Laws Have Consequences

Yesterday The Conservative Treehouse reported that Toyota has announced the following:

  • By 2021, Toyota will now invest nearly $13 Billion in its U.S. operations with plans to add nearly 600 new jobs at American manufacturing plants
  • Hybrid versions of the popular RAV4 and Lexus ES to be produced in Kentucky for the first time
  • Production capacity increases and building expansions at Toyota’s unit plants in Huntsville, Alabama, Buffalo, West Virginia, Troy, Missouri and Jackson, Tennessee

The article states that this is a direct outcome of the NAFTA replacement USMCA trade deal; and the new 75% rule of origin within the Auto sector.

The article explains:

The guiding decision here relates specifically to the construct of the USMCA (NAFTA replacement).   Toyota was previously focused on multi-billion-dollar investments in Canada as they exploited the NAFTA loophole and procured component parts from Asia for North American assembly and shipment into the U.S. Market.  However, when they renegotiated NAFTA and created the USMCA President Trump and USTR Lighthizer closed closed the loophole.

The new USMCA agreement requires that 75% of automobile parts must be made in North America; and 45% must come from plants with minimum labor costs ($16/hr); or face tariffs to access the U.S. market with the finished good.  As a result Toyota has to either pay a tariff to continue importing Asian component parts, or move the higher-wage component manufacturing directly into the U.S.

Obviously, Toyota chose the latter.

The article explains that Toyota is not the first automobile company to respond to USMCA:

Keep in mind Toyota is not the first Auto manufacturer to respond with increased U.S. investment. Prior to the USMCA German auto-maker BMW began building a $2 billion assembly plant in Mexico. Under the old NAFTA plan most of BMW’s core parts were coming from the EU (steel/aluminum casting components, engines, transmissions etc.) and/or Asia (electronics, upholstery etc).

However, under the USMCA the Mexico BMW assembly plant has to source 75% of the total component parts from the U.S, Canada and Mexico; with 45% of those parts from facilities paying $16/hr.

The result was BMW needing to quickly modify their supply chain, build auto parts in the U.S. and Mexico, or they would end up paying a tariff on the assembled final product.

Like Toyota, BMW made the financial decision to open a new engine and transmission manufacturing plant in South Carolina…. exactly as Trump and Lighthizer planned.

And don’t forget Fiat Chrysler made a similar announcement in February: “The automaker says it will hire 6,500 workers and invest $4.5 billion by adding a new assembly plant in Detroit and boosting production at five existing factories.”

Like him or not, President Trump is a businessman who is doing things that are helping the American economy and the average worker.

Who Really Profited From The Auto Bailout ?

Breitbart.com posted an article yesterday revealing some interesting statistics about the auto industry bailout. Government Accountability Institute President Peter Schweizer investigated the bailout to see where the money went and how much taxpayers actually lost.

The article reports:

The government’s actions involving Chrysler resulted in a net loss to taxpayers of $2.9 billion, and the government is currently sitting on a $14.5 billion loss for its actions involving General Motors. But Mr. Schweizer says few Americans realize the backroom deals the Administration cut that created a flood of cash for well-connected Obama cronies.

For example, the GM bailout was handled not by automotive experts but by New York investment firm Evercore Partners. The firm is headed by Obama bundler and former Assistant Treasury Secretary Roger Altman and Obama mega fundraiser Ralph Schlosstein. GM paid Evercore $46 million in advising fees and billed the car company another $17.9 million for a “success fee,” despite the fact that Evercore never found GM a purchaser or funder. 

Unfortunately the unions and the political bundlers were the winners in the auto industry bailout. Had the auto industry been required to follow normal bankruptcy procedures as stated in Chapter 11, those involved would have been forced to be accountable for the money they spent. The auto bailout is the poster child for crony capitalism–it is nothing to brag about.

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Would You Let These People Manage Your 401K ?

 

Logo of General Motors Corporation. Source: 20...

Logo of General Motors Corporation. Source: 2007_business_choice_bro_en.pdf (on GM website). (Photo credit: Wikipedia)

John Lott posted an article at National Review today about what has happened to the money used to bail out General Motors.

The article reports:

Three years ago his administration invested more than $100 billion in taxpayer money to bail out General Motors. On Tuesday, the entire company, not just what the government owns, was worth less than $34 billion. By anyone’s definition, that investment is a glaring failure. Yet over the last few days the Obama campaign, in a $25 million marketing blitz, has flooded the airwaves with ads in battleground states, claiming the bailout should be counted a rousing success.

The contrast between the facts and the campaign ads is amazing.

Another thing conveniently not mentioned in the campaign ad is the number of automobile dealerships that were put out of business in the General Motors and Chrysler bailouts.

The article reminds us:

The only real winners from the GM bailout were unions, which were protected from pay cuts, from losing their right to overtime pay after less than 40 hours a week, and from cuts to their extremely generous benefits. They faced only minor tweaks in their inefficient union work rules.

As for “hundreds of thousands of new workers,” the truth is closer to a tenth of that.

Having just $34 billion to show after a $100 billion-plus investment would get a chief executive of any private company fired. Unfortunately, Obama does not seem to understand how this money has been wasted.

Would you let these people administer your 401K account?

 

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This Slogan Only Works If You Ignore The Facts

The Washington Free Beacon posted an article today reminding us of some inconvenient truths about the government bailout of the automobile industry. Since one of the campaign slogans of President Obama’s campaign this year will be, “Osama Bin Laden is dead, and General Motors is alive,” it might be wise to take a look at some of the facts surrounding the auto bailout.

The article reports:

The administration has already written off $7 billion in taxpayer losses in the American takeover of Chrysler and General Motors; those losses are expected to climb as high as $23 billion—27 percent of the $85 billion spent on the bailout.

While the bailout is widely credited with saving the two companies, increasing taxpayer losses have made it nearly as unpopular in 2012 as it was when Obama was elected. More than half of Americans still disapprove of the auto bailout compared with 61 percent in 2008.

Aside from the taxpayer losses involved, there is the violation of bankruptcy laws. We have laws for a reason–if they are wrong they need to be changed (these particular laws are not wrong), but until they are changed, they have to be followed.

As was pointed out at rightwinggranny in June of 2009, in bailing out Chryster, laws were broken:

The issue here is the secured debt.  The government is trying to pressure those who hold secured bonds to accept less than the value of the bonds so that other creditors can be paid.  We need to remember that one of the basic principles of bankruptcy law is that secured creditors (who loaned money only on the contractual promise that if the debt was unpaid they’d get specific property back)  get paid off in full before unsecured creditors get anything.  To do anything else is a violation of the US Constitution and its rules on private property rights.

Laws were broken in the auto bailouts in order to hand the companies over to the unions. Some Americans remember that. General Motors is alive, but aside from the taxpayer losses, the government and the unions have much more power in running the company than is appropriate.

The article at the Free Beacon further reports:

“They came in and forced these companies into pre-packaged bankruptcy where unions were made whole and creditors were squeezed out,” the expert said. “In normal bankruptcy they don’t rearrange stakeholders rights willy-nilly…there’s no way those union contracts would have been untouched.”

Labor is not the only constituency to which Obama has tried to appeal by championing the bailout.  “After three decades of inaction, we’re gradually putting in place the toughest fuel economy standards in history for our cars and pickups,” Obama said in the same February speech. “That means the cars you build will average nearly 55 miles per gallon by the middle of the next decade—almost double what they get today.”

Obama tied the bailouts to strict environmental standards that have led to increasingly efficient cars, an achievement he has used to woo green advocates. The move has affected more than just the environment, establishing “dangerous” legal precedents, according to some legal experts.

General Motors may be alive, but it is a whole lot less free than it was before President Obama said, “I’m from the government, and I’m here to help you.”

 

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An Interesting Perspective On The Auto Companies Bailout

Today’s Wall Street Journal posted an article on the auto bailout and the cost to American taxpayers. The article mentioned the fact that in order to get taxpayers’ money back, shares of General Motors will need to rise to $53 from their current $26 to recoup the Bush-Obama investment. But that’s not the real cost of the bailout.

The article reminds us:

However things shake out, it will be only a fraction of the true costs in precedent and politicized investment. The bailouts signaled that major companies with union labor are too politically big to fail and undermined confidence in the rule of law. More troubling, the conversion of Detroit from an indirect to transparent Washington client continues to distort the auto market.

Last November, Mr. Obama’s enviroteers tightened fuel economy regulations again, jacking them up to 54.5 miles per gallon by 2025—well beyond the standards Congress set in 2007. The auto makers agreed despite their misgivings because as wards of the state they had no political choice. So Chrysler, GM and Ford will still be forced to make cars that dealers struggle to sell profitably, only many more of them.

The rule of law was not followed in the bailouts, and that will create problems for the companies in the future.

The article concludes:

The point is that the auto bailout isn’t an example of enlightened government revitalizing an industry after a market failure. It is a bailout in the wake of failed government policies and bad management that may keep going and going as Washington does whatever it takes to make sure Detroit keeps doing its political bidding.

Government meddling in the private sector is never a good idea.

 

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If Investors Ran Their Portfolios Like The Government Runs Theirs…

Today’s Detroit News reported today that the government has revised the estimated losses from the auto bailout up $170 million.

The article reports:

In the government’s latest report to Congress this month, the Treasury upped its estimate to $23.77 billion, up from $23.6 billion.

Last fall, the government dramatically boosted its forecast of losses on the rescues of General Motors Co., Chrysler Group LLC and their finance units from $14 billion to $23.6 billion.

Much of the increase in losses is due to the sharp decline of GM’s stock price over the last six months.

Three solar companies the government invested in went bankrupt or laid off workers last week. The losses in the bailout of the auto companies were considerably more than what was initially projected. Have we learned yet that the government should not be investing taxpayer money in private businesses? Government interference in the free market has done nothing but take large amounts of money out of taxpapayers’ pockets and increase the national debt. Someone is needed in Washington who can put a stop to the overspending and misuse of taxpayers’ money.

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I Guess It Depends On Your Idea Of A Good Investment

2010 Ford Mustang photographed in Fort Washing...

Image via Wikipedia

In my head I can hear my stockbroker yelling, “Dump that turkey!” What am I talking about? The current state of the government’s investment in General Motors.

Yesterday the Daily Caller posted an article about the current state of the stock in General Motors that the government still owns.

The article points out:

President Obama glowingly defended the $85 billion auto industry bailout during a speech to Detroit auto workers Friday, saying “the investment was worth it.”

But the government still owns 500 million shares of General Motors which, if sold at today’s market price of $20 a share, would leave taxpayers on the hook for $16.5 billion in losses.

And…under the law of unintended consequences (I’m not sure about the unintended part), the agreement the government signed with General Motors and Chrysler makes Ford (the company that is not partially owned by the government) the only company that the United Auto Workers (UAW) can strike against.  As reported in rightwinggranny.com on October 13, 2011, the UAW is already making plans to strike Ford Motor Company.

Where is this going? Unless someone throws a wrench in the works, it is leading to a nationalization of the American auto industry.

My husband, a drive-by reader of this site, just pointed out to me that if the UAW strikes Ford, forcing them to be bailed out, then the UAW will not be able to strike any American auto company. Payback is a *****!

 

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The End Of Free Enterprise In The American Automobile Industry

2010 Ford Mustang photographed in Fort Washing...

Image via Wikipedia

Today’s Chicago Sun-Times is reporting that the union workers at Ford Motor Company’s Chicago assembly plan have voted to reject a new four-year contract proposed by Ford Motor Company.

I would like to repost a quote from an article posted at rightwinggranny.com on September 19, 2011:

Workers at Chrysler Group LLC, whose contract also expired on September 14, continue to negotiate for terms of their new deal.

The UAW is not allowed to call strikes for workers at GM and Chrysler under the terms of the federal bailouts which those companies received.

Workers at Ford Motor (which did not receive a federal bailout, which allows them to strike) are also in talks for a new contract.

One of the problems the union workers have with the proposed contract:

Some workers are angry that in the wake of Ford earning $9.3 billion in profits the last two years, the contract does not give back some of the things they lost in previous agreements, including cost-of-living raises. They are also mad about Ford CEO Alan Mulally’s $26.5 million pay package for 2010.

Also included in the proposed contract:

The deal would also commit Ford to hiring a total of 2,000 workers in the Chicago area, including 1,100 to be part of a new third shift at the company’s Chicago assembly plant. The contract agreement calls for Ford to hire 900 workers at its stamping plant and assembly plant within the next four years.

The most amazing statement in the article:

Morton (Grant Morton, United Auto Workers Union Local 551 plant chairman) said he still expects the 1,100 new jobs and new third shift at Ford’s Chicago assembly plant even if the contract does not pass. That is because the company plans to produce sedan and SUV versions of its new Police Interceptor vehicle at the plant. The vehicle will be launched in February. The plant has already produced a couple hundred of the Interceptors, according to Morton. The plant also produces the Lincoln MKS, Ford Taurus and Ford Explorer.

Something has gone horribly wrong with the way people look at their jobs and the companies that hire them. I suppose heads of corporations make ridiculous money. They also work a lot of hours and carry a lot of weight on their shoulders, why shouldn’t they be paid for it? What relationship does that have to the man who does an honest day’s work on an assembly line and goes home when the whistle blows? As employees, we need to be concerned about making ourselves more valuable to the companies we work for rather than worrying what the officers of the company make. I guess this is a very old-fashioned idea, but generally speaking, people are paid for the jobs they do. Some industries pay better than others, and some jobs pay better than others, but usually if you want a really high-paying job, you either have to have skills that are unique and hard to find, or you have to work at a job that has a high risk of failure. Those of us who are ‘average’ are going to receive ‘average’ wages. I’m sorry, that’s just the way it is, and no amount of labor disruption or strikes against companies will change that. The only thing a prolonged strike against Ford will do is create financial problems for the company and put jobs at risk. Considering the economics of the present time, that is probably not a really good idea.

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General Motors (aka Government Motors) and the UAW Have Agreed On A Contract (Or Why I Drive A Mustang)

Normally, I wouldn’t particularly care whether or not GM reached a contract agreement with the UAW, but since the government has made me a stockholder, I thought that maybe I should pay attention.

The International Business Times reported on Saturday that a new contract between GM and the UAW has been tentatively agreed on. The contract includes signing bonuses and better profit sharing for the employees.

The article reports:

Workers at Chrysler Group LLC, whose contract also expired on September 14, continue to negotiate for terms of their new deal.

The UAW is not allowed to call strikes for workers at GM and Chrysler under the terms of the federal bailouts which those companies received.

Workers at Ford Motor (which did not receive a federal bailout, which allows them to strike) are also in talks for a new contract.

Any bets on the possibility of a UAW strike action against Ford this year?

There is one aspect of this contract that I could not find any reporting on. In his book, Car Wreck, Mark Ragsdale explains an auto industry practice called ‘jobs banks.’ Jobs banks require that two and a half years of wages be paid to laid off workers. On February 10, 2009, Ford Motor Company announced it had negotiated jobs banks penalties out of its UAW contracts. Because Ford rejected federal bailout money, the UAW was forced to negotiate in order to avoid the company going bankrupt. I suspect the UAW will try very hard this year to put those jobs banks penalties back in.

Taxpayer bailout money is currently paying General Motors workers for work while they sit at the ‘jobs bank’ all day and do nothing–another example of a total waste of tax dollars. Obviously when this was done by a private company (GM), it was not practical–the company had to be bailed out, so why is the government allowing the nonprofitable behavior to continue? It will be interesting to see what happens to the jobs banks in the new contract and if the UAW decides to strike Ford to put the jobs banks back in there.

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