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Posts Tagged ‘General Motors’

State and Municipal Crony Capitalism

Posted by Steve Markowitz on December 3, 2012

Often when this Blog writes about the ills of crony capitalism it refers to the actions of the federal government.  Examples are many with this year’s high-profile ones including the $500 million plus loss that the taxpayers took on the wasted Solyndra investment.  A bit further back there was the ill-advised bailouts of General Motors and the Wall Street banks.  In each of these situations, taxpayers were forced to pony up money to save others who made poor business, personal or job decisions.

Crony capitalism is not limited to the federal level.  States and municipalities are guilty of corrupting capitalism and using it for political power.  The New York Times has published an in-depth look on how state and local governments hand out the People’s money to the benefit of some over others in an article titled: As Companies Seek Tax Deals, Governments Pay High Price.

The Times made studied over 150,000 awards made by states and municipalities to various companies.  It concluded that mayors and governors use governmental subsidies and handouts to attract or retain businesses in their localities in an effort to retain the related jobs.  However, these efforts often do not succeed with costs far outweighing the benefits.  Not only do the companies often close or shrink the facilities after receiving the handouts, but in the negotiations themselves the government officials are outgunned by the professionals hired by the companies to extract benefits.

The Times determined that the state and regional governmental handouts that include tax credits, tax exemptions, subsidize services and tax abatements and up to more than $80 billion annually with 20% of this total being subsidized by the federal government.  It offered examples of these misguided efforts:

General Motors – Long before GM received its $50 billion plus 2009 bailout from the federal government, it was extracting handouts from states and local governments in exchange for opening or retaining plants in certain locales.  Approximately 50 properties involved with the 2009 shutdowns or shrinkage were located in towns and/or states that gave GM incentives and handouts in the billions. The subsidies continue today with GM receiving nearly $2 billion in local subsidies during the past five years.

Ford and Chrysler – Each company received approximately well over $1 billion in subsidies during the past five years

Hollywood – Filmmakers continue to be large recipients of governmental gifts.  It is no wonder that these Leftists are for big government.  An example offered by the Times is Oliver Stone’s 2010 “Wall Street” sequel.  While this film by necessity had to be made in New York City, the filmmaker received $10 million in tax credits from the City.  While Stone has been a vocal critic of subsidies to banking and agriculture, he has no problem justifying handouts to his industry and when questioned said: “It’s good.  Or like basically the way business is done. I don’t understand what the moral qualm is.”  How disingenuous.  Like so many others, Stone is only against handouts that go to others.

New York Times – Yes, even the publisher of the story critical of government givebacks to companies received $24 million since 2000 from the state of New York and New York City.

Shell Oil – Pennsylvania has given this multinational conglomerate tax credits worth up to $1.6 billion over the 25 year period.

Caterpillar – This large equipment manufacturer received nearly $200 million in local aid since 2007.

Twitter – After threatening to leave the city, San Francisco exempted Twitter up to $22 million of payroll taxes.  However, this accompany is flush with cash and has since received a $300 million investment from a Saudi Arabian Prince and $800 million from another source.

BMW – This producer of luxury automobiles perceived a $130 million package from the state of South Carolina in 1992 to locate a plant there.

Mercedes-Benz – Not to be outdone by BMW, another German firm, Mercedes, in 1993 received incentives worth over $300 million from the state of Alabama to locate its plant there.

38 Studios – This videogame startup owned by retired Boston Red Sox pitcher Curt Schilling received $75 million in loan guarantees from the state of Rhode Island.  The company never released a game and dismissed nearly all of its 400 workers earlier this year.  The taxpayers of Rhode Island are stuck with the bill.

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States and municipalities across the Country are guilty of wasting taxpayer funds on crony capitalism.  The Times reported that Texas offers the most incentives, almost $20 billion per year.  Alaska, West Virginia and Nebraska offer the most corporate handouts per state residents.  Oklahoma and West Virginia giveaways account for about one third of their states’ budgets.  This corruption is massive.

The crony capitalism exhibited in the governments’ corporate handouts is problematic on many levels.  First, it assumes that the states’ constitutions allow these governments to make the gifts.  In addition, there are no guarantees the companies will remain after receiving the handouts.  Finally, giving these awards to particular companies is nothing more than governments’ picking winners and losers.  For example the incentives to bring in new companies come from the tax base that includes long-term payers, the already existing employers in the states.  This perverse system results in money from the long-term tax payers being used to increase the competition for local labor and materials that ultimately increases their costs and lowers their profits.  Not only is this a unfair disadvantage to the already existing corporations, but it ultimately leads to lower tax revenues from these entities as they become less profitable.

A company’s decision to locate its facilities in a state or city should be made only on the basis of sound economics that includes the quality of its labor force, the relative cost of that labor, as well as other factors such as permanent taxes and infrastructure availability.  When the government subverts this most basic of business and economic logic, it guarantees negative consequences in the long term.  It is also a corruptive force on the political class.

 

Posted in Government Handouts, Taxes | Tagged: , , , , , , , , , , , , | Leave a Comment »

General Motors is Rigging the Numbers

Posted by Steve Markowitz on July 22, 2012

The Daily Caller posted an article indicating that General Motors has been fixing the numbers in order to make itself and the government that bailed them out look good.  The numbers are being manipulated via two methods:

Overbuilding – GM has built more automobiles than the market requires.  In the short run this inflates profit margins as overhead costs are spread over a greater number of units resulting in a lower per unit cost in the short term.  While GM has admitted to overbuilding, it justifies the move based on some supposed future plant closings.

Channel Stuffing – GM has also over shipped automobiles to dealers.  Since sales are booked on shipments, this offers a short-term boost while the inventory grows.  A class-action lawsuit in New York has been initiated concerning this GM tactic.

Both overbuilding and channel stuffing have led to GM having robust second quarter financial results.  However, these tactics will hurt the Company’s quarter results, according to a Standard & Poor’s analysis.  It should come at no surprise that the third quarter figures will not be released until after November’s presidential election.

President Obama promotes his bailout of the auto industry a major success for his administration stating two weeks ago: “When the American auto industry was on the brink of collapse, more than one million jobs were on the line, Governor Romney said we should just let Detroit go bankrupt.  I refused to turn my back on communities like this one.”  A reality check tells a different story:

  • What about the ultimate cost to taxpayers?  GM stock currently sells for about $20 per share.  According to the Reason Foundation, the stock would have to sell for $55 per share in order for taxpayers to be repaid in full.
  • How about the disadvantage to GM’s competitors?  Why shouldn’t more successful companies like Ford, Toyota, Hyundai, Honda, etc. have replaced the failed General Motors?
  • GM’s bailout did not come from thin air.  Successful companies of all types that paid their taxes were penalized for their success in order to bail out the failed General Motors.

The bailout of General Motors was ill advised and cannot be justified by economics.  It once again showed Progressives propensity to reward failure and penalize success.  Just as grotesque, the bailout was payback by the Obama Administration to organize labor in return for future political “favors”.

Posted in Bailouts, General Motors | Tagged: , , , , , , | Leave a Comment »

GM Bailout Benefits China

Posted by Steve Markowitz on May 24, 2012

One of the accomplishments President Obama often touts cornering his first term is the supposed success of the auto industry bailout; i.e. General Motors.  The claim of success relates to the fact that GM is still in business and is once again profitable.  However, this simplistic view of success is an illusion and would only come from people who have no experience running a business.  Any first year business student knows that the definition of business success must be defined in the terms of a cost and benefit.  Specifically, does the benefit exceed the cost of an investment?  The Obama Administration has never done such a study for rather obvious reasons.

Lee sent in the video below that helps explain why the GM bailout was a failure.  Specifically, this $80 billion bailout benefits people outside the United States more than Americans.  Here are some of the facts in the video:

  • 7 out of 10 General Motors cars are currently made outside of the United States.  So much for helpful US workers.
  • General Motors has 11 joint ventures in China with Chinese government controlled companies.
  • GM is moving a significant portion of its R & D from the US to China.

While the video is critical of President Obama, it appropriately points out that Mitt Romney supporters have also profited handsomely from the auto industry’s bailout by the US government.

Conclusion: Get the government out of the business of bailing out failed companies.  The funds used ultimately benefit some citizens (or foreigners) at the expense of paying taxpayers.

 

Posted in Uncategorized | Tagged: , , , , | Leave a Comment »

Chevy Volt Production Again Halted

Posted by Steve Markowitz on March 3, 2012

The New York Times reported that General Motors halted production for the Chevy Volt for the third time in less than one and a half years.  This time production will be stopped for four weeks with 1, 300 workers being laid off at the Volt Detroit factory.

During the month of February, General Motors managed to sell only 1, 023 of the plug-in Volts.  These low sales indicate that the Chevy Volt is a failure in the marketplace, especially when compared to the Toyota Prius that sold 20,589 vehicles during the same month.

It doesn’t take a rocket scientist to determine why the Volt has failed.  Forgetting for a moment any aesthetic or mechanical issues that buyers might have, the numbers just don’t add up.  The Volt cost $41,000, approximately double the price of the least expensive Prius.  In addition, its overall fuel economy is at best marginally better, and under some conditions worse than that of the Pirus.

The Chevy Volt is subsidized by the US government, its largest shareholder, who gives buyers a whopping $7,500 tax credit.  In addition, with gas prices over four dollars a gallon in many states it is evident that the Chevy Volt is a modern-day Edsel.  However, GM will not admit failure even with this indisputable evidence.  In making the announcement of the plant closing, a GM PR executive said “Sales for the Volt in February were significantly better than January, and we anticipate that to continue.  We see good things in the future, but right now we had to make this adjustment.”  This gentleman not only works for the President, but offers the same type of political doubletalk.

Once again, President Obama who has been an ardent supporter of the Chevy Volt, has proved inept in picking winners and losers in the marketplace.  More to the point, the President’s vision for green energy is totally out of sync with economic realities.  However, that will not stop this President from continuing to waste the people’s money on his pet projects.   Like the PR puppet that works for General Motors, the President seems to believe that if he says it, it becomes reality.  Yikes.

Posted in Chevy Volt | Tagged: , , , , , , , , , , | Leave a Comment »

NHTSA Shows Bias in Chevy Volt Safety Comments

Posted by Steve Markowitz on January 22, 2012

Less than a month ago General Motors informed all Chevy Volt owners to take their cars to their dealers to have repairs done.  This action was taken after the vehicles proved prone to fires.

In May, 2011, MGA Research was testing a Volt.  After a side-impact crash, the Volt was stored in a garage and caught fire a few days, destroying other cars parked near it.  It was determined that the fire was caused by the car’s leaking coolant damaging a circuit board that controlled its lithium-ion batteries.  The government’s NHTSA (National Highway Traffic Safety Administration) was able to duplicate the fire condition that occurred at MGA Research, prompting the recall by GM.

Curiously, the NHTSC issued a statement supporting the Volt last week indicating: “Based on the available data, NHTSA does not believe that Chevy Volts or other electric vehicles pose a greater risk of fire than gasoline-powered vehicles.”  The Chevy Volt has been a failure in the market before the fire hazard was announced.  As a result, NHTSA’s statement will have little effect on its already dismal sales figures.  However, the fact that President Obama has been a Volt advocate and the government owns 32% of GM brings into question NHTSA’s motivations in watering down the Volt’s current safety problems.

Posted in Chevy Volt | Tagged: , , , , , | Leave a Comment »

Chevy Volt Becomes Another Green Energy Boondoggle

Posted by Steve Markowitz on December 2, 2011

General Motors’ Chevy Volt has proven to be a product blunder and yet another example of the results that come from crony capitalism.  The Volt cannot be justified for consumers based on any cost benefit analysis, as outline in this Blog’s December 8, 2010 posting, Chevy Volt: Car or Boondoggle of the Year.  For example, the Volt can only go about 35 miles on battery power before requiring a small gasoline generator to keep the car running.  Even with a $7,500 federal tax subsidy for each vehicle sold, the demand for the Volt has been puny with only about 6,000 in total units sold to date since product introduction December 2010.  As it turns out, this marketing flop may turnout saving General Motors during a growing cleaning now required.

This week the news got worse for General Motors and the Volt when it was announced that the NHTSA (National Highway Traffic Safety Administration) has opened an investigation into fires that have started in the cars’ lithium-ion batteries.  This is the result of some Volts catching on fire including one that happened a few weeks to a car after be crash tested by the NHTSA.  It seems that some trauma to the Volt’s batteries may make them prone to spontaneous fires.

General Motors in now in scramble mode, offering to buy Volts back from owners fearful that the cars will catch fire.  Also, the Company has set up the Volt’s OnStar safety to notify GM of Volt crashes so that it can dispatch teams within two days to drain the battery and prevent additional fires.

The other all electric car is the Nissan Leaf that has not had fire issues after crash tests or real-world crashes.  However, a major technical difference is that the Leaf’s battery is air-cooled and the Volt’s water cooled.  There is some speculation that this difference may be related to the problem.

The Chevy Volt was a car that was not ready for prime time and the market did not want.  It would not exist today if not for the illegal interventions of the U.S. government.  These interventions included setting up fuel efficiency standards that favor certain builders over others, union protectionist measures that do not allow some cars to be counted in a company’s fleet fuel economy number, the bailout of GM, and a $7,500 tax rebate to incentivize people to buy Volts.  The Volt costly mistake is now added to the Solyndra debacle.  The government’s reckless and precipitous pursuit to go “green” will cost society much more than any ultimate benefit it might receive.

Progressives often show an infantile response to wants and needs.  When a young boy sees the cookie jar on top of the stove, he rarely considers the consequence of getting burnt when reaching for that jar.  Similarly, when Presidente Obama visited the Solyndra factory or drove an early Volt off of the assembly line, he only saw his want and could not conceive of the inevitable negative consequences.  However, unlike the boy who burned himself in the reckless behavior and learned to avoid the stove in the future, Progressives in government burn the People and therefore are all too willing to keep up with the dangerous behavior.  They also use causes like “green energy” as vehicles to funnel taxpayers money to political associates.


Posted in Chevy Volt | Tagged: , , , , , , , , , , , , , , | Leave a Comment »

Obama’s Failed Green Car Strategy

Posted by Steve Markowitz on August 21, 2011

Adding to the list of President Obama’s failed programs is strategy to promote and subsidize green or energy-efficient automobiles.  During his 2011 State of the Union address, Obama said that he would “break our dependence on oil” and “become the first country to have one million electric vehicles on the road by 2015.”   Those words were oureObama; sound great but no substance.

Assuming Obama’s desire to promote green cars is the correct one, then its execution of this strategy has been a failure to date.  Two recent news reports help show these failings; the Chevy Volt and Costco.

General Motors recently released the July sales figures for the Chevy Volt and they are dismal.  According to GM, only 125 Volts were sold last month.  Making this low figure even more incredible is the fact that each one sold is subsidized by U.S. Taxpayer funds in the amount of $7,500.  In a bit of dishonest public relations, a GM spokesperson attributed the low sales to “supply constraints“.

Since the Volt was introduced in late 2010, only2,029 units have been sold.  Another electric car, the Nissan Leaf, has made only 1,044 sales.

Not surprising in light of the lack of electric car sales is a recent announcement by giant membership warehouse-club chain Costco.  Costco jumped on the green car bandwagon even before President Obama was elected.  By 2006 it had installed over 90 automobile charging stations, mainly in its stores in California.  Recently, Costco unannounced that is was pulling the plug on the chargers, removing them due to lack of use.  A Costco executive said of the stations that: “We were early supporters of electric cars, going back as far as 15 years.  But nobody ever uses them.”

It is evident that the market has spoken.  This again proves that the government does not understand the market and cannot create demand.

When the government attempts to implement social policy by picking winners and losers in the marketplace, is merely taking certain taxpayer money and gives it to others.  Such a questionable practice might be justified if it resulted in successful outcomes.  However, all too often the government picks and invests in the losers that private capital would not.  Such is the case with electric cars.

Posted in Government Ineptness, Governmental Intervention | Tagged: , , , , , , , , , , , | Leave a Comment »

Government Stimulus Spending has Lengthened Recession

Posted by Steve Markowitz on June 10, 2011

When the 2008 financial meltdown occurred, politicians from both political parties panicked.  Faced with a historic crisis, they turned to academic economists for solutions.  These academics proposed all sorts of Keynesian solutions; i.e. government spending programs, to save the Country from economic Armageddon.  The programs included:

  • TARP, a bailout of the banks who played key roles in creating the economic crisis in the first place, and also a bail out of insurance giant AIG who made stupid business decisions that brought the world to the financial brink.  These huge programs started the Country down the slippery slope that has led to us becoming bailout nation.
  •  The next major governmental intervention was President Obama’s Stimulus Package.  With nearly $800 billion in government spending, Obama promised that this program will keep America’s unemployment rate under 8%.  It subsequently hit 10%.
  • Then there were the General Motors and Chrysler bailouts.  Obama told the Country they were necessary to keep America working.  Not only did it not achieve this goal, but during the forced bankruptcies the government changed the rules, cheating bondholders in favor of the auto companies’ union workers.  This illegal governmental intervention into the bankruptcy laws will have consequences in the future.
  •  Since the government was bailing out banks and other companies, it had to give some candy to the people as well.  It therefore continually extended unemployment benefits at the cost of tens of billions.
  • The government also spent billions on the Cash for Clunkers program, giving owners of old cars rebates to purchase new ones.  This program did not result in the sale of one additional car in the U.S. in the long run.  It merely pulled from future auto sales.
  • There was also the $8,000 tax credit for home buyers that cost tax payers billions.  While it created a temporary uptick in home sales in 2010, the housing market is now in a double-dip recession with home prices continuing to depreciate.
  • The government also offered other programs such as cash for appliance and $8,500 for buying Chevy Volts.

While the above list is not complete, it amounts to trillions of government stimulus whose results can now be judge.  The verdict: a complete failure.  Not only did the unemployment rate exceed 10%, it remains at over 9% today.  Further, recent housing, jobs and manufacturing reports are once again heading south.

The governmental spending programs have failed because they can occur only at the expense of private sector spending and investment.  Government spending can only come from taxes or barrowing.  Both are offsets to any spending benefit.  The wasted trillions have once and for all proved this reality.

With the Keynesian approach to addressing recessions disproven, what should the government do or have done?  Jeff Jacoby of the Boston Globe published an interesting article today that suggests the government should actually cut spending to stimulate the economy (Slash spending and the economy will bloom).  In support of this thesis he reviews the history of the economy just after World War II ended.  At that time government spending dropped by over 50%, from $84 billion in 1945 to $30 billion in 1946.  In addition, 10 million Americans were released from the military and needed to find civilian jobs. Finally, economic controls implemented during the War by the government were lifted.  The economic results were astounding.

While many economists predicted doom with the huge drop in government and military spending after the War, the economy thrived.  By 1947, the government ran a budget surplus of 6% of GDP.  The unemployment was only 4.5% through 1948.

It is clear that the extraordinary government spending programs since 2008 have not helped the economy.  As time marches on there in fact is growing evidence that it these programs instead inhibited economic growth.  In order to stimulate economic activity (growth), the government needs to out of the way and allow entrepreneurs do their thing.

Posted in economics, economy | Tagged: , , , , , , , , , , , , , , | 3 Comments »

GM Loses CFO in Surprise Move

Posted by Steve Markowitz on March 10, 2011

Given that we the taxpayers own a majority interest in General Motors (GM), it is important that we the people follow up its progress to see how our investment is doing.  Today, GM made announcement that is troubling.

GM’s chief financial officer Chris Liddell will be departing on April 1.  In a hastily arranged news conference GM indicated that Lidell, who has no job yet lined up, will be replaced by Treasurer Dan Ammann, who has held that position for only 14 months.

GM has been an executive turn-style ever since the government bailed them out$50 billion.  They have had had four CEOs, as well as changed its top sales, marketing, product development and engineering executives in the past two years

It remains to be seen whether some bad financial news will follow CFO Liddell’s departure.  At the very least the constant executive changes at GM indicate a less than stable corporate environment.

 

Posted in General Motors | Tagged: , , , , , | Leave a Comment »

Consumer Reports Pans the Chevy Volt-II

Posted by Steve Markowitz on March 8, 2011

On March second we posted Consumer Reports Pans the Chevy Volt that reviewed Consumer reports negative view of GM’s electric car.  The posting concluded that: “Had GM survived without the U.S. government’s bailout, the Chevy Volt would have be put out of it misery long ago.  The fact that it survived helps prove the inefficacy of governmental intervention into business ventures.  If private capital won’t risk a product’s development cost, it is not worth developing.”

Blog reader Will disagreed with the negative conclusion about GM and the Chevy Volt, which resulted in a worthwhile exchange included below.

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What you don’t seem to understand is that this country can no longer depend on its enemies for our future energy supplies. GM is gambling that in a few years, the costs can be driven down to surpass gas fuel efficiency. If US companies don’t take risks like this, where are we going to lead. The US has got to be energy self-sufficient. We have to stop being sucker to the ARABS and transferring US wealth to people that hate us. I love the USA…it’s about time we started making moves that protect this country’s future. More nuclear power plants, finding alternatives to petroleum-based products and electric cars makes more sense than allowing the current state of affairs to continue.

This is not about short term profits, but long term viability for GM and the rest of the country as a whole.

Will

Will,

Thank you for taking the time to comment on this Blog’s Chevy Volt posting.  I will reciprocate by making additional comments based on the issues you raise.

1. “What you don’t seem to understand is that this country can no longer depend on its enemies for our future energy supplies.”

I fully understand and appreciate this crucial issue.  I am, however, unwilling to entrust the correction to this problem to a government that has proven incapable of doing so.  Over 30 years ago when the Country imported about 30% of its oil, our government created the Department of Energy (DE) to reverse this trend.  Now we import about 70% of our oil, but the DE still exists, employing thousands and has a multi-billion dollar budget.  Did the DE (government) actually make our dependence on foreign oil worse or are they merely incompetent?  Either answer the government is not the solution.

2. “GM is gambling that in a few years, the costs can be driven down to surpass gas fuel efficiency.  If US companies don’t take risks like this, where are we going to lead.

Risk is good and important in capitalism.  But so is failure, the price capitalists are supposed to pay for imprudent ventures.  Here the government is taking on a “risk” with taxpayer funds, since no private venture would fund it because the numbers just don’t add up, as per my initial posting.  The government repeatable takes on imprudent risks since they are playing with OPM (Other Peoples’ Money)

3. “The US has got to be energy self-sufficient.  We have to stop being sucker to the ARABS and transferring US wealth to people that hate us.  I love the USA…it’s about time we started making moves that protect this country’s future.”

I agree with you completely!

4. “More nuclear power plants, finding alternatives to petroleum-based products and electric cars makes more sense than allowing the current state of affairs to continue.”

Here, I agree with your goal, put not the suggested methodology.  Forgetting the fact that the Chevy Volt’s numbers don’t work, when you plug a car into the grid for charging it is burning fossil fuel.  Once again this is the result of the DE not allowing nuke plants to be built, bending to the same special interst groups that now are against drilling for oil in t the United States.  In the short run we need to drill in the U.S. quickly.  In the medium term, we need more nuke plants.  Only in the long term will new technologies be able to make a significant dent in our dependence on fossil fuels.

5. “This is not about short term profits, but long term viability for GM and the rest of the country as a whole.”

While it is not about the short term for you and me, it is for GM.  They promoted the Volt before the bailout to get short term government backing.  Since the bailout they promote it to keep their largest shareholder, the goventment, happy.

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If we continue to allow the knuckleheads in Washington to run what passes for an energy policy the same way they have for the last four decades, we should expect no better results.  The government’s backing of the Chevy Volt is but another manifestation of their failed policies.

Steve

Posted in Chevy Volt, Energy | Tagged: , , , , , , , | 3 Comments »