Belmont Club

General Woe-tors

In 1953, General Motors chief executive Charlie Wilson said, “for years I thought what was good for the country was good for General Motors and vice versa”.  The years have passed. Car industry watcher Robert Farago writes that “its the morning after the day of. The day General Motors admitted to the world that they don’t have enough cash to last until the end of the year. ”  The first port of call for Detroit’s foundering ships was Washington, where “GM chief Rick Wagoner has been making the rounds of Congressional and Bush Administration officials to talk about the industry’s need for help … Enter President-elect Barack Obama. His first press conference included encouraging signs for the auto makers and their efforts to get government help.” According to the Deal Journal. Obama said:

The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil. I would like to see the Administration do everything they can to accelerate the retooling assistance that Congress has already enacted. In addition, I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States. I have asked my team to explore what we can do under current law and whether additional legislation will be needed for this purpose.

Farago believes that any attempt to get Detroit to reform in exchange for a handout are doomed. It is set in its ways: both industry and union.

GM’s bailout boosters will eventually come ‘round to the idea that there must be some kind of radical change at GM for the company to qualify for federal aid. But their idea of “radical change” is likely to be politically rather than economically-driven. Jobs, jobs, jobs will be the order of the day. Not cars, cars, cars. Wagoner, Lutz and the rest of the gang who couldn’t talk straight may be forced out (to survive on the hundreds of millions they plundered from their employer). But the priorities will not shift.

What GM needs is root and brand overhaul, a cathartic cleansing of existing dealer agreements and union contracts and obligations. Not to mention an entirely new mindset regarding product development and brand promotion. As we’ve stated here for the last three years, the only way GM can accomplish these tasks is through the federal protections of bankruptcy law. …

None of the reports puts the focus where it should be: GM’s busted business model. The fact that House Speaker Nancy Pelosi’s United Auto Workers-shaped trial balloon– we’ll stuff $25b into the Detroit union’s VEBA health care fund– wasn’t immediately shot down as the most ineffectual bailout idea ever created by hand of man reflects the ongoing myopia afflicting the press.

The last is a reference to Nancy Pelosi’s attempt to shift the pension burden off the automakers and onto the shoulders of the taxpayer. VEBA is the acronym for “a massive UAW-administered trust, called a Voluntary Employees Beneficiary Association” into which automakers have agreed to pay a large sum of money. It’s been criticized as a one-time buyout of their company’s healthcare obligations to their retired workers. With GM tanking it’s obvious to everyone that nothing more can be squeezed out of the dying company. Enter the taxpayer. Industry watcher Farago explains in another post:

That works, I suppose. Instead of giving– sorry “loaning” GM, Ford and Chrysler $25b, Nancy Pelosi and Co. will tell voters that the money’s going to “help the Detroit 3 meet their obligations to newly created retiree health benefit funds.” So tax money’s not going to incompetent SUV-building American automakers. It’s going to blue collar retirees, who never did a thing wrong except show up for work and put in an honest day’s labor. This according to Automotive News‘ source familiar with the people close to the matter who are actually the people who are cutting the deal but are too chicken-shit to say so and therefore co-opt lazy journalists by getting them to let them go “off the record.” Perhaps this would be a good time to revisit the fact that the $25b Uncle Sam’s minion want to dump into the United Auto Workers’ voluntary employee beneficiary association (VEBA) will fall into the grasp of a union known for corruption, waste, fraud and mismanagement. If that link doesn’t convince you that the UAW may not be the best stewards of your tax money or the workers’ health care, have a browse here.

Where have you gone, Charlie Wilson?

Update:

WASHINGTON (AP) — Democratic leaders in Congress asked the Bush administration on Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.


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