Friday, July 30, 2010

Obama Touting Auto Turnaround And Jobs Saved/Created

How exactly did President Obama save the auto industry with the bailout as numerous articles are professing? The billions went into the gaping maw of GM and Chrysler and both were forced into bankruptcy to reorganize. It was the reorganization of both companies - and the shedding of tens of billions in debts and obligations that saddled both companies with contracts that made them incapable of competing in a global marketplace that may have helped bring both companies into the black for a single quarter in 2010.

Ford managed to do so - without a single dollar of federal bailout funds.

GM pulled an operating profit, but it's underlying numbers are still putrid. The company is betting the farm on the Chevy Volt, the economics of which isn't going to make a profit for the company anytime soon. And the name of the game is making profits. If the company can't produce cars at a profit on a consistent basis, then it will again slide into the red in a big way.

Chrysler somehow managed an operating profit as well.

How did those occur? The bankruptcy reorganizations allowed both to shed bad contracts and rejigger their finances, including some parts of awful deals with the unions (including the jobs bank). However, the companies are anything but on solid financial footing because they still can't quite make a profit on the sale of individual cars. Instead, GM recently signaled its intention to acquire a lender so that it can once again begin provide financing to subprime borrowers (sound familiar?).

And the same result could have been had without federal intervention had GM or Chrysler sought bankruptcy reorganization prior to the federal infusion of funds (the Bush bailouts - which were followed by Obama's own bailouts). Bush didn't want the bankruptcy/reorganizations on his watch, so Bush pushed the bailout to dump the mess in Obama's lap. Obama doubled down with his own bailout putting taxpayer dollars on the hook.

No - the bailouts didn't save jobs and the Obama Administration didn't save 55,000 jobs as they're contending.

The reorganizations of both companies that enabled them to shed the bad deals did. And all that bad debt is still around - in Old GMCo, which consolidated all the bad debts and liquidated facilities under one toxic entity.

Reorganization could have been done in 2009 without affecting the Treasury and without the federal interference. Heck, GM and Chrysler could have followed Ford's route in 2007-2009 by making substantive and serious changes to their entire corporate operations. Instead, they limped into government's open arms.

And now President Obama thinks he can take credit for a process of reorganization that should have been done long ago and without a dollar of taxpayer funds to enable the companies to limp along just a little while longer out of political expediency by all involved.

Obama misstated the strength of the Small 3 automakers:
Following the government-led bankruptcies of GM and Chrysler, the companies have shown signs of improvement. Obama said that all three U.S. automakers are "operating at a profit, for the first time in six years."

But the claim that all three Detroit automakers are making money isn't quite true. GM and Ford are making money, but Chrysler has yet to post a net profit since leaving bankruptcy protection in June of last year.

The company had a first-quarter net loss of $197 million, but it made $143 million before interest and taxes. Chrysler's last full-year profit was in 2005, when it made $1.8 billion.
And again - Ford did so without taking a federal bailout. Since Ford managed to do without a bailout, so too should have GM or Chrysler. The bailout instead allowed both companies to avoid making tough decisions and enabled the unions to gain unnecessary control when the unions themselves were a major part of the problem with costs.

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