Obama auto’nomics: The Stupid, The Unethical, and the Irresponsible

In this post, I unapologetically rip off a “spaghetti western” infamous title to present what is possibly the most moronic and unethical economic handling of the US auto market, and the jobs it affects.

It was only last year when Obama admin publicly wrung their hands in anguish, then lamented it had no choice but for the government to intercede in dictating corporate leadership, production models and future, payscales, shareholder control, plus divving up award of bankruptcy assets for two of the US’s big three automakers – GM and Chrysler.

Only the third US giant – Ford – a long time #1 winner decade after decade for their trucks – studiously steered clear and continued down the road as an privately controlled industry. I’m very comfortable in believing that Henry Ford, founder of the company as well as the father of the modern mass production assembly line, has no reason to be turning over in his grave whenit comes to his corporation’s legacy.

In addition to Ford, the US had the Toyoto Motor Company… a Japanese owned giant who, in October 2007, marked their 50th year in the US. At that time they had “..11 assembly, engine, transmission and parts plants in North America, with a 12th planned in Mississippi.” The factories alone employed over 30,000 Americans… a number that didn’t include the support industries including dealership networks, and their 21 US suppliers – the latter of which together employ 2,000 people. Companies that, I might add, are now wondering about their fiscal survival in the wake of Toyota’s fall under the pressure of both the WH bully pulpit and media assault.

One has to wonder daily… just who’s side is the POTUS and his appointees on?

How has Ford been faring? They are not only set to hire 1,200 in their Chicago/Torrence factory to finish work on their new Explorer SUV debuting later this year, but they ended 2009 up a “cool” $3 billion, paying $450 each profit sharing to their 43,000 eligible U.S. hourly workers.

Ford is a study is all things American about capitalism, and the antithesis of all the Obama administration would have us believe. The best sellers are their “gas guzzlers”… that improve with each design… trucks and SUVs. They sustained their own path on “unpopular” product line – per government mouthpieces anyway – and came out ahead big time in a year noted for it’s government giveaway… “cash for clunkers”. Ironically, the program meant to sideline American’s choice of “gas guzzling” vehicles. Obviously the handout had little effect, but positive, on the “gas guzzling” giant.

What’s more noteworthy is that Ford’s success is done without the taxpayers dime, and without handing the corporate reins to inexperienced government czars and union shareholder leadership.

Attention POTUS… take a lesson in both the importance on accurate and honest market analysis, and private sector capitalism here.

Toyota? It’s own story is still unfolding. With a plot – fraught with political intrigue and overt conflict of interest that’s worthy of a Tom Clancy novel – Obama’s WOT (War on Toyota) commences daily… whittling bit by bit at Toyota’s US business base. First it was the unprecedented move to send out a Transportation Sec’y who tells the nation to virtually park their Toyoto’s in their garages for their own safety. That it took 24 hours to realize the faux pas does not negate the publicity domino’ing from serious bad judgment.

But just to show it’s not a one off moment, today the WOT assault continues more subtley now, sharing headlines with other government abusive issues. Instead, much like the health care concocting and proposed “reconciliation” plots, the back rooms and lesser public avenues are utilized. In Toyota’s case, it’s depending heavily on the Dem controlled House chamber, and showboat hearings.

[Mata Musing: for the more entertaining and humorous “C-SPIN transcript” of the House members quizzing Sec’y LaHood, check out Matt Philbin’s version at Business & Media Institute.]

As I pointed out in my original post on Obama’s new WOT on Feb 4th, the problems exhibited with the sudden acceleration are not confined to one possible cause, have been ongoing for over a decade, and have involved eight NHTSA hearings… two of which were dismissed without repercussions. Nor are the complaints/injuries/deaths enough to warrant a WH, instilling fear and panic into it’s citizens using a cabinet appointee vastly overstepping his tasks as a PR mouthpiece.

Still, the Toyota bashers are happy to join in, including John Rosevear at fool.com (aptly named, it seems…) who’s headline screams “It’s Getting Worse!”. It takes Mr. Rosevear until the end of his less substantive post to admit that it’s less the actual auto ailment, but “what is Toyota hiding” and “can they be trusted”….

Oh, puleeeze…. da DRAMA, for pity’s sake. Apparently – to those suffering from fiscal idiocy, and having little concern for the remaining US auto jobs and investors – leaving a scandalous/slanderous punchline about Toyota’s subterfuge while providing no credible evidence, is simply a cheap petition for massive blog hits from the equally ill-informed.

The Toyota bashers, for whatever their reasons, are playing off the public who seems to live in confusion about how much to be concerned. Toyota is, after all, not only a best selling manfacturer, but a highly reliable product line that has been proven over time to we Toyota owners. Yes, I bought my first Toyota in 1998, after long histories of owning AMC, Ford and GM. I’m a “buy American” kind of girl who, after having a Ford built in Mexico and two GM’s that were unreliable, finally got prodded into purchasing a Japanese car built by Americans in an American factory. So sue me, eh? But here’s my personal testimony…. you’ll pry my Toyota, as well as my other family members’ Toyotas, from our cold, dead hands. Because we… possessing simple driving skills that included the days of manual transmissions… know how to shift into neutral in the event of sudden acceleration.

But what advantage is there in bashing Toyota? Especially a foreign manufacturer that not only employs tens of thousands of Americans in industrial jobs, and their support supplier/dealer network, but who’s stock ownership includes mutual funds, pensioners and financial institutions? A category, of which many are unaware, includes the #1, #2 and #5 positions in US debt holders.

THE BIGGEST HOLDERS OF US DEBT

#1: Federal Reserve/Intragovernment Goverment holdings $5.127 trillion
That’s right, the biggest holder of US government debt is actually inside the United States. The Federal Reserve system of banks and other US intragovernmental holdings account for a stunning $5.127 trillion in US Treasury debt. This is the most recent number available (Sept 2009), and is at an all-time high, rising in every reporting period since 2007. About a decade ago, the total government holdings were “only” $2.5 trillion

#2: Other Investors/Savings Bonds $1.114 trillion
With the most recent numbers from March 2009, this extremely diverse group includes individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts, estates, savings bonds, corporate and non-corporate businesses for a total of $1.114 Trillion. Although the level of debt held in U.S. savings bonds has remained basically constant, the broad category of “Other” investors has nearly quadrupled since reaching a four-year low in December 2007.

#3: Japan $757.3 billion
A major US trade partner, Japan holds a huge amount of American debt, and has recently surpassed Mainland China as the biggest sovereign holder with a stunning $768.8 billion. The last time Japan held more than China was in August 2008, and has been gradually increasing its holdings over the past two years.

#4: China $755.4 billion
The buzz word in the market for US debt is China, but with a drop of nearly $34 billion from November 2009 to December 2009, the world’s most populous country is no longer the biggest holder of US debt. From its all-time high in May 2009 of $801.5 billion, China’s stockpile of Treasury sercurities has shrank by a total of about $45.1 billion. Hong Kong, which is not included in China’s total, holds an additional $146.2 billion.

#5: Mutual Funds $694.5 billionAccording to the Federal Reserve, mutual funds hold the fifth largest amount of US debt compared to any other group, although mutual fund holdings have diminished by more than $70 billion since December 2008. Including money market funds, mutual funds and closed-end funds, this group of investments manages approximately $694.5 billion of US Treasury securities.

Do you need a translation of the above? Forget the old hat MSM parroting of leasing our souls to China. The bulk of risk lies with the US government (meaning us, the taxpayers), our investors and bond holders. And when you look at the ownership of Toyota… being systematically destroyed by the Obama administration to prop up GM and “alternative energy” cars, you need to keep this in mind.

Shall we move on to Obama’s auto business endeavor? Brace yourself for the ultimate economic stupidity and irresponsibility with the US taxpayers hard earned dollars.

This not-so-new Toyota bad press presented a unique PR opportunity to push “Government Motors and incentives (at the taxpayers expense, since they exist because of us…). Not only is this truly unethical, but kicking a serious contributor to US jobs and wealth while they are down only intensifies what was a very bad decision on the GM bailout. Just who do you think is ultimately paying for that “rebate” to prop up GM???

Let me reiterate: while Ford was posting profits with “unpopular” gas guzzlers, and Toyota was wilting under Obama’s appointee’s PR assault… both in the stock market and on the production line…. how was taxpayer/gov’t run/US taxpayer supported GM doing?

In the red, of course. In Nov 2009, a cautious press spun the GM Q3 loss as a “positive”.

Not very often is losing $1.2 billion good news but that’s the way General Motors is spinning its third quarter earnings report. GM claims its finances are stable enough to begin repaying the $6.7 billion in government loans as soon as December and could be paid off ahead of schedule, potentially by June of 2010.

But that’s a small share of what the government (aka the taxpayer) invested in GM. Americans unwillingly invested over $80 billion in auto industry, allowing the government to take a 61 percent stake and a 10 percent stake in GM and Chrysler, respectively. On November 2, the Government Accountability Office (GAO) released a study cautioning that the Treasury will not recover much of the money invested in the automakers unless the companies’ values “grow substantially above what they have been in the past.” According to auto czar Steve Rattner, of the $50 billion invested in GM, $20 billion has already been lost for good. At a recent speech at the Brookings Institution, he said bluntly, “I don’t think we’re going to see [it] again.” Although it is difficult to assess the long-term viability of GM, it is clear much of the taxpayer-funded stock will be lost.

The reported loss of “only” $1.2 billion was spun as progress towards stability since it is much less than the $2.5 billion lost in the third quarter of 2008. GM is still determining the value of its assets after bankruptcy, however, thus the third quarter financial statements do not adhere to Generally Accepted Accounting Principles (GAAP). GM’s Chief Financial Officer Ray Young admonished that “Direct comparisons are not necessarily applicable.”

That was only GM’s Q3. What makes me nervous is not finding any Q4 media reports that indicates anything different. In fact, even the GM site itself refuses to reveal anything beyond 2009’s Q3. So if you’ve got ’em… and other than me delving into some trade software at my finger tips… feel free to add them to the post here.

Bottom line… good news about GM and their successes at the end of 2009 would be screamed to the mountaintops. Therefore I suspect that Q3 is as good as it got in losses as “positive” news.

Despite the nation’s citizens’ buying into an auto corporation, who’s decisions were being guided by unelected Obama “czars”, GM continued on a losing streak. So Toyota’s bad press presented a media spin gift. Government Motors, under the guidance of Obama’s auto czar, responded with a very sleazy marketing move focusing on beating up Toyota with demeaning ads and offering financial enticements… enticements, I might add, are coming out of the US taxpayer’s wallet. Remember, they are no where close to paying back what we gave them.

So what’s on the platter for “Government Motors” now? Well, lots of good “PR news”. News that the O’faithful are touting as economic and decision successes are that GM is adding 550 union jobs this year to three factories in NY, OH and MI that are supposed to produce the next-generation, fuel-efficient Ecotec engine.

Add to that, GM’s announced 1,200 jobs to its Lordstown, OH plant in preparation for the launch of the Chevy Cruze.

This is a total of 1750 jobs to a company that I’d celebrate… even still being indebted to the US taxpayer….

That is, until I looked at it closer….

The Cruze is the replacement for GM’s losing model, the Cobalt.

Now… heads up here… the 905,000 Chevy Cobalts produced between 2005 and 2009 are under investigation for steering control loss!

Hey… did you hear about that? No surprise. Such news wouldn’t benefit Government Motors like slamming Toyota would, eh? But I tell you what… I’d rather shift into neutral than lose steering… at any speed.

Now… “but Mata”, you say…. “shouldn’t we support a new, cost and fuel efficient model”? Well hang yeah. Providing it’s a good business proposition and actually cost less. Too bad that it will cost MORE than the Cobalt. Also too bad, in a marketing sense, that the purchasing public still proves we love our well built SUVs and trucks.

And what of the Cruze design and projected sales? Just what is the US taxpayer buying into with jobs, research, etc. What are the numbers? The projected sales?

In the real world, any private sector, successful entrepreneur can tell you, business plans are *not* an option. Start up costs must be tempered and accounted for by crunching projected net on sales over at least four years, accommodating for cash flow, and analysing competition, market growth and considering future trends. From your Executive Summary to your Sales Projection Assumptions, i’s must be dotted and t’s crossed if you are to make it with existing cash on hand until you realize your first profits.

Well… let’s look at GM’s business plan, shall we?

DOH! Not possible. GM won’t provide one. From the CNN Money article, and despite asking taxpayers to fund new jobs and a new, unproven model that goes against the grain of the Ford success with their trucks and SUVS, they “decline” to provide details.

While GM declined provide price or sales volume estimates for the Cruze, company spokesman Monte Doran did say that the price would be ‘competitive’ with the Ford Focus, Mazda 3, and Honda Civic.

Reception in the Asia-Pacific and European markets has been strong a “home court advantage” should help propel U.S. sales above the more than 125,000 models already sold overseas, according to Doran.

Apparently, business plans *are* optional for GM…. something funded with that bottomless pit known as taxpayer dollars. But just how wise is it to dance wildly in the streets about GM’s recent announcments to increase jobs for a car with no proven track records, and won’t even be manufactured until three quarters from now… and with no projected sales and profit on record?

Since GM refuses to provide their business plan, we can only fall back upon Edward Niedermeyers’s predictions about GM’s market share back in October, 2009. He wasn’t too impressed with all the number padding back then.

Optimism is usually a state of vulnerability, but there’s taking a chance and there’s diving off the deep end. GM insists that its bankruptcy designed it to break even at a worst-case scenario of 1.85m sales per year, so adding an extra million units of production is the kind of decision that should not be taken lightly. Especially because if GM ever does make a real commitment to that goal, its going to have to burn cash to reach it.

If GM didn’t have a long history of accidentally inflating production and going wild with incentives, we might look past the 100k unit padding in the Canada/Mexico numbers, the blind optimism about market share, and even the semi-retraction of 2.8m units as a goal. Ok, maybe not. In any case, if GM wasn’t aware of its own susceptibility to unrealistic optimism, it’s now fully aware of the public’s awareness thereof.

Here’s the truth of it all. A frugal and due diligent private investor demands a feasible and reasonably convincing business plan. That GM not only refuses to provide one, but depends upon a generic vision that does not incorporate a declining global market for consumer spending, I’m left to wonder….

Why would we celebrate more spending a jobs sans any analysis, only to find ourselves in the position to bail their act out next year in order to get our ORIGINAL money back??

And what will be the mean loss/gain if Toyota losses more jobs due to government interference than GM adds with speculative jobs???

Inquiring minds want to know….

And what of the long term unemployment globally, let alone here in the US? Did GM think of that when assuming numbers were somewhat status quo for their more expensive “Cobalt”? And how about all those lectures that we should not “consume” so much?

Do we really believe that we’ll be exporting these vehicles to our profit to a western hemisphere where most are far more indebted, as a ratio to GDP, than we are?

Call me skeptical….

And upon what do we base this all this if there’s no business plan? Obama’s “hope and change” that consumers will abandon tried and true sales models for something that has historically proven a losing financial proposition?

I’m not that gullible, thank you….

This is irresponsible use of my money, and your money. And I’m here to say that, as an *unwilling investor” in GM, I absolutely *demand* responsible investment of my hard earned cash.

With this desperate administration, who shows their economic naivety daily, we are not likely to get it.

Thus the layout of the title here… a recap?

The Stupid: bailouts for the loser in the auto game using taxpayer cash, and ignoring the winning business plan

The Unethical: Using the WH bully pulpit to smash productive US manufacturers that provide jobs and contribute to mutual fund/pensioners profits

The Irresponsible: allowing unproven and unsubstantiated increase in costs… *without* a business plan.

I rest my case.