Auto Business--Where Do We Go From Here?

In all the back slapping we have heard lately about the resurgence of the domestic auto industry (profits and bonuses), it has been very interesting not to hear anything about the reality of the process.  To what are we speaking?  Why are bonuses being paid when the money has not been paid back to us the "shareholders" of US debt? Darn, we forgot, the unions come first!


The bankruptcy of the autos broke centuries of bankruptcy law. Unsecured creditors (unions) were given precedence over secured creditors (bond holders).  Stock in the new companies were given to the unions and bond holders got nothing other than their now worthless pieces of paper.  


Now that the companies are making money, everyone who was involved in the deal is congratulating each other on their brilliance. They saved the auto business!  Pardon me, but a monkey (is that politically incorrect) could run a business without any debt for a while and make money. GM and Chrysler have no debt so they look profitable. Time will tell if they can keep up the appearances.


Meanwhile, GM is  saddled with the Volt that is not selling in any amount near what it will take to make it profitable, if it ever is. No one wants a car that can go only 100 miles on a charge. Yes, and before you jump all over us, we know that small engine can come  to charge the batteries to extend the range, but is that going to satisfy most Americans. We doubt it.


Another concern is new car development.  The auto business does not work on next year's car this year. They are working a minimum of 3-5 years in advance. So, are these new "wonder-kin" who are running the companies, going to spend the money they need to prepare for the future or are they going to be only interested in next quarter's profits so their bonus checks will look great and their "wonder-boss" Obama can continue to look good? If we were betting, it would be on the latter!


Ten years ago, we were talking with friends in the auto business and we postulated that GM could be out of business in "ten years."  They all laughed and told us that we were crazy because the largest company in the world, never would go out of business. Unfortunately for many of them, we were right. Will GM, Ford or Chrysler be in business in ten years (2022)? Right now, we feel it is a fifty-fifty proposition.


If there is development of great cars with new exciting technology, it has a chance. However, one major hurdle that has to be overcome is the nearly doubling of fuel economy  standards by 2025. Currently passenger autos average under 30 mpg however, by the deadline in 2025 that number has to increase to 54.5 mpg. (If you want to read the White House statement the link is: http://www.whitehouse.gov/sites/default/files/fuel_economy_report.pdf  ).


This new standard is a major financial and technological hurdle.  Meeting the requirements will be possible with tiny cars with little gas-sipping engines (some electrics and hybrids) but to keep the same size vehicles we have today will take major innovations and those do not come cheap. Yes, we went to the moon in ten years but that took billions and NASA did not have any competition (save the Russians) and it did not have to worry about stockholders. Will these private companies expend those dollars when they have to keep their masters in Washington happy with great quarterly financial returns? Doubtful? 


The car companies will be facing more headwinds from foreign competition as well as regulation. Who will come out the other side? If you made us guess, we believe only one company will exist in 2025. Who that will be will depend upon a number of things. They are: who can maintain exciting cars/trucks which meet the exceedingly stringent regulations, who can find innovative solutions to the regulations, who can maintain profitability in light of the regulations and who can keep prices down to a point that the average consumer can afford to purchase the vehicles the company makes. It will not be an easy task.


The surviving company must meet all the above criteria to make it. If not, there will be more auto workers, both foreign and domestic, that will hit the unemployment lines.  This  time Union auto workers will face the same plight as those non-union  Delphi workers faced after the GM bankruptcy.  The following article speaks more to their situation.


We would hope that American ingenuity, the American spirit can save these companies. Time will tell. We hope we are completely wrong and that all three make it!


Conservative Tom

The Autoworkers Obama Left Behind

• 
 
• Michelle Malkin 
   

Feb 29, 2012

 

The White House fairy tale about the Happily Ever After Auto Bailout is missing a crucial, bloody page. While President Obama bragged about "standing by American workers" at a rowdy United Auto Workers meeting Tuesday, he failed to acknowledge how the Chicago-style deal threw tens of thousands of nonunion autoworkers under the bus.

In a campaign pep rally/sermon billed as a "policy speech," Obama nearly broke his arm patting himself on the back for placing his "bets" (read: our money) on the $85 billion federal auto industry rescue. "Three years later," he crowed, "that bet is paying off for America." Big Labor brass cheered Obama's citation of GM's "highest profits in its 100-year history" as the room filled with militant UAW chants of "union made."

"Union made" -- but who paid? Scoffing at the criticism that his bailout was a massive union payoff, Obama countered that all workers sacrificed to save the auto industry. "Retirees saw a reduction in the health care benefits they had earned," Obama told the congregation, er, crowd. "Many of you saw hours reduced," he sympathized, "or pay and wages scaled back."

Let's clear the fumes (again), shall we? The bailout pain was not distributed equally. It was redistributed politically.

Bondholders standing up for their property and contractual rights got shortchanged and demonized personally by the president. Dealers and suppliers faced closures based on political connections and lobbying clout, rather than neutral efficiency evaluations. And as I first reported in September 2010, in the rush to nationalize the auto industry and avoid contested court termination proceedings, the White House auto team schemed with Big Labor bosses to preserve UAW members' costly pension funds by shafting their nonunion counterparts.

These forgotten nonunion pensioners (who worked for the Delphi/GM auto parts company) lost all of their health and life insurance benefits. Hailing from the economically devastated Rust Belt -- northeast Ohio, Michigan and neighboring states -- the Delphi workers had devoted decades of their lives as secretaries, technicians, engineers and sales employees. Some have watched up to 70 percent of their pensions vanish. They've banded together to seek justice in court and on Capitol Hill under the banner of the Delphi Salaried Retiree Association.

Through two costly years of litigation and investigation, the Delphi workers have exposed how the stacked White House Auto Task Force schemed with union bosses to "cherry pick" (one Obama official's own words) which financial obligations the new Government Motors company would assume and which they would abandon based on their political expedience. Obama's own former auto czar Steve Rattner admitted in his recent memoir that "attacking the union's sacred cow" could "jeopardize" the auto bailout deal.

Ohio Republican Rep. Michael Turner last month called attention to the glaring conflicts of interest that entangled Obama moneyman Tim Geithner's multiple meddling roles in screwing over the Delphi workers. Geithner served simultaneously as co-chair of the Auto Task Force, board member of the Pension Benefit Guaranty Corporation (the federal agency overseeing pension payments to bankrupt companies) and Treasury Secretary. The General Accounting Office raised eyebrows at Geithner's "multiple roles" in the deal-making.

Thanks to a separate Freedom of Information Act request filed by the Competitive Enterprise Institute, we already know that Geithner's department and General Motors closely coordinated their PR strategy and collaborated on making fraudulent claims about GM repaying all of its government loans. The cash-strapped Delphi retirees are suing the transparency-ducking PBGC in federal court to unearth documents that may yield key details of the improper Obama administration influence over Delphi's bankruptcy organization.

As ebullient UAW officials hooted and hollered on Tuesday, Obama smugly attacked Republicans for "anti-worker policies" and their "same old you're-on-your-own philosophy." The Delphi workers know better: One union's government-subsidized, government-manipulated "success story" is the rest of the workforce's nightmare.

Michelle Malkin is the author of "Culture of Corruption: Obama and his Team of Tax Cheats, Crooks & Cronies" (Regnery 2010). Her e-mail address is malkinblog@gmail.com.