Here is a short list of some of the things that I believe and which I hope my readers can use to help get a better understanding of who I am.
1. I think President-elect Obama is selling the U.S. out to the labor unions and the auto industry.(see today’s article, below).
2. I do not like the idea that President-elect Obama is using so many Clinton appointees in his administration; is he a closet Clinton?
3. I am opposed to Hilary Clinton as Secretary of State.
4. I think the government bail-out of the financial industry should be in the form of preferred stock purchases in the financial institutions but with greater voting power than other shareholders. I believe these shares shoud be turned over to a government agency that would manage these shares in a manner that can then be put toward repairing the social security and medicare systems.
5. I believe all federal funds given to assist states in their educational agendas should be based upon the requirement that all states accepting federal educational funding be required to implement a school voucher programs.
More later, but for now I will start todays article:
Why The Bail-out of the Auto-industry is a Bad Idea.
I recently wrote an essay for one of my classes and would like to share it with you all. It deals with the auto industries demand of a hand-out (which they insist is not a bail-out and instead call a loan). I thought I’d share this as a way to get to know me better. Do my views rankle you? Let me know as I appear to have rankled a few others with my last post on what this world calls “happiness”.
The Big Three automakers (GM, Ford and Chrysler) are the cause of their own woes and are using the current financial turmoil as a way to deceive their investors and the American public about the real cause underlying the industry’s current problems. The U.S. automakers problems come down to the simple fact that there has been a gross lack of foresight and mismanagement by auto executives at the Big Three.
While the Big Three have been “lobbying legislators and Congress in an attempt to maneuver protectionist policies for their gas guzzling vehicles” (The New York Times) foreign automakers have been, over the past decade, retooling their factories and producing more fuel-efficient vehicles the most recent example being that of Honda Motor Corporation: “Honda of Canada Mfg. officially opened its newest investment in Canada—a state of the art $154 million engine plant. The new facility will produce 200,000 fuel-efficient four cylinder engines annually…in response to growing North American demand for vehicles that provide excellent fuel economy” (The New York Times).
Executives at the Big Three have not only just recently become negligent or lacked foresight, this problem stems from decades of fiscal abuse by these automakers. A prime example is provided in a 2005 article on the website NOW (an affiliate of the Public Broadcasting Station) which showed that GM and other auto industry executives have been using their employees’ pension funds as a means of manipulating their company’s balance sheets. “Indeed, according to The New York Times, The federal government contends that General Motors’ pension fund is $31 billion short of what it owes its work force, according to closely held government data, a figure in stark contrast to GM’s assurances that its pension plans are fully funded” (NOW). So how did GM (and other automakers cover this shortfall? They borrowed billions of dollars.
Going further back to 2003 a similar reporting was made by Bill Mann of “The Motley Fool”, a registered online investment advising company, “This past week GM took on $13 billion in debt…more than $10 billion of the new debt will be used to shore up its dramatically underfunded employee pension plan”. Mann went on to document “To mark the absurdity of this…GM got to report an expected gain on its pension in 2002 of $7.1 billion, even though its actual return on assets was a negative $4.9 billion.”
This mismanagement, fiscal irresponsibility and cover-up by executives at the Big Three automakers goes back further still as highlighted in a move by GM when in 2000 it took the federal government to court to force the government to pay for part of its underfunded pension plan “GM won a court case that will enable the automaker to recover as much as $253 million from the U.S. government for one of its underfunded pension plans,…The decision by Judge Nancy Firestone…the first of its kind,…could inspire other government contractors to try to remedy some of the underfunding of pension funds that existed when the contractors closed or sold divisions” (CFO.com).
In 1979 there was also the $1.2 billion government bail-out of Chrysler Corp. That bail-out failed as the carmaker had to sell itself to the German automaker Mercedes-Benz in order to remain in business. Today “Detroit automakers say the loans will help them retool factories for more efficient vehicles” (FreePress.com). In stark contrast to auto industry executive assertions that the money will fund retooling “Wall Street analysts have said the program could also alleviate some of the pressures on the automakers’ balance sheets. The companies are expected to burn through billions of dollars in cash through 2010, due to declining auto sales and higher costs for commodities…critics attacked the proposal as an unnecessary bail-out for uncompetitive companies” (FreePress.com).
How then have the Big Three been staving off bankruptcy over the past several years if they cannot compete with the foreign automakers? By “striking deals with Congress that allowed Detroit automakers to count the mileage of gas guzzlers as being more than they really were…” and including “special offers of $1.99-a-gallon gasoline for a year to any customer who purchased a gas guzzler” (The New York Times).
When government representative stipulated that the automakers would have to demonstrate they truly intend to use this bail-out money to retool their factories and become more efficient and more competitive than their foreign counterparts “The industry had warned that because the loans could only apply to vehicles that were 25% more efficient than direct competitors, few models would qualify” (FreePress.com). This is the sort of dissembling that has brought the automakers to the crossroad at which they now find themselves. The fact of the matter is that GM is expected to run out of operating capital by year end any money’s it obtains from a bail-out could not go to retooling its factories because it needs money right now just to keep its doors open.
Executives at the Big Three are now threatening to default on their pension obligations which would necessitate the government sponsored Pension Benefits Guarantee Corporation (PBGC) to pick up the tab for hundreds of billions of dollars if these executives don’t get a piece of the bail-out dollars earmarked for the financial industry.
While many people are concerned about the large numbers of layoffs (see figure 2 on page 5) a failure of the Big Three would cause but that is not realistic because should the Big Three fail there are numerous foreign automakers ready and willing to step in to, not only produce and sell their more fuel-efficient vehicles in the American marketplace, but to hire the employees and contractors laid off by the Big Three; to see this just look at the Honda Motor Corporation’s expansion in Canada and whose target market is the North American marketplace.
In conclusion this article would stress that even though it opposes a bail-out for the auto industry, should a bail-out package be offered it should come with the stipulation that any company signing on to the package must immediately turn over all present and future employee pension funds to the PBGS or some newly created sub-agency of the Social Security Administration (SSA) for proper fiscal management and assurance to those company’s employees that their future is secure. These companies shall be required to keep those pension fund payments to the government sub-agency at full funding levels at all times. This would assure the American people that these company executives cannot wield their employee pension funds as if it were a weapon or blunt object aimed at the heads of taxpayers.
References Cited Page
1. Bill Mann—“GM’s Pension Peril”, June 25, 2003. The Motley Fool The Motley Fool [Registered Investment Advisors]. http://www.fool.com/news/2003/06/25/gms-pension-peril.aspx Visited 11/25/2008.
2. CFO.com [An Economist Group Business]- “Ruling Could Boost Underfunded Pensions” by Stephen Taub, July 6, 2005. © CFO Publishing Corporation 2008. http://www.cfo.com/article.cfm/4149684?f=home_breakingnews Visited 11/15/2008.
3. Free Press- “Auto Company Loans Pass House” by Justin Hyde, September 25, 2008. Copyright ©2008 by FreePress.com http://www.freep.com/apps/pbcs.dll/article?AID=/20080925/BUSINESS01/809250341 Visited 11/15/2008.
4. NOW—PBS.com – October 14, 2005. © 2008 JumpStart Productions. http://www.pbs.org/now/politics/pensions05.html Visited 11/15/2008.
5. NuWire Investor- “Treasury Rejects Bailout for Auto Industry” by William Patalon III, November 4, 2008. Copyright © 2006-2008 NuWire, Inc. http://www.nuwireinvestor.com/articles/treasury-rejects-bailout-for-auto-industry-52226.aspx
6. Human Resource Executive Online- “Using Pension Funds For Buyouts” by Marlene Prost, March 31, 2008. Copyright 2008© LRP Publications. http://www.hreonline.com/HRE/story.jsp?storyId=84109087 3/31/208. Visited 11/15/2008.
7. The New York Times- “How to Fix a Flat” by Thomas L. Friedman, November 11, 2008. http://www.nytimes.com/2008/11/12/opinion/12friedman.html?_r=1&hp&oref=slogin Visited 11/15/2008.
8. The Wall Street Journal- “GM Blitzes Washington in Attempt to Win Aid” by Jeffrey McCracken and John D. Stoll, November 15, 2008. http://online.wsj.com/article/SB122670818143330019.html?mod=testMod 11/15/2008. Visited 11/15/2008.
9. UPI.com- “Paulson: Bailout not for auto industry”, November 12, 2008. © 2008 United Press International, Inc. http://www.upi.com/Top_News/2008/11/12/Paulson_Bailout_not_for_auto_industry/UPI-83011226514786/
