Wednesday, November 12, 2008

Pull The Trigger

I've been hearing about how GM and Ford and Chrysler are on the ropes for months now. I even bought some GM at $6 a share a few weeks ago, the sold it at $6.50 because I read a rather convincing article that GM could very likely fail.

Well, it seems that that eventuality is pretty close to becoming a reality. The Big Three have convinced the Democratic leadership (Reid/Pelosi/Obama) that they need a bailout and now Obama is trying to convince Bush that they need the bailout even before the Obamas can move in with the new First Dog. Nevermind that the Big Three already have $25 billion in low-interest loans, a little tidbit passed in the days before the $700 billion TARP plan made that look like chump change. They need more.

Part of the reason they need more is that the UAW has systematically strangled General Motors and other automakers for decades. I should know, both of my grandfathers were UAW members and retired with UAW pensions, one from Fisher Body, the other from Chrysler. I'm far removed from Detroit now, but Detroit is one of my family's ancestral homes and my own father recently retired from GM. The UAW nearly killed GM a last year with a strike, as part of the settlement the long-term UAW pension and health insurance benefits were to be passed on to trusts, funded by General Motors and run by the UAW. Sounds like a good plan -- GM gets to pay $36 billion to pay for 70% of its massive $51 billion in unfunded retirement benefits.

Well, here we are in 2008, just over a year later and the Big Three's lobbyists are walking the halls of Congress and prophesying doom if they don't get paid. Hope and Change are in the air. GM hopes it will have enough cash to make it to the end of the year, much less until the change comes in late January of 2009. Nancy Pelosi and others are trying to figure out how much to pull out of the national wallet to prop up these automobile manufacturers, in part because the UAW's trust fund is not yet fully paid up.

An ironic note is that when President-Elect Obama is able to issue executive orders, one of the ones he's likely to issue is a variance from EPA standards allowing the California Air Resources Board (CARB) to regulate CO2, and raise fuel efficiency standards for cars sold in California. CARB has already indicated they want to raise standards above what Congress just mandated last year -- efficiency standards the automakers have yet to meet. If President Obama allows California, where 40% of US car sales occur, to set the bar for the rest of the country, within 5 years the car companies will be right back to Congress for yet another handout. If he doesn't, the and hardcore environmentalist folks will be experiencing the buyer's regret that I expect them to encounter at some point in the first 100 days.

Pelosi, Reid and Obama are very interested in getting help to GM, not so much because they are ardent capitalists but because union households delivered Michigan, Ohio and Pennsylvania, among other states, and unions are a major constituent of the Democratic alliance created back during the last great economic challenge -- the Great Depression. The Wagner Act is a legacy of those days, the adversarial position of union vs. management was enshrined by legislation during the 1930s. The UAW delivered for the DNC in ways they really have not for GM, now they want their government to work for them, and be sure their retirement plans are fully funded.

I predict that GM will be bailed out by the government, at least once, if for no other reason than to preserve union benefits. In fact, literally for no other reason than to preserve union benefits. GM as a company will not be helped by this cash infusion, they'll likely get enough of your money and mine to complete their pension mandates, and then the Congress will find themselves much more interested in the workings of a free and fair market.

My modest proposal to Rick Waggoner is to tell the government to stuff it, save the money he's spending on lobbyists, and declare bankruptcy now.

No other course of action will allow GM even the chance to get the UAW claw off the company's throat. The Democratic Congress will not pay for GM's survival directly, it's mainly the UAW they want to see benefit. Only bankruptcy will allow General Motors to sever its relationship with the UAW and move forward like the other half of the US car industry. GM going bankrupt will not be the end of domestic manufacture of cars -- automobiles are still needed, and GM has the plants and fixtures to make them. But GM cannot do so and make money with its current cost structure, so to save the company the cost structure has to go.

You see, there are two automobile industries in the United States. One is northern, unionized, domestically-owned, and dying. The other is southern, non-union, foreign-owned and thriving. GM cannot continue to compete with Japanese companies who do not have to tote around the UAW. Taking Congress' money will weld GM even tighter to the UAW, and will likely be the end of a domestic industry.

So, Rick, buddy -- we both know you're on the precipice. Take a big step over the edge, before you get pushed. Maybe you can fly without all the deadweight, it's certainly possible. You'll never know until you try.

And Ford and Chrysler -- do you really want to be the last union shop in the auto industry?

Pull. The. Trigger.

1 comment:

Troy M. Stirman said...

Well said, as usual. My only regret is that I bought GM at $10/share!

Not sure if I'll ever see that number again...but fortunately, didn't "pull the trigger" too hard on that buy!