Brain-Jockey

I Want My SUV: More Unintended Consequences On The Horizon

Written by Audrie Zettick on April 27, 2009

Being involved in government policy making is like watching sausage being made: after you’ve seen it done, you want no part of it. 

 

Guess that’s why I managed to escape my policy stints in some of the world’s largest government bureaucracies with a modicum of increased wisdom based on experience and a healthy dose of skepticism about government.  Among my lessons: 

 

Always assume your first try at a new policy won’t go as planned.  Triple the probability of it going wrong if you’re hell-bent on rocketing warp speed toward change. 

 

For good or ill (and usually for ill), there will be unintended consequences. Among many misfires we have had this year:

 

·         Banks on the dole.  Call it corporate welfare, bailout or stimulus, I was amused to see the supposedly strange (but predictable) behavior of some financial institutions: buying jets, remodeling offices and the like. (Reminder at old Slate article here:  I See Dead Bankers! Wall Street has become The Sixth Sense-filled with corpses who think they’re still alive.)

 

·         A knee jerk reaction as the U.S. House passed a bill requiring a whopping 90% tax on bonuses at AIG and other institutions that took TARP money–but it turns out many of these folks were working under a retention contract which promised them pay after they stayed a set length of time…and many were with the financially-healthy subsidiaries of AIG. So are we surprised when the talent needed at companies like this flee? Or that other financial institutions, hesitant to face micromanagement by the feds are scurrying to pay back TARP funds rather than stick with the Obama plan?  Oh, then there’s that problem with the bill being unconstitutional.

 

·         U.S. automakers GM and Chrysler had to be thrown multiple lifelines in the form of $17.4 billion to avoid bankruptcy, but it’s only the threat of that very bankruptcy that has resulted in movement toward hauling in labor and healthcare costs (see Chrysler in Canada here). 

 

Which leads me to the next unintended outcome of any new “economic stimulus” measures:  The success of car companies like KIA. 

 

With the U.S. government at the helm of GM and Chrysler, market forces go out the window.  President Obama has made it clear that he will “remake” the U.S. auto industry, ”forcing” consumers into smaller cars that are clean, economical and green.  During his campaign, he scolded auto makers for focusing on popular SUVS and not cars with improved fuel efficiency.     

 

 

Yet, KIA is currently building their first U.S. auto plant where their value-priced SUV, the Sorento, will be built.  My neighbors, many of whom had trailers hooked to their big SUVs at the recycling center this past Saturday to pick up free mulch, will be glad to know at least one company will still provide an SUV.    

 

Sweden To GM: A Fickle Finger

Written by Audrie Zettick on March 23, 2009

A while back, I wrote about how Bailouts Are Blarney, with the Irish government refusing to bailout failing Waterford Wedgwood PLC, their famous maker of crystal. 

 

Now, Sweden has put the kibash on bailing out failing Saab.  Who’d a “thunk” it?  This from a country that nationalized its banks.   Seems a bit fickle.

 

With GM’s withdrawal from Saab, the company filed for protection from creditors.  GM’s bankruptcy, of course, would have forced renegotiation of the union contracts that have hogtied any chance of the renewal of the automaker.

 

Mind you, GM is the one blamed for destroying the Saab brand; known for its uniqueness and quirkiness, sales plummeted drastically after GM purchased the brand. Once a small but highly-sought brand based on its performance, the brand image became muddied once GM started inserting parts from Opel and making changes to try to compete against BMW. 

 

The Swedish government saying “no” to a Saab bailout is probably akin to giving the U.S. automaker the finger.   

Give Back the Bucks Before Bailout Redux

Written by Audrie Zettick on December 12, 2008

This latest round of bailout mania was similar to buying new tires for a car that really needs a transmission overhaul.  Nice idea, might be needed, but ultimately won’t make much of a difference.

 

  

At the start of bailout mania, it was common knowledge that the companies in trouble from the financial industry were among the biggest contributors to Federal candidates.  Since 2002, the financial sector has given more than $1.1 billion to congressional candidates. This isn’t a partisan issue, it crosses party lines.  

  

And now comes the auto bailout.  

  

 

Some might claim money doesn’t talk, but in this case, it’s screaming.  According to the nonpartisan Center for Responsive Politics (which runs the website OpenSecret.org), House members who voted for the bailout received significantly more money than those who did not.

 

  

“House Democrats voting to bail out Detroit’s Big Three have collected 44 percent more money, on average, from auto manufacturers, dealers and unions than Democratic opponents of the bill. Republican supporters have collected 62 percent more than opponents in their party.”

 

 Can’t wait to see the Senate figures.

 

 

 Bankruptcy versus Bailout: Where Money Counts 

 

 

For the automakers, one of the major differences between the option of bankruptcy and the government bailout is the effect on the unions.  Bankruptcy would virtually guarantee that union contracts become null and void and/or must be renegotiated. With a government bailout, there is no guarantee of union concessions.  (As a condition of the bailout, Sen. McConnell fought for a legislative alternative that would have required the unions would lower their wages to equal those of foreign car manufacturers who had plants in the U.S.–it didn’t fly)

 

 

This why we should all be worried about bailout redux: the United Auto Workers PAC gave $1,899,950  to Democrats in the 2008 election ($12,500 was also given to Republicans……this maybe buys a lug nut, not new tires).  

 

 

The money being thrown around by the auto industry itself is more evenly distributed  but GM, Chrysler and Ford still gave significant money.  Auto dealers traditionally give more to Republicans, most likely because their perspective is small business…policies traditionally supported by the GOP.  

 

 

 

Nancy Pelosi, in the 2008 cycle, received  $10,000 from the AFL-CIO  (which includes the United Auto Workers.  Rahm Emanuel received $4,000 directly from the UAW. Might sound paltry until you look at the big picture:    

 

 

“The UAW ranks 16^th in “heavy hitters”  for donations since 1989 — having given $25,188,550 (98% to Democrats)”

 

 

As Politico.com reported, Chrysler, GM and Ford spent $926,500 on federal candidates and political committees in 2008 — $167,500 of it during the period between Oct. 16 and Nov. 24 alone.

 

 

Since analysis shows a trend in how members of Congress vote on this issue based on donations, I call on our elected officials to give back the 2008 donations that appear to be creating a conflict of interest.

 

 

No new tires…..I want a new transmission.  

Buying In to Bankruptcy

Written by Audrie Zettick on November 20, 2008

Heritage Foundation’s Morning Bell today shone a light on the need for GM to be financially responsible to stakeholders by making plans for bankruptcy (even if only included in a back-up plan).  Drawing on a WSJ article, they noted that Americans are accustomed to buying from bankrupt organizations. 

 

Some in the mainstream media (MSM) as well a few (conservative?) pundits have tried to make the point that the bailout is preferable to bankruptcy.  Primarily, their argument is twofold: 1) consumers would cease to buy vehicles from the Big 3 and 2) GM would find it difficult to get funding after bankruptcy. 

 

I don’t buy these arguments.   On the first point, why would consumers stop buying from GM?  We fly airlines which are in bankruptcy proceedings and don’t seem to be concerned that the jets will fall from the sky.  I take my car to the local garage (not always the dealership) and, if Ford disappeared, I have confidence I could continue to get it repaired (it’s run great so far, in spite of 126,000 miles of wear).  With so many vehicles already on the road, demand for parts would continue, although admittedly there would be some shake up in the supply chain with the Big 3 cutting back on production (but isn’t overproduction one of the issues anyway–see my post on this).

 

Rick Newman at US News and World Report observes the many ways that GM could benefit from bankruptcy, not the least of which is the opportunity for real reform.  Reform would include the need to condense their divisions, which contain a great deal of overlap between the models in the various lines (but union contract renegotiation comes to mind too).  I’ve frankly never quite understood (aside from some production savings) why the Big 3 historically had cars that were virtual images of each other in different lines (look, there’s Ford Taurus, no, wait, it’s a Mercury Sable).  

 

Not everyone is concerned with GM’s ability to get financing post-bankruptcy.  Newman, among others, notes that

A bankruptcy filing doesn’t mean GM would go out of business. Some bankrupt companies do, but many write off debt, shed costs, dissolve unprofitable divisions, and emerge as healthier companies.

 

You can’t tell me that there isn’t value in their brand, the number of past customers and the future plans for new vehicles (see Newman’s Ten Cars That Could Salvage Detroit ).  Yes, GM would take a hit, but some saavy investors would step in with funds.  Let the free market reign.