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Posts Tagged ‘overbuilding’

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”.

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