Wednesday, June 3, 2009

Obama Drives General Motors Off into the Sunset

When companies are no longer financially sustainable, they are able to enter into bankruptcy. Sometimes they don't emerge from bankruptcy; but, sometimes bankruptcy law allows these companies to restructure and renegotiate contracts. These companies reemerge a stronger and more competitive company.

General Motors was at the verge of bankruptcy. This was the obvious solution for them. Their main goal in bankruptcy should have been to rid themselves of unsustainable legacy costs by renegotiating their contracts with the UAW (United Auto Workers union). Legacy costs are health care and pensions that are promised to workers at the auto plants after they retire - even long after they retire. Many of these workers receive health care and pension money for more years in retirement than they actually worked. Because of these legacy costs, GM spends $1,525 per vehicle in the U.S. on health care, compared with $300 per vehicle at Toyota (Drezner).

This would have been the solution and perhaps only possible salvation for GM. However, Obama stepped in with taxpayer money and then took a 60% stake in GM. Instead of allowing the company to move through a beneficial bankruptcy process, Obama has taken charge of the company and will put it through a political bankruptcy in which GM will be transformed in the way that Obama thinks is right instead of what would actually save the company. Obama is relieving the company of none of these legacy costs. These costs which have made the company unable to compete will still bog it down. Obama's answer has been to cut advertising, cut many divisions (selling Hummer to a foreign nation so we may never be able to buy it here again, and divesting Saturn, Saab, and Pontiac), and by closing down hundreds and maybe thousands of dealerships. These are individually owned dealerships, some of which are being given 3 weeks to close. These are U.S. citizens, private business owners, being told to take a hike by the government as their businesses are taken from them. Something like this should be taken care of by the free market and not by government intervention.

This is socialism, pure and simple. The government (Obama) has taken taxpayer money and taken the majority stake in a company. This move was not agreed to by the American people. In fact, most Americans do not approve of this happening. So not only does the government now own GM, but Obama is calling the shots. Obama, who has no experience running a company, not even a taco stand, is telling GM to divest some profitable lines of cars, to shut down hundreds of dealerships, and to cut advertising budgets. Obama has appointed 31 year old Deese to dismantle GM. Deese is attending Yale Law School and has not graduated yet. Deese has no experience with the automobile industry. Not only this, but the government has set up outrageous CAFE (Corporate Average Fuel Economy) standards. This means that of all the vehicles sold by a dealership, the average of all these vehicles must run at 27.5 miles per gallon. These standards hold some of the responsibility for the financial problems that drove GM to this precarious situation. This makes it so that a dealership must keep a large inventory of small, fuel efficient cars on the lot to make up for the less fuel efficient SUVs on the lot. The smaller cars do not sell as well and lose profitability for the dealership. Obama is attempting to raise the CAFE standard which would make it very difficult for any dealership to sell any SUVs. Indeed, Obama is attempting to legislate away the very existence of SUVs. Rush Limbaugh even makes the very credible claim that, kept on this path, you may no longer be able to purchase an SUV of any kind of the United States by the year 2016.

Obama has purchased GM and is currently running it. He is forcing hundreds of dealerships out of business, and, through CAFE standards, is attempting to manipulate other car companies as well. This is pure socialism. The ease with which this all has taken place is very scary. Obama has also purchased many major banks. These banks that have taken or been forced to take federal bailout money are so handicapped by the federal restrictions that go with this money, that many are trying to find a way to give this bailout money back. Obama says he wants to sell his share of GM as soon as possible; but, as we see with the bank situation, even if GM is sold to a private buyer, the taxpayer bailout money that has already been given to GM and Chrysler will keep them at the beck and call of Obama. This destructive meddling by the government spells out the end for GM. As Obama drives GM off into the sunset, he takes with him the livelihood of thousands of Americans.

1 comment:

  1. Sharky, you're scaring me.

    I've felt a little bit of this personally, since Wells Fargo was forced to take government bailout money even though it is a profitable bank in no danger of bankruptcy.

    The government forced the money upon Wells Fargo because they said it would look bad if only the failing banks took the bailout money. Then investors would then take even more money from the failing banks and put it in the good ones. Ummmm . . . isn't that called common sense? Why is that bad again?

    Anyway, the real point of this is that I couldn't go to Hawaii because Wells Fargo didn't want to be seen spending "bailout" money on incentive trips (that had already been scheduled, paid for, and were not fully refundable). I mean, I'm the person that is really suffering here. :)

    I'd like to see you do a book review on "Atlas Shrugged" by Ayn Rand. Read it.

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