Wednesday, May 13, 2009

What Happens when the Government Owns a Private Business? - Top GM Executives Sell Shares – Stock Plummets – The Taxpayer Suffers

There surely is a rationale for bailing out the failing American Auto industry based on the possibility of thousands of auto workers and those working in related industries losing their jobs – that said, when was the last time the Federal Government was deemed effective management for any project? The taxpayers owning a stake in private industry (socialism) is counter to the basic principles of capitalism upon which the nation has, thus far, thrived (despite historical trends of recessions and depression). The GM debacle is a prime example of what happens when the Government steps in to “help” an industry.

First, GM has manufacturing plants outside of the U.S., specifically Brazil, where they have a profitable operation run by non-union employees. Now GM is considering moving its headquarters out of Detroit in order to save assets. This is a direct result of the forced bankruptcy of the company by the Obama administration. Knowing that the company is in deep financial trouble here in the U.S., top executives yesterday dumped GM Stock in order to salvage what little worth is left in the government owned auto maker. Should the company move to Mexico or China, those Auto Union Workers will be left holding the bag, however, due to the structure of the company’s union contract, that bag, pensions and all benefits will be the responsibility of the American Taxpayer. In other words, the U.S. Government has purchased a company (or bought controlling stakes in a company), that is basically worthless, has a huge overhead in bloated union benefits, and, no competitive products to sell.

Chrysler (also under the Obama administrations guidance), has been told that their advertising budget must be slashed in half. Historically speaking, those companies that continued to advertise during the depression in the 1930’s, survived, in fact, increased their sales over time, and those that cut back, or did not advertise at all, are now – also history.

Chrysler is an interesting case, because they have been bailed out before, under the Carter Administration. In that bailout, loans were given to the industry, and the government took a passive role, resulting in an eventual resurgence. In this case, Carter, who is most closely aligned to Obama in ideology, was a tad smarter in handling the “crisis”.

In the final analysis, only time will tell how much damage this ownership will cause the economy, if any*, and how many more hundreds of thousands will be added to the unemployment roles as the “plan” unfolds. From 800 Chrysler's car dealerships which are being forced to close, to the loss of the Detroit Headquarters of GM, to the supporting industries (small businesses that manufacture all parts for the production of said auto’s), a forecast of the number of affected individuals has yet to surface. The result will be one of the highest, if not the highest national unemployment rates in the history of the nation. This policy, will ultimately make Jimmy Carter appear to be a competent fiscal conservative, and one must remember that under Carter’s watch, the “misery index” was born.

*Should the current administration effectively manage the auto industry,immediately begin production of a reasonably priced, safe product, cut bloated union salaries, effectively market the product for both import and export and run a company, unlike the Federal govenrmetn, in the black - it may work.

2 comments:

Ralph Short said...

Tina, the reality to me (besides the incompetence of government types running a business) is that if there was one entrepreneur at the top of GM they would have declared bankruptcy under Chapter 11 a year or more ago. Prior to that the leadership should have taken a massive strike to reorganize.

GM still has 17% of the market, tell you what, someone gives me 17% of a multibillion dollar market even I could make sure the business model makes money. But first, they have to shed the UAW who, ridiculous as it may sound, is on the board. The only way to do that is to tell them unless they compromise big time we go into bankruptcy and take our chances before a judge.

Under the proposed Obama plan for Chrysler was 55% ownership by the UAW. The other part of it was to screw the secured bond holders out of their property. The UAW is the same parasitic organization that has drained it over the years. So, let's see, if I reduce an enterprise to nothing I get to own it and run it.

So, at the end of the day, what we have is a parasitic labor organization leaching off of a comatose management with the government ready to provide taxpayer relief from people who have zero stake in either group in order to appease the parasite, aka the UAW.

If only someone had the gumption to stand up and say "enough is enough" we will declare chapter 11 and reorganize to become profitable. Tragically, No one steps forward.

Tina Hemond said...

Hi Ralph, excellent points - well said.

Tina

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