Economics

The Government Auto Bailout That's Becoming Swamped by Politics

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Over the weekend, I blogged about the troubling political intervention into Chrysler's bankruptcy, where, pace established practice in such proceedings, disfavored secured creditors are being kicked to the end of the queue. (Thanks to Instapundit, among others, for really hammering this story, which is disturbing for about, oh, a trillion reasons.)

Here's a great Wash Post col by Eva Rodriguez about the longer-term but no less sinister implications of President Barack Obama's actions regarding the Big 2.5 automakers:

Which brings us to another disturbing aspect of the government's dealings: its unabashed and unwise attempts to tilt the scales in the unions' favor. The government proposed giving the United Auto Workers' retiree health fund a 55 percent equity stake in Chrysler—more than the combined stakes of Chrysler's merger partner, Fiat, or the other creditors that are owed roughly $7 billion. At GM, the plan is for the union to take a 39 percent slice—a rich reward for years of work rules, health care and pension deals that contributed mightily to the company's financial woes.

Obama has said he hopes to get out of the car business soon, and he has urged private investors to replace the government as the source of ongoing funds. But no executive in her right mind would take that gamble when it is clear that, in dealing with the government, private capital will always take a back seat to politically powerful entities. Bankruptcy—which everyone has dreaded until now—may prove an unlikely balm. Chrysler filed for Chapter 11 last week, and GM may be facing a similar fate. At least in this arena, long-established rules, and not political favoritism, will play a pivotal role in deciding who gets what. It will also bring some business discipline to decisions that will shape the companies—and, I hope, enable them to pay back every red cent I'm owed.

More here.

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  1. I don’t get it. Barrack Obama is so much smarter than us. How come he can’t make deicisons with the same amount of wisdom with millions of people each protecting their own rational self-interest?

    It must be greed.

  2. Chrysler will be liquidated in the end, no matter how much in bailout bucks its gets. It’s cars just plain suck and it isn’t a healthy company.

    GM is going to go through a Chapter 11 and make it out alive with only Chevrolet and Cadillac left, and can revive.

    Ford will be just fine, and probably not even need any bailout money. They’re the ones really getting fucked by the government here, though, because if the feds would just let Chrysler go under and GM go into Chapter 11 they would expand their market share greatly. They’ve been doing everything right in the past few years and are getting punished
    for it. It’s fucked up.

  3. I heard Obama’s address about this mess last week on the radio; when he got to the part about not wanting to get into the auto business, i actually shouted THEN FUCKING DON’T.

  4. Megan McCardle for once made a good point. Is there anything worse you could do to unions than completely fuck the creditors of unionized industries? How then would such industries ever be able to get credit again? These people are so incompetant and short sided, they don’t even know how to help their own lackies.

  5. I pledge that I will NEVER buy a car again from Government Motors, or a zombie Chrysler. After being a Chevy guy my whole adult life, I’ll look to Ford or an import for my next vehicle. Which is getting pretty close, as my Chevy 1500 is getting long in the tooth.

  6. My Dad worked for a Buick dealership for 40 something years. Ive never owned anything but a Buick. Im glad he is retired…I guess my next car will be a Honda or something.

    Maybe a Toyota Corvette.

  7. I pledge that I will NEVER buy a car again from Government Motors, or a zombie Chrysler.

    I might buy a used GM or Chrysler car if the price is right, but I agree that I won’t give any money to a corporate welfare queen voluntarily.

    -jcr

  8. BTW, the less healthy foreign automakers are going to be lining up for welfare next. My money is on Mitsubishi and Nissan either asking for money or withdrawing from the North American market if sales keep going off a cliff.

  9. The government proposed giving the United Auto Workers’ retiree health fund a 55 percent equity stake in Chrysler-more than the combined stakes of Chrysler’s merger partner, Fiat, or the other creditors that are owed roughly $7 billion.

    I can hardly wait to see the next round of union “negotiations.”

    Is there anything worse you could do to unions than completely fuck the creditors of unionized industries? How then would such industries ever be able to get credit again?

    “People who invested in pre-bailout companies were greedy, and deserved to get screwed. People who refuse to invest in post-bailout companies are greedy, and deserved to get screwed. Therefore we’re justified in raising their taxes enough to cover the required capital investment, which will be provided by the government.”

  10. Mitsubishi and Nissan either asking for money or withdrawing from the North American market

    I buy in to your view about Mitsubishi, but Nissan? Is Nissan that bad off? Just in the US or internationally?

  11. I pledge that I will NEVER buy a car again from Government Motors, or a zombie Chrysler. After being a Chevy guy my whole adult life, I’ll look to Ford or an import for my next vehicle.

    Same here, except that I won’t buy a Ford either, because they, too, harbor the UAW parasite. Its the same reason, really, that I won’t buy Cuban cigars – I don’t want to put money in the pockets of the Castros or the UAW.

    Right now, I am the proud owner of a Toyota and Nissan, and see no reason to change.

  12. “I buy in to your view about Mitsubishi, but Nissan? Is Nissan that bad off? Just in the US or internationally?”

    They’re bad off everywhere, they’ve already asked Japan for bailout bucks and there’s talk about them doing the same with our government (since they have plants in the South).

    Toyota and Honda sales are through the floor, too, but they have huge cash reserves. So does Ford.

    Nissan, Mitsubishi, GM, Chrysler do not. They weren’t particularly healthy even before this, the recession is just a nail in the coffin.

  13. “People who invested in pre-bailout companies were greedy, and deserved to get screwed. People who refuse to invest in post-bailout companies are greedy, and deserved to get screwed. Therefore we’re justified in raising their taxes enough to cover the required capital investment, which will be provided by the government.”

    Well done, LarryA.

    By the way, have you noticed that “greedy” is another one of those words that basically means nothing anymore? Investing is greedy? Being a banker is greedy? Opposing bailouts is greedy? Objecting to taxes is greedy? But, a UAW member wanting a bankrupt company to pay him in perpetuity for doing nothing is a honest working man?

    The only functional definition of “greedy” at this point is “not a welfare parasite.”

  14. Obama has finally proven to me that he either has no idea how productive economies function, or his goal is to purposefully undermine such activity.

    In his speech, he criticized the bond holders for being unwilling to make sacrifices as the unions had done. There are two problems here.

    First, the bond holders have a fiduciary responsibility to look out for their investors. They likely could not voluntarily accept cuts even if they wanted to. Even if they did, they’d be much less likely to make future investments, or be able to raise the capital to make such investments. Who wants to throw their money down a hole?

    Second, what sacrifices have the unions made? As far as I can tell they’re making out like bandits. I understand that there have been layoffs and pay cuts, but those aren’t sacrifices. These companies would be out of business but for huge amounts of taxpayer money. And, indeed, will be if they’re unable to secure future loans. They’re not making sacrifices any more than welfare recipients are making sacrifices.

  15. The only functional definition of “greedy” at this point is “not a welfare parasite.”

    Greedy is the new unfair.

  16. I’ll take “Social Justice and other euphemisms that mean the total opposite of what they sound like” for $300, Alex.

  17. Of course Obama makes millions every year. I would presume that money is invested somewhere. If his fund managers agreed to give away money to some poor in trouble company, I doubt McHopey would be very happy.

    In Obama’s defense, I don’t think he is malicious. I think he really is that stupid. He doesn’t understand the second and third order effects of forcing bond holders to prop up union contracts. Like most leftists, he never progressed intellectually beyond the 8th grade when he didn’t understand why he had to turn his lights off because his parents didn’t own the electric company.

  18. Of course Obama makes millions every year.

    I wonder how much of his book revenues he reinvests into car companies?

  19. And I’m genuinely curious how secured creditors could be bypassed in favor of awarding equity to unions without the transfer being considered a taking.

  20. Oh, the lolz from the WaPo comments…my favorite so far:
    What would ever happen if America found out that government run banks with their five-hundred-thousand dollar CEO’s work BETTER-!!! than the fat-cats “free-market” banks with their multi-million dollar CEO’s?

    Actually, maybe this is even more awesome:
    And so what if the Union owns the company? “I don’t want to run auto companies,” President Obama said last week. “I’m not an auto engineer. I don’t know how to create an affordable, well-designed plug-in hybrid.” Neither do the Wall Street MBAs, bankers, and marketing people who have been running these companies for the last 75 years; they know how to make profit and that is all they know! The design engineers could probably figure out how to create a cool looking, affordable, well-designed plug-in hybrid; and the UAW already know how to build a lot of them. Maybe removing the profit motive for a few years is exactly what these companies need to be profitable in the long run.

    How blind have we been? We need to remove the profit motive to make companies profitable! That means the UAW will do an awesome job running zombie Chrysler, right?

    Oh I am starting to worry…

  21. “” Neither do the Wall Street MBAs, bankers, and marketing people who have been running these companies for the last 75 years; they know how to make profit and that is all they know! ”

    The CEOs of GM and Chrysler DON’T know how to make a profit! That’s the whole problem! If they did they wouldn’t be in this mess.

  22. nicole,

    A good rebuttle, of sorts, to those clowns can be found here. Atlas Frowned. A hedge fund manager states:

    [. . .]This administration has made it quite clear that they can’t be relied upon to honor contracts or legal precedents and if I can’t know what the rules are before the game starts then I’m not going to play. Hedge funds aren’t like the banks ? we haven’t failed. We aren’t beholden to the taxpayer to make our way. We have contractual and fiduciary obligation which we will honor. People pay us to make them money not to meet a political goal. So Obama had better think long and hard before he tries to bully us like he did the banks, or try to tell us that “he’s the only thing between us and the pitchforks.”[. . .]

  23. Ford will be just fine, and probably not even need any bailout money. They’re the ones really getting fucked by the government here, though, because if the feds would just let Chrysler go under and GM go into Chapter 11 they would expand their market share greatly. They’ve been doing everything right in the past few years and are getting punished for it. It’s fucked up.

    QFT!

  24. “Neither do the Wall Street MBAs, bankers, and marketing people who have been running these companies for the last 75 years; they know how to make profit and that is all they know!”

    If only it were so. Leftists really do look at the world like it is some kind of afterschool special. “Hey kids if we could just all get together and help one another and work for one goal and forget about making money, our lemonade stand would do great” It would be cute, if after being confronted with the reality that life is not an after school special, leftists didn’t always start shooting people.

  25. ROFL!!! Holy shit! Those comments are threadwinners!

    “The car-buying public needs to be told what to buy for the good of the community at large. And if the “pink, snout-grilled mini-car that ran on manure” comes along, get in it, shut up, and stop making a vehicle some extension of your life. Every purchase you make really does not have to be about you.”

    “There was a time when America was prosperous. It was a time when there were tariffs, and Americans were happy to favor American made goods that way.”

    “GM, Ford, Chrysler, Toyota and all the automakers killed the electric car at the behest of the oil industry as well as haing a CEO at GM who could not think his way out of a wet paper bag. Now GM is going to demise. Blame Obama if you want but the death of GM started long ago, just ask Michael Moore. The writing on the walls have been there for years.”

  26. the bond holders have a fiduciary responsibility to look out for their investors.

    What’s really funny (my sides are aching) is the managers of the car companies, for decades, shirked their fiduciary duties to their shareholders, and turned the zoo over to the monkeys, which is why they are now backstroking around the drain.

  27. Naga, are you suggesting that documentarian savant Moore was right all along?

    yesssssss

  28. j/k, I saw the quotes.

  29. “haing a CEO at GM who could not think his way out of a wet paper bag.”

    It’s actually true the management at GM has been atrociously incompetent since about the Carter Administration. That’s probably the only true statement in that entire thread, though.

  30. “There was a time when America was prosperous. It was a time when there were tariffs, and Americans were happy to favor American made goods that way.”

    A person with whom I am acquainted made almost the exact same comment to me several months ago.

    My response: Considering how your favorite politicians have driven the dollar down, we have effectively erected tariff barriers. How do you like paying more for everything?

  31. What is also funny, is where do Obama and his minions think those hedgefunds get their money? Mars? The evil neocon cabal? No, they get their money from pension funds, many of which are owned by unions, mutual funds and millions of people’s 401K account. Basically Obama is saying “Look Grandma, I don’t care that you worked for 30 years to get your teaching retirement, shut the fuck up and stop asking for your money back.” Obama is fucking over millions of small investors and retirees to reward union fat cats liberals are cheering him on. But remember liberals are the ones who look out for the little guy.

  32. A pitiful UAW worker, in a ratty coat and a rough-hewn crutch tentatively knocks on CEO McEvil’s door. After being rough up by some goons, the worker finally gets to see the CEO, perhaps while eating he’s 3 hour lunch of an entire pig. The worker meekly says “I know how to make a cool looking, affordable, well-designed plug-in hybrid that everyone would want to buy. And all us workers already know how to build one with no retooling or training costs. It would be extremely profitable.”

    The CEO slams down the flagon of Saudi crude he’s been guzzling and shouts, with pork-speckled spittle “An electric car? E-LECTRIC CARRRR? I know everyone wants to buy one, but we won’t sell it to them! Profits be damned! We must keep polluting the precious Earth with giant SUVs that we mesmerize people into buying! No one would willingly buy a car larger than one-man-tent without THE HYPNO-RAY!”

    A wall slides aside behind CEO McPiggy, and the terror-inducing Hypno-Ray hums to life. With a fist covered in the blood of minority children, CEO McEvil slams the FIRE button and the lowly worker becomes just another American Idol fan, thoughts of a profitable car line erased from his mind.

    CEO McEvil belches and calls for another serving wench to rape.

  33. a CEO at GM who could not think his way out of a wet paper bag

    I agree with this person’s statement, but am doubtful that our reasons would look in any way similar.

  34. Suge, that’s the most socialogically astute writing I have seen in a very very long time.

  35. brotherben,

    There are some better ones but they seem too get progressively crazier.

    “Now that President Obama has put the screws on the Credit Card Companies because of their deceiptful business practices and stealing from the people, now is the time, and well overdue to VERY CLOSELY INVESTIGATE THE OPERATING OF VERIZON TELEPHONE COMPANY AND HOW THEY HAVE MADE IT IMPOSSIBLE FOR PEOPLE TO USE ANOTHER COMPANY FOR TELEPHONE SERVICE. VERIZON IS A MONOPOLY AND CONSUMERS ARE THE FALL GUYS. THEIR ADVERTISING IS DECEPTIVE IF YOU READ THE SMALL PRINT AND REGULATIONS THEY IMPOSE ON THE CONSUMER, PLUS EXTRA COSTS WHICH ARE TOTALLY OUT OF LINE!!! THEIR PRACTICES ARE UNFAIR AND THEIR OFFERS ARE FRUADULENT!!!”

  36. bb,

    I may just be subconsciously plagiarizing a scene from The Corporation.

  37. Uh, Sug, did you not see The Corporation?? Corporations are TREATED LIKE PEOPLE. Hence: greed, Gaia-rape, killing the electric car, and the like.

    (The McEvil story gets full points, obviously. Well played, sir.)

  38. I think it would have gotten a larger box office if it was titled Teh Corprashuns, Man!

  39. SugarFree,

    Whoa, whoa, whoa, whoa, WHOA! Hold on a minute. I thought the EEEEVVVVVVVVVVVIILLLL oil companies killed the electric car? Or was that the engine that ran on water?

  40. NS,

    Someone actually said Varizon is a monopoly? LOL!

    I have avoided them for years and have 2 intertubes phone numbers (Vonage and MagicJack) and one cell (ATT).

    Perhaps these are all just front companies for evil Verizon? LOL!

  41. I think it would have gotten a larger box office if it was titled Teh Corprashuns, Man!

    Teh Corprashuns are the ones who blocked people from seeing it, Man!

  42. “Whoa, whoa, whoa, whoa, WHOA! Hold on a minute. I thought the EEEEVVVVVVVVVVVIILLLL oil companies killed the electric car? Or was that the engine that ran on water?”

    My dad had a great comeback back in the 80s to the whackjobs who were convinced that GM had the 80 mpg car and just wouldn’t produce it because they were in with the oil companies. It was; how is it that the Soviet Union, that managed to steal the information on how to build the A-bomb never bothered to steal this information? It would seem like an 80 mpg truck or 50 mpg tank would be a damned valuable thing to have and a great way to show up the evil west. But somehow it never happened.

  43. HEB,

    T-fucking-Mobile, my friend. They are awesome! I forgot to pay one month and these dudes called me and get this . . . asked if everything was okay? Why? You haven’t made your payment for last month and we were just wondering if everything is okay. I was dumbfounded. I swear by T-Mobile now.

  44. It would seem like an 80 mpg truck or 50 mpg tank would be a damned valuable thing to have and a great way to show up the evil west. But somehow it never happened.

    They did not even bother pretending that they had one. Wonder if they had any hand in spreading the rumor that GM had one?

  45. Bankruptcy-which everyone has dreaded until now-may prove an unlikely balm. Chrysler filed for Chapter 11 last week, and GM may be facing a similar fate. At least in this arena, long-established rules, and not political favoritism, will play a pivotal role in deciding who gets what.

    That’s funny. Like saying the Fed, or the Supreme Court, is immune from politics.

    Remember: The President wants these things to happen; we’ll make the “rules” up on the fly. We’re playing Calvin Obama Ball, now.

  46. HEB,

    That is a really good point. Never thought of that.

  47. It takes a special sort of stupid to simultaneously believe that green energy proposals are efficient and wildly profitable and that evil capitalists won’t use them because they are greedy.

    “And remember folks, please spay and neuter your stupids.”

  48. That is a really good point. Never thought of that.

    Thanks. I had not really thought of that specifically, but whenever there is some sort of insane criticism of ‘evil corporationz’ from theb time of Lenin forward, I suspect the possibility of a Moscow connection.

  49. “God, I hate that Bob Barker.”

  50. “You wanna go to Red Lobster? How about Sizzler?”

  51. …and the UAW already know how to build a lot of them.

    Actually, the vast majority of UAW members only know how to perform a single mind-numbingly simple task. A task which when viewed in isolation might not even be recognizable as having anything to do with making a car.

    Why this worker gets paid multiples of what millions of other workers performing vastly more demanding jobs is a mystery to many.

    The value of any UAW worker is dependent on some manager integrating the task that worker does into all the other tasks that other UAW workers perform. It is this organization that gets cars built, not the physical labor of any individual worker. The notion that management is in some way parisitical on workers is just plain wrong. If anything it’s the other way around.

    While I think most reason readers understand this it’s amazing howw many people don’t.

  52. Kreel Sarloo,

    And how much of it would be performed by robots if the union didn’t get in the way? The UAW sabotages (in the original sense of the word) the industry to keep itself afloat.

  53. “What’s this I hear about you breaking a rake and throwing it in the woods?”

  54. No, they get their money from pension funds, many of which are owned by unions, mutual funds and millions of people’s 401K account.

    (emphasis mine)

    Yes, unlike the UAW, some unions had the foresight to take responsibility for their own members’ welfare. These unions maintain their own, for the most part, well run pension and healthcare programs. Even ones like the Teamsters that saw a lot of mob malfeasance are healthy, though admittedly not quite so flush in tody’s economy, today.

    For example, if every unionized steel erector in the country went bellyup tomorrow, retired members of the Ironworkers union can still count on all of the pension benefits they were promised.

  55. Right now, I am the proud owner of a Toyota and Nissan, and see no reason to change.

    You won’t have to. They’ll run for ever.

  56. What we really have to start realizing, because of relationship between Chrysler and the UAW (see Isaac Bartram’s comment above regarding the lack of separation of pension and company) is that Chrysler really is the UAW. There isn’t a company over here, and a Union over there. They are one in the same. Creditors with secured debt lining up to get repaid what they’re owed aren’t taking money from Chrysler, leaving the Union empty handed, they are taking money from the Union. Ie, the UAW owes billions to these creditors, and they simply don’t want to pay.

  57. The design engineers could probably figure out how to create a cool looking, affordable, well-designed plug-in hybrid;

    How hard could it be? Cue the Third Iron Law:

    3. The less you know about something, the easier it is.

    There’s so much demand for plug-in hybrids, after all, and they’re dead easy to make, apparently. Its a whole market segment, just lying there on the sidewalk! If it wasn’t for that damned profit motive, somebody would have picked it up!

    and the UAW already know how to build a lot of them.

    The UAW doesn’t know a goddamn thing about making cars. They know about negotiating contracts, strongarming management, and running a political machine. That’s it.

  58. R C Dean,

    So how long before people realize to themselves “Where in the fuck is all that extra electricity to power our vehicles going to come from?” What Iron Law does that fall under?

  59. “Where in the fuck is all that extra electricity to power our vehicles going to come from?”

    Puppy kisses and rainbows. Duh. You sure don’t know much about science for a bartender.

  60. Have you guys been to the whokilledtheelectriccar.com site lately? Talk about an issue that proved itself wrong…

  61. Naga,

    Power plants are far more efficient in producing energy than a gas engine is. So we wouldn’t need extra energy.

    Well, that’s if we had a practical design for an electric car available, which it doesn’t appear we do…

  62. The VOLT will have an onboard generator, powered by a gasoline engine, which will keep its batteries charged.

    Hear that sound? That’s the universe disappearing up its own asshole.

  63. Well, that’s if we had a practical design for an electric car available, which it doesn’t appear we do…

    We’re getting there. However, perverse regulations may actually keep some of them from market– or at minimum, create barriers to entry.

    Plus, battery technology is expensive and potentially environmentally toxic.

    Everyone talks about Lithium Ion batteries. Sure, where you gonna get the lithium from? It’s a relatively rare element. According to this Wiki article, 50% of the worlds reserves of Lithium are held in a small area in Bolivia.

    Obama may have to invade. Afterall, we can’t have a crazy Bolivian dictator controlling the future of the electric car now, can we?

  64. According to this Wiki article, 50% of the worlds reserves of Lithium are held in a small area in Bolivia.

    We could mine the corpses of emo kids.

  65. We could mine the corpses of emo kids.

    Or my ex-wife. Oh wait, she got off her lithium.

    Could explain the problem…

  66. So how long before people realize to themselves “Where in the fuck is all that extra electricity to power our vehicles going to come from?” What Iron Law does that fall under?

    Oh, that’s still number 3.

    Power plants are far more efficient in producing energy than a gas engine is. So we wouldn’t need extra energy.

    It kind of matters what form the energy is in. Right now, we barely have the generation and distribution capacity we need. If everyone’s car was magically transformed into a plug-in tomorrow, the electrical grid would collapse.

  67. Ford will be just fine, and probably not even need any bailout money.

    There’s a line of reasoning that says that the UAW will intentionally tank Ford in order to get the same sweetheart deal Obama is trying to stick GM and Chrysler with.

  68. No, they get their money from pension funds, many of which are owned by unions, mutual funds and millions of people’s 401K account.

    Obama doesn’t care, because he hates private pensions and the only pension funds that will be hurt are private. Public pension funds have benefits guaranteed by the power to raise taxes in order to make up shortfalls.

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