Thursday, May 1, 2014

And The Winner Is: The UAW!

And the winner is: the UAW!
By: @Irish_in_LA

I recall several times over the last few months, maybe more, President Obama touting the success of the bailouts. I don’t see it and I’m tired of the spin I keep hearing and reading about this major failure. Like what we’re seeing with the homeowners defaulting on their post bail out loans, GM and Chrysler are dying, just more slowly than they would have without the bailouts. We’ve lost $14.1 billion dollars, a crushing 18% loss, on those two car companies alone.

An AP report and several others following it today delivered the bad news. GM needed $49.5 billion in 2009, given through the Troubled Asset Relief Program (TARP). The government considers roughly $12 billion lost or written off. Chrysler also received $12.5 billion, and US tax payers lost $2.9 billion in that transaction. We’ve lost $14.1 billion on these two car companies alone!

In total, auto manufacturers and related companies received $79.7 billion, of which the government has received $59.1 billion in repayments. The government has lost nearly $40 billion to date on their bail out investments via TARP. Of the $475 billion the Federal government spent, the majority of the $40 billion in losses and write offs is attributable to the auto industry and American International Group (AIG). AIG received $68 billion and lost $13.5 billion. Interestingly, the government also spent $7.8 billion helping taxpayers with upside down home loans. Apparently we’ve lost $1.2 billion on those loan modifications, and most of those borrowers have defaulted or are on the verge of doing so.

So where are these companies right now? Was the investment, and subsequent loss worth it? GM (NYSE: GM) stock experienced a meager 5 year positive gain of 0.82%. The current owner of Chrysler, Fiat (NASDAQOTH: FIATY) in the last 3 years has a gain of 0.08%. They just finished their five year merger, and Chrysler will soon be listed once again on the NYSE. Guess what sort of increase Ford Motor Co (NYSE: F) has had in that same time period, with no bailout? Their stock has increased in value a whopping 170.07%!

Speaking of US taxpayer losses, I recall in the beginning how the United Auto Workers union (UAW) lobbied alongside GM’s management for the bailout. The bailout benefitted the UAW far more than GM. The union was granted preferential treatment by the U.S. Government rather than having to accept standard bankruptcy concessions. This was under the guise of preventing massive job losses. Extra subsidies of $26.5 billion went to the union. The US government didn’t have to lose money on their investment in the car companies, it turns out. They bailed out the UAW, perhaps, some suggest, as political payback.

Because of the preferential treatment, instead of having the same status as the other unsecured creditors in the bankruptcy, they recovered a much higher proportion of debts the car companies owed them. In another article I read ( researchers point out that bankruptcy brings down uncompetitive wages to competitive levels. GM workers received no pay cuts, and that the cost of subsidizing UAW pay and benefits accounts for the entire loss.

A Brietbart article quoted President Obama stating the following:

“When I took office, the American auto industry – the heartbeat of American manufacturing – was on the verge of collapse.  Two of the Big Three – GM and Chrysler – were on the brink of failure, threatening to take suppliers, distributors and entire communities down with them.  In the midst of what was already the worst recession since the Great Depression, another one million Americans were in danger of losing their jobs.

As President, I refused to let that happen.  I refused to walk away from American workers and an iconic American industry.  But in exchange for rescuing and retooling GM and Chrysler with taxpayer dollars, we demanded responsibility and results.  In 2011, we marked the end of an important chapter as Chrysler repaid every dime and more of what it owed the American taxpayers from the investment we made under my Administration’s watch.  Today, we’re closing the book by selling the remaining shares of the federal government’s investment in General Motors.  GM has now repaid every taxpayer dollar my Administration committed to its rescue, plus billions invested by the previous Administration.”

President Clinton was also quoted: “Less than five years later, each of the Big Three automakers is now strong enough to stand on its own.  They’re profitable for the first time in nearly a decade.  The industry has added more than 372,000 new jobs – its strongest growth since the 1990s.” Truth is a net 4,000 new jobs, not the whopper stated here. The numbers he quoted are fuzzy math interpretations from a Bureau of Labor Statistics report.

Obama was also quoted saying: “When things looked darkest for our most iconic industry, we bet on what was true: the ingenuity and resilience of the proud, hardworking men and women who make this country strong.  Today, that bet has paid off.  The American auto industry is back.

For our autoworkers and the communities that depend on them, the road we’ve taken these past five years has been a long and difficult one.  But it’s one we’ve traveled together.  And as long as there’s more work to do to restore opportunity and broad-based growth for all Americans, that’s what we’ll keep doing to reach the brighter days ahead.”

It would be nice if everything were so rosy, but look at what’s really going on with GM. There was a cover up of a major cross product defect, leading to a massive recall and a loss of some $1.4 billion, essentially wiping out any profits they might have had. Fiat gobbled up a number of brands, including Chrysler, and continues a long, painful road back to better sales. It’s an unsure bet at best right now whether either of these two survive in the end. My bet would be they don’t. The UAW has destroyed the companies for short term gains at the expense of long term employment of thousands of people. The government set a horrible precedent by bailing out these and the other companies. They know nothing about running profitable businesses, and should not have involved themselves in them. It’s unfortunate that all of us must pay such a heavy toll for a union’s greed and politicians’ favors.

We’ll see what happens down the road.

Please follow @Irish_in_LA on Twitter!


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