit an occasional winning shot.  All of a sudden, the guy who was complaining about his auto insurance rates going up because he was responsible for causing $3,598 in damage, doesn't seem so bad.

The same philosophy applies to writing this blog.  If the insanity of the Walker recall efforts gets too much, I can type away until I feel like I've said my two cents, proven the fallacy of their argument and (in my mind) saved the state from unconscionable indebtedness.  Every so often, however, it gets to be too much.

So, I want to provide my early 2012 examples of such stupidity that it defies all attempts to forget them.  Perhaps listing these glittering jewels of colossal ignorance will help others realize just how bad it has gotten.  When the majority of people start talking like this, you know we're going to hell in a hand basket.

My first example is the proclamation by Pulp Fiction's Samuel Jackson in an Ebony interview that he voted for Obama because of his skin color.  According to Jackson, "Obama's message didn't mean sh*t to me.  I just hoped he would do some of what he said he was gonna do.  I voted for Barack because he was black.  Cuz that's why other folks vote for other people -- because they look like them."

Sorry, Sam but you are an ignorant buffoon.  According to election results in 2008, 54 percent of young whites voted for Obama, proving that at least a majority of whites aren't colorblind.  On the other hand 96 percent of blacks voted for Obama because of his race.

But Jackson wasn't finished.  He added, "When it comes down to it, they wouldn't have elected a n*gga.  Because, what's a n*gga?  A n*gga is scary.  Obama ain't scary at all.  N*ggas don't have beers at the White House.  N*ggas don't let some white dude, while you in the middle of a speech, call you a liar."  He went on to say that Obama's first term was timid and that he hopes he gets a second term because then he could behave like a "scary n*gga, cuz he ain't gotta worry about being re-elected."

I don't know what's worse -- his grammar or his use of the N-word.  It's obvious that he can read a movie script, but if this is the way he speaks normally, he has a lot of fans fooled.  And why can blacks get away with saying the N-word but no one else?  Hopefully these comments are the beginning of the end of Jackson's career.  What a bigot and racist.

Example number two:  Maya Angelou, the 83-year old, black poet who read at President Obama's inauguration, is thought of by some as the "sage of black America".  She had this to say recently (concerning Obama's re-election):

"I think we are going to see a number of people who say: ' I have no racial prejudice in my heart, not in my conversation'," Angelou says.  "But in the next few months, as we wind up to the double campaign, I tell you we are going to see some nastiness, some vulgarity, I think.  They'll pull the sheets off."


Reflecting on Obama's presidency, Angelou says "He is America's president.  But he also describes himself as America's first black president.  His physical self, just being there, his photograph in the newspapers as president of the United States; that has done so much good for the spirit of the African American.  We see more and more children wanting to be like President Obama, wanting to go to school."

Why is it that black activists are the first to play the race card?  If we criticize Obama, somehow we're all card-toting members of the Klu Klux Klan?  The fact that the president has done more to destroy 2.2 million jobs than create new ones is somehow related to him being black?  The explosion in our national debt to more than $15 trillion is a figment of our imagination, and solely a by-product of our racial biases?

You can't criticize Obama's presidency based on his color, but it's permissible to use it as an attribute when claiming he's the first black American president.  (Sorry, but I believe President Clinton took that distinction when he moved his office to Harlem, N.Y. and proclaimed his race-altering transformation.)  So if we are to believe this intellectual sycophant, Barack Obama's an inspiration to black kids who suddenly want to go to college.  Somehow I don't see this same adoration in some of Chicago's African American kids who don't know who their fathers are but who know how Derrick Rose cheated in college to become a star in the NBA.

My final example is from Maxine Waters, who's always good for putting her foot in her mouth.  The senior senator from California spoke her mind last week at a state party convention in San Diego.  For those of you who think it's Republicans in Congress holding progress back because we won't work with the Democrats, listen to this:

"I saw pictures of (House Republican leaders) Boehner and Cantor on our screens at the convention.  Don't ever let me see again, in life, those Republicans in our hall, on our screens, talking about anything.  These are demons."  She told the crowd, "they are bringing down this country, destroying this country, because they'd rather do whatever they can do to destroy this president rather than what's good for this country."  Apparently congressmen from the GOP are bad for the country.  Maybe -- just maybe -- there's a good reason we don't want anything to do with these people.

Ms. Waters also said that banks will be "shaking in their boots" if Democrats retake the House and she assumes control of the House Finance Committee (the great bloviator Barney Frank is retiring).  Somehow I don't think we have to worry about Maxine getting the chair on this committee, however.  She continues to face an ethics investigation into her potential role in securing federal money for a bank with ties to her husband.

I kid you not.

As much as I like to label these comments as colossally ignorant,  it worries me that more than half the people in this country actually think the same way.  Whether its accusations about Republicans wanting to outlaw contraceptives, or Warren Buffet paying less in taxes than his secretary, or GM's announcement that the Volt is the "car of the future" -- there are too many people focused on Whitney Houston's funeral, and not on things that are really changing our world.

Oh well.  At least we can all agree that this year's Grammy winner, Adele, is one heck of a singer.

Half Time in America?

Last night's Super Bowl XLVI was bad enough with the New York Giants and New England Patriots playing.  Twenty-four hours later, I still can't decide who I wanted to win.  For me, it took some very funny dog ads from Doritos and Bud Light to make it watchable.

There was one ad, however, that didn't leave me laughing and that was Halftime in America, narrated by Clint Eastwood, who did his best to put a positive spin on the recovery of Detroit and America's car industry.  Update:  Some conservatives are saying that it puts a positive spin on Obama's bailout since it was written by two of his campaign supporters.

Kick some butt, Clint

"It's halftime.  Both teams are in their locker rooms discussing what they can do to win this game in the second half," Eastwood says in the spot.  "It's halftime in America too.  People are out of work and they're hurting.  And they're wondering what they're going to do to make a comeback.  And we're all scared, because this isn't a game.  The people of Detroit know a little something about this.  They almost lost everything.  But we pulled together, now Motor City is fighting again."

"Detroit's showing us it can be done.  And what's true about them is true about all of us," Eastwood continues.  "This country can't be knocked out with one punch.  We get right back up again and when we do the world is going to hear the roar of our engines.  Yeah, it's halftime in America.  And, our second half is about to begin."

If you were on your sixth Budweiser (or Stroh's since we're discussing Detroit here), you might actually think:  "Hell, yeah!  That's the American spirit that built this country.  Punch us hard, and we may go down.  But we'll get back up -- spitting teeth and blood -- and hit you back twice as hard."  That's the American Spirit that built the Empire State Building, Hoover Dam and the Golden Gate Bridge.   And I think it's great that they got Eastwood to narrate the whole thing, because I can't think of a tougher son of a bitch than Dirty Harry to carry that message.

Unfortunately, that's not the message than can be told from the bailout of General Motors Corporation, Chrysler Group LLC and their finance units, much less the rejuvenation of Detroit as a city coming back against tough odds.  Government intervention isn't what made America great.  Individual freedom, through innovation has made us the greatest nation on earth.  A two minute ad -- carrying a message of government bailouts, and tough looking union employees -- isn't good enough to get us out of this jam.

Let's look at the bailout of GM and Chrysler:  President Bush and Obama both presided over a loan of more than $85 billion in the hopes of preventing two of the big three auto companies from going bankrupt (Ford declined their offer).  In addition, fear of massive job losses, reduced tax revenue, and irreparable damage to the future credibility of the auto industry were given as reasons for the bailout.  Neither President nor members of Congress had the fortitude to let the auto industry stand on its own, despite howls of protest from the majority of American taxpayers.

True to predictions, GM and Chrysler both filed for Chapter 11 bankruptcy a few months after receiving the bailout money.  In addition, years later after coming out of bankruptcy:

. GM is still Government Motors.
. The U.S. Government converted $45.3 billion in loans to a 70% ownership position.
. This ownership remains a drag on GM's profit potential, as is evident by the Obama
  administration's ideological commitment to "green" development (think the Volt).
. GM's stock price of $26.70 per share is still less than half of the $53 price that the U.S. Treasury
  Department needs to break even.  Selling at anything less than that would mean additional
  taxpayer losses.
. The Canadian Government converted an $8.1 billion stake into 12% ownership.
. GM has $27 billion in future, unfunded pension liabilities, which could become taxpayer liabilities if
  the auto company cannot make payments.
. From its founding in 1923 until the government took over in 2009, GM had a total of ten CEO's --
  none of the three CEO's since have lasted even a year.

As a whole, the auto industry employed 955,000 in 2008.  Today there are 746,000.

I don't know what would have happened to the auto industry without the bailout, but it's safe to say that GM and Chrysler would have still filed for bankruptcy, but come out much leaner (yes, fewer jobs and less union influence) with more flexibility to meeting consumer demand.  That, to me, would represent taking a punch and coming back with a left, countered by a right hook to the jaw.

It seems to me that since the bailout, the auto industry (through regulations placed on it by its majority owner, Obama) has been trying to sell us on its vision of profitability.  But seriously, what does the government really know about profit?  Has it ever been profitable?

Can Detroit be saved?

As for the city of Detroit, it's ludicrous to think that the city is on it's way back.  Putting "Imported from Detroit" on auto ads doesn't fool anyone -- the city is hurting.

The ad with Clint Eastwood apparently shot many of the locations used in New Orleans and Los Angeles.  I realize it was about America at Halftime, but don't you think they could have used some actual Detroit imagery for an ad centered primarily on Detroit's urban renewal?  Or is it because there aren't any?

In 2011, Detroit was named by Forbes Magazine as one of the most violent cities in America, with 345 murders reported in the Detroit metropolitan area.  That's nearly 1 murder every day.  The economic picture in Detroit was supposed to get better once the auto company bailout was complete.  I'm sorry, President Obama, but it hasn't happened.  Unemployment has remained high -- estimated at almost 50%.  City officials  claim, the once glamorous city now has more people living in poverty than cars in the street.  And the U. S. census bureau shows that a quarter of a million people have left Detroit in the past ten years.  If the Super Bowl ad had actually been honest, it would have shown around 60,000 vacant buildings and 35,000 abandoned homes lining the streets of the city.

The editor of Detroit's Michigan Citizen, Zenobia Jeffries, explains, "We are seeing home foreclosures and a continued flight to the suburbs which takes the tax base away from the city and there's more and more of that.  The decline in the school system is making people leave the city.  And so there's no money here and no jobs here."

Downriver Scrap Iron & Metal Company, located five miles outside Detroit, is one of a few businesses booming with new faces.  Scrapping --gutting homes and buildings for their cooper and steel pipes -- has increased dramatically as the city loots itself.   Landmark buildings and foreclosed homes are being gutted for survival, says Downriver's owner Albert Wojtala. "With the little money they get, they're trying to survive, pay their bills.  They just can't make it -- everything has gone to hell."

If Detroit is a beacon of hope and a shining example of what makes America great, we are in deeper trouble than any of us know.

So, it's halftime in America.  General Motors and Chrysler (and by proxy Detroit) will never be thought of as winning this game until it is off the government teat and standing on its own, able to sustain profitable growth with products consumers want and like.  Cutting ties with Obama and Washington D.C. is a must.

It's inevitable that government can't run a business profitably.  As the failings of the U.S. Post Office, AMTRAK Railways and Fannie May / Freddie Mac remind us, the bottom line always turns red.

Much like the bloody streets of once-great Detroit.