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."