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This is my effort to share my thoughts with readers about concerns facing our country today.  I believe there is a good chance my grandchildren may be the first generation in the history of this great country not to have a better standard of living than their parents. If so, our generation is to blame. The clock is running out for damage control. .

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Wednesday
Nov192008

When GMC becomes EMC

Here's how it goes down. The Republicans don't bail GM out. Obama takes office.

Arnold, the Terminator, who has been lobbying to let California set a higher standard for carbon emissions than the rest of the country, gets his wish. By executive order, California is now on a stricter CO-2 standard.  Now, GM, who can't sell the fuel efficient cars they make in other parts of the world in the U.S. , can't even sell any cars in California. 

Congress bails GM out  Why? They appease two groups they owe, big time, the UAW and the environmentalists. How?

First, GM, or now EMC, or Environmental Motors Corporation, keeps everything in place with the UAW, no concessions, or only those the government covers in addition to the bail out. This pension and job bank coverage by the government costs $15 billion.  But, GM must make the cars the government demands. Cars that meet the new California standards.

But, no one wants those cars, even most people in California who keep driving their old cars, or buy better made foreign cars. Most consumers believe GM will still fail and want no part of their warranties.  . Now, the government puts incentives on those cars, big incentives. No one buys.

So far the bail out is $50 billion, up front, another $20 billion to retool. Only $15 billion to cover the pension obligations to retired GM workers.  Another $20 billion two years later to cover cash flow. A few billion for the incentives to get people to buy the cars no one wants. 

EMC goes into bankruptcy. The debts have been paid to the UAW and the Sierra Club. The losers, the American taxpayers who shelled out over $100 billion for something no one thought would work, even the people who did it. The blue collar workers who lost their jobs at GM and the hundreds of others who lost theirs because the California experiment was rolled out across the country and it cost 3,000,000 jobs in lost manufacturing. The consumer who had their utility bills go up 100% because of the carbon tax. Plus, the gasoline prices went up $3.00 a gallon due to carbon tax and windfall profits taxes that were passed through.  

The recession is a depression. No one will even be "bailed out" again in this country. The GM fiasco did it for all time.

The good news. Global warming is no longer consensus science. Hundreds of scientists have come forward and presented data to refute the theory. Consensus science is now that carbon dioxide does not contribute to global warming. Billions have been spent for nothing. All carbon taxes have been revoked. Some manufacturing is coming back to the U.S. Onerous taxes on corporations have been lifted. Card check has been revoked by the new congress. Right to work laws are now in all 50 states.

The economy is beginning to turn around. Hard core environmentalists are scarce. California, which started it all, is beginning to recover from bankruptcy. As is Michigan and New York. People are starting to move back to the blue states, these states had lost 15% of their populations. 

It's 2011 and reality has returned to America and none too soon. Obama is not running for a second term. Hillary trails Bobby Jindal in the polls by 15%, the largest margin at this point since polls were taken.    

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Reader Comments (4)

I think GM and the big 3 will have to wait until after Obama gets into office on January 20th, because the Republicans and Bush won’t agree to bail them out. The Democrats postponed a vote yesterday, because they new it would not get passed.

The Auto Workers don’t want to give up anything, so I say, let them fail. It’s time to let the unions know they don’t run our US Companies and all they are going to accomplish is putting the businesses they work for out of business and will lose millions of outdated union jobs.

We have seen the market fall over 7000 points and not sure what they think they are going to prove if they continue to try and bust those companies who provide the jobs we need to get this country moving again.

It’s time to stop the bail outs and perhaps only then will we see progress made. It’s time for a little Tuff Love. It’s for their own good.

November 20, 2008 | Unregistered CommenterKen Dozier

Bill,
I agree that we should not be bailing out GM. Mostly, I feel this way because if we do bail out GM, then who's next at the public trough? We've already got the retail industry lining up.

I think that bankruptcy court is a logical approach for most companies that find themselves in GM's situation. It is likely that a bankruptcy filing would allow GM to get out from under it's huge obligations to it's retirees (estimated to add roughly $2000 to the cost of every GM car). However, those retirees can't be left out in the cold so it's likely that the PBGC would have to step in, at significant cost to the taxpayer. Bankruptcy would allow GM to win new concessions from it's labor unions. I think that GM would continue as an ongoing entity, tho smaller, with a substantial impact on the companies in GM's supply chain and the workers of those companies. Workers would begin to receive unemployment compensation from the government, at significant cost to the taxpayer. Some of these companies would fail.

With a bankruptcy filing, there is a significant risk that GM's sales will fall precipitously (don't say that nobody is buying their cars and trucks now.... our pizza night group owns a total of 6 GM cars or trucks). Who is going to make a significant, long-term purchase from a company that may not be around to honor it's warranty? This would cause additional short- and medium-term pain to the American economy as such a bankruptcy rippled through the economy. Even more of the companies in GM's supply chain would fail and their workers would be thrown out of work, resulting in more significant expense to the taxpayer.

So, in my opinion, a bankruptcy filing would very likely result in significant expense to the taxpayer even if we didn't spend a dime to "bail out" the company.

Therefore, this liberal would like to see the following: loans or loan guarantees to GM that will allow it to survive (and not exacerbate) this economic downtown. No way should we be nationalizing the auto industry like the Republicans have done to the financial services industry. This would also avoid the possibility of your objection coming to pass, where Washington DC decides what cars and trucks to build. Built into any agreement for the government's support would be the removal of the management of GM and it's labor unions. Also built in would be cuts in their white-collar workforce and concessions from the labor unions.

The government is in a great bargaining position and they should use that leverage to forge an agreement that allows GM to stay out of bankruptcy but still provides some of the benefits that a bankruptcy would bring. Neither side (management or labor) should come out of this episode happy. It is the taxpayer that is taking on risk and the taxpayer should be first in line to reap any rewards.

We find ourselves in a situation with mostly bad choices. We need to figure out what is "least bad" and I think my solution does that.

What is your solution?

November 20, 2008 | Unregistered CommenterChris Johnson

From Thomas Friedman's November 11th column:
I am as terrified as anyone of the domino effect on industry and workers if G.M. were to collapse. But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.

“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”

November 20, 2008 | Unregistered CommenterChris Johnson

Chris:
There are many concessions that have to granted by governments. First, they can't reduce their dealer count due to state laws. They need relief to do that. They have 8,000, Toyoto sells the same number of cars through 1,500. The Feds have to sit with the UAW and get their agreement. Expecting a struggling industry to retool to meet environmentalists' dreams is unrealistic.
Basically, GM is a broken business model. The culture is too deep to change. It has to be rebuilt from top to bottom. Big job, no time.

November 20, 2008 | Unregistered Commenterbill robertson

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