So said President Obama’s new Chairman of the Board of Uncle Sam’s newest acquisition, GM. Edward E. Whitacre, Jr went on to say “A business is a business, and I think I can learn about cars.” Under that premise, a successful hot dog vendor on the streets of New York could lead the board for the bankrupt money pit American taxpayers just invested in.
Whitacre retired from AT & T in 2007 after 44 years with the company. Though the last 17 years he served as CEO and Chairman of the Board at the telecom company, his first job at what was then Southwestern Bell was setting fence posts. Without a doubt, he started at the bottom and worked his way to the top. But telecom analyst Victor Schnee calls his appointment to lead GM “bizarre.”
White House Press Secretary Robert Gibbs explained, “What was required was somebody with savvy, big-business experience that could take a company, change its management culture, make some of those tough decisions to put it on that path toward viability.” But how does Whitacre’s experience at AT & T compare to that required to turn around the new Government Motors?
At AT & T, he started with the smallest of the “Baby Bells” and gobbled up its competition in mergers to create the largest US telecom company. Along the way, competitors cried foul, accusing the ever-growing AT & T of using its might to price them out of business and ignoring regulations smaller companies had to abide by. In reference to a 2001 complaint filed by the Competitive Local Exchange Carriers (CLEC) Association of Michigan, then CLEC-MI president Brad Kruse said “Companies are limited in the service they can provide in Michigan because of SBC/Ameritech’s (now AT & T) actions, and the pace of competition is slowing. SBC/Ameritech is unilaterally setting telecommunications policy in Michigan, disregarding the rulings of regulators and the policies set by legislators alike, while blocking competition.”
Could this be exactly what the administration seeks for GM? A go-for-the-jugular Government Motors bent on crushing competition. Might we see the taxpayer-bought-and-paid-for bankrupt company buy out the smaller Chrysler then use its government backing to try and drive Ford Motor Co. (Which by the way is the only American auto company that didn’t take a taxpayer bailout.) out of business? If so, and if successful, Obama will have accomplished the nationalizing of the entire American auto industry! Why else would he choose a Chairman of the Board who, in his own words, doesn’t know anything about cars?
Could the administration’s motivation have been political? Mr. Whitacre made a lot of political contributions in the ’08 election cycle, mostly to Republicans. But one donation, in February of 2007, might raise an eyebrow when one’s asking how Whitacre was chosen for his new job–$1000 to Rahm Emanuel, President Obama’s current Chief of Staff. The natural question is, what would cause a Texas Republican to donate to the campaign of a Democratic Congressman in Illinois? On the same day Whitacre made his suspicious donation, AT & T’s COO Randall Stephenson also contributed $1000 to Emanuel’s campaign. Coincidence? Maybe.
On May 1 of this year, the Wall Street Journal reported that Emanuel has taken a lead role at the Treasury Department and if “Rahm wants it” it’s almost certain to happen. Just a couple of days ago Kevin Hasset, in a piece on Bloomberg, opined that he believes Obama’s plan is to put policies in place that drive every American business to need a bailout, and then “Rahm Emanuel can stack the boards of all of our companies with his political cronies.” Perhaps the idea that Whitacre’s appointment, who knows nothing about the auto business by his own admission, to head the new Government Motors is political payback by Rahmbo isn’t so far-fetched.
In either case, if Obama’s seeking to completely nationalize the entire auto industry with the “Kingpin” of the telecom industry or if Rahmbo made the call to pay off a favor, the fact that Whitacre steps into the limelight announcing he knows nothing of the business doesn’t allay my fear that this “investment” is going to be one big boondoggle.
But maybe every GM car will come with a new AT & T phone.
Well, it’s finally official. We predicted it from the day Bush first loaned GM $13 billion, and now it’s reality. General Motors has collapsed under the weight of gross mismanagement and an uncompromising UAW. GM’s incompetent management team managed to lose $38.7 billion in 2007, a period that saw record revenues for the company. No matter how you slice it, that’s mismanagement! We’re hearing the latest UAW concessions don’t cut the ~$70 per hour cost of GM’s labor, but freeze it. In reality, the union hasn’t given up anything.
Now the American taxpayers are the not-so-proud-owners of this bankrupt, inefficient, ineffective corporation. President Obama is convinced this is a good investment, even though Americans have consistently been opposed to the bailout of the auto industry. He’s convinced he’s going to turn GM around by hiring consultants who’ve never worked a day in the auto manufacturing business, including a 31-year-old law student with no background in business or economics who’s become the primary decision maker in the process.
Recall that Obama, immediately following Bush’s decision to abandon any semblance of free market capitalism in the US, was previously convinced a GM bankruptcy “would have devastating consequences for our economy and our workers.” Now that he has ascended to the White House throne, and inked a deal to make him the de facto CEO of the former industrial icon, he’s “confident that they can emerge [from bankruptcy] and take advantage of that new market and actually be very profitable and thrive.”
In other words, the former community organizer who, as New York Mayor Rudy Giuliani puts it, “has never led anything, nothing, nada,”1 is narcissistic enough to believe he can take the reins of this monstrosity that was once the very symbol of American capitalism and make it profitable again. With our tax dollars, of course.
If this company were such a great investment, why didn’t left-leaning billionaires like George Soros, Warren Buffet, Michael Bloomberg, and Obama’s Auto Czar Steven Rattner place their bets on this gamble? The answer is simple.
Regardless how often Obama refers to the bailout as an investment, it’s really one great big experiment–an experiment in Socialism. The fear tactics employed by the President and his cronies–basically screaming that life as we know it would cease to exist if the banks, Chrysler, and GM were allowed to fail–were used to foment a paranoia in the American citizenry that would allow him to force feed us a Socialist economic system that we would never have otherwise approved or endorsed.
In a recent Fox News poll, only 46% of Americans will even consider purchasing a GM product when they go to buy their next vehicle. Compare that to the 54% who will consider buying from Ford Motor Co., the only American auto manufacturer who refused government money, and we see the citizens of this country are quite put off by this whole idea of taxpayer financing of failed corporations. These numbers are even more impressive when you consider that GM has long been the dominant domestic manufacturer in terms of US market share. Ford has gained an edge by simply insisting on standing on its own.
And how is Obama’s Socialist experiment going so far? What innovative management decisions has the President made that will save our way of life and perhaps the world?
The closure of more than 1,100 dealerships nationwide will surely alienate customers. Never a smart move if you’re seeking to grow market share. Not only will loyal customers be forced to go elsewhere when purchasing a vehicle, but vehicle prices are also certain to increase with diminished competition among dealers. This trick wasn’t designed to streamline GM. It was intended to help them survive while maintaining much of the structure that made them unprofitable in the first place.
The biggest beneficiaries of this strategy are UAW workers. By increasing the price of GM products, Obama believes he can make the company profitable without demanding any real concessions from his supporters in the UAW. We the American people are not only being forced to fork over our hard-earned tax dollars to keep this behemoth afloat, but will also be forced to pay more for its products if we purchase them. The UAW’s over-generous compensation and benefit packages, a major source of GM’s inability to compete with foreign competitors, will be borne by consumers as a result of this move.
The new Government Motors has also announced the closure of several manufacturing and assembly plants. So, far this sounds like it might actually be a good decision. But what if the plants to be closed aren’t chosen for profitability, but for political payback? That certainly appears to be the case in the closing of the Spring Hill, TN assembly plant.
Obama has called for GM and Chrysler to move away from their large, gas-guzzling models so you would expect plants manufacturing these vehicles to be shuttered. But the Spring Hill plant was actually built to manufacture GM’s smaller vehicles to better compete with its foreign competitors. The plant shut down for retool to produce the Chevrolet Traverse, which claims to have the “best fuel economy of any 8-passenger crossover.” According to Mike Herron, chairman of UAW Local 1853’s bargaining committee, “There’s a billion dollars worth of equipment put in this place over the last 18 months.”
A billion dollar investment in the last year and a half for a vehicle that boasts the best fuel economy of its class and the doors are closing. Not because GM is discontinuing the Traverse…production of the model will be shifted to Lansing, MI. And therein lies the rub. Erich Merkle, an auto analyst based in Grand Rapids, MI recognized the danger to the Spring Hill plant in early April.
At current sales levels, all four vehicles could be built at either plant, but politics could give the Michigan plant the edge, Merkle said. “Spring Hill could be on the bubble because it’s in a red state, and Michigan is a blue state,” Merkle said. “The governor of Michigan is a Democrat, too, and she needs all the plants she can get.”2
I would love to see a per-unit cost comparison between the Michigan and Tennessee plants, but somehow I doubt the “most transparent administration in history,” which now manages GM, will be offering the American public such information. I would have to bet, though, that the plant in conservative Tennessee is cheaper to operate than the one in liberal Michigan. If it’s obvious to a Michigan-based analyst though, it should be obvious to everyone that Obama’s management decisions at the helm of GM will be based more on politics than on practical business concerns.
Don’t expect it to get better from here. The President has stated he wants to make GM a “leaner, meaner” company, more efficient and more competitive. This from a President who quadrupled the national deficit in his first 100 days in office. He’s pointed out that he doesn’t want to run GM, but now his administration holds 60% of the voting shares of the company. He’s told us he wants to bring the country together, but his management decisions appear to be based largely on blue state vs. red state lines.
Government Motors, the new GM, the Obama Socialist Experiment…bought and paid for with your money. Enjoy.
1From former New York Mayor Giuliani ‘s address to the Republican National Convention Sept. 3, 2008.
2Union worries about GM plant in Spring Hill–Oakridger.com
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