RoR: Forum

Nationalizing the automobile industry works conveniently to the advantage of the green Democrats. I have trouble believing this does not influence some of the actions involved. The next step will be to alter the production schedules to supply the market with fewer SUVs and more hybrids regardless of market demands to the contrary.

This is just my shot from the hip based on informed intuition rather than a rigorous analysis.

Post 1

Monday, March 30, 2009 - 8:12am

I think you're right on. Some turkey from Washington will be permanently installed in Detroit in no time at all.

Post 2

Monday, March 30, 2009 - 8:48am

Shall we lay odds that the appointee will not even have a degree in engineering or business?

Post 3

Monday, March 30, 2009 - 9:37am

A 'wet nurse" ?

I read the article. Seems Wagoner did make a lot of positive changes during his tenure, but clearly the burden of the IAW contract has always been the biggest nail in the coffin. The sheer bulk of the changes that needed to be made, and the obstacles to making them, may have been too much for even a sharp CEO.

That this administration at least appears to be suggesting that these union contracts need to be trimmed back, underlines the seriousness of the burden. Democrats must hate telling a union it is too expensive, but even they must admit it is auto maker's biggest problem.

At the same time, of course, the government is pushing this pro-union law that would virtually eliminate anonymity in union vs nonunion votes. Disgusting.

jt
(Edited by Jay Abbott on 3/30, 9:39am)

Post 4

Monday, March 30, 2009 - 9:56am

I actually saw a Michigan representative claim that the companies involved are successful as a reason for the continued auto bailout. One can only hope that they got her to the local stroke center in time.

Post 5

Monday, March 30, 2009 - 10:02am

Luke:

Nationalizing the automobile industry works conveniently to the advantage of the green Democrats. I have trouble believing this does not influence some of the actions involved. The next step will be to alter the production schedules to supply the market with fewer SUVs and more hybrids regardless of market demands to the contrary.

This is just my shot from the hip based on informed intuition rather than a rigorous analysis.

When this happens, no one will buy these cars. But the Democrats will continue to evade reality and use even more force to get these vehicles on the road. First step (already under way) have all government vehicles switched to hybrids made by American auto companies. And give massive tax credits to individuals buying hybrids (also, already done but higher tax credits will probably come soon). Then massive tariffs will be levied against foreign auto imports. Then, higher taxes will be raised on gasoline to incentivize the purchase of these hybrids. And expect more massive subsidies to prop up the American Auto companies.

This is the only way to make American auto companies be profitable again, by resorting to force.

EDIT: I should note the only other way to make them profitable is to lift all the burdensome labor laws that existed prior to the current American Auto crisis. Let them be competitive by freeing them of these burdens, and they will be profitable again. So long as the government continues to levy these burdens on them, the only other way for them to be profitable is what I outlined above, place even more restrictions on the market place.
(Edited by John Armaos on 3/30, 11:27am)

Post 6

Monday, March 30, 2009 - 10:09am

I think you're essentially correct, but I personally don't think increasing tax credits will be as much of a tactic. I'm of the opinion that the credits will quietly be replaced with increased taxes on "undesireable" models. I've already seen "gas guzzler" taxes on some models.

Post 7

Monday, March 30, 2009 - 10:48am

My first reaction to this news was probably similar to most of you, in that I felt a bit of sympathy for Mr. Wagoner. But now it occurs to me that this man was in positions of high authority over GM over the exact 30 years that the company went from the largest and best automobile company in the world, to an industry joke. So today, President Obama states that the problem at GM is a lack of leadership, and ironically, he is correct.

The US auto industry began its decline in the early �70s, with its late �60s cars being the last of its quality products. From the mid-70s on, GM became the producer of good trucks (and the SUVs created on those platforms) and nothing else; the car segment of that industry became a standing joke of low quality, insipid design and horrendous workmanship. The real question that needs to be asked is, what changed?

I don�t intend to discuss the US auto industry in depth; but below are 4 questions, that I believe, if answered honestly, explain what has happened to GM:
1.Compare and contrast the majority of people that worked in the factories and built the cars, the blue-collar workers that worked at GM in the 1950s and 60s, between the majority of the ones that worked there between 1970 and 2010: what are the primary differences?

2. Compare and contrast the majority of managers and executives, the white-collar employers that worked at GM from the 1940s to 60s, to the majority of the ones that worked there between 1970 and 2010: what are their primary differences?

3. Compare and contrast the majority of buyers, the middle class consumers that bought GM products from the 1940s to 60s, to the majority of the ones that bought GM products between 1970 and 2010: what are the primary differences?

4. Compare and contrast American society as a whole (the American culture in general), i.e., the typical set of common �principles� and �convictions� held by the majority of people from the 1940s to 60s, to the majority between 1970 and 2010: what are the primary differences, and how have those difference manifested themselves within academia, buisness, the media, politics and the aesthetic direction taken within the arts?

Of course, you bright folks will probably guess that the answer to number 4, in a sense, answers the previous 3 questions; but I think it�s important to go through the questions that have the more concrete answers, before leaping to the question with the more abstract answers.

And exactly what sympathy am I to supposed to have for GM; a company that of its own accord has chosen to be primarily subsidized by government money, a company within which not a single one of its prominent executives or share-holders have risen to protest in behalf of property rights and econmoic freedom, a company where not a single voice has been heard against governement intrusions and the poor decisions made by the GM executives.

And now, today, the CEO of that company, the CEO of that failed company, today he was �asked �to step down by government officials; and what am I to conclude from this?

I suppose I'll conclude that todays events are nothing more than the law of casuality - in action.

Howard

(Edited by Howard Campbell on 3/30, 11:39am)

Post 8

Monday, March 30, 2009 - 11:21am

Howard:

My first reaction to this news was probably similar to most of you, in that I felt a bit of sympathy for Mr. Wagoner. But now it occurs to me that this man was in positions of high authority over GM over the exact 30 years that the company went from the largest and best automobile company in the world, to an industry joke. So today, President Obama states that the problem at GM is a lack of leadership, and ironically, he is correct.

I believe this is overly simplistic. While certainly we can lay blame at the management of these companies for a failing industry, one can't overlook the overly burdensome labor contracts that have hobbled the American Auto Companies that made them less competitive compared to their foreign competitors who do not share the same burdens. And how are the labor contracts negotiated? By force, by order of a judge following statutory law that makes these companies acquiesce. If the government forces these companies to be less competitive and thereby pushes them to the brink of bankruptcy, why the moral outrage once the company turns to the government asking for loans? Their near-bankruptcy is the responsibility of government interference, so as a businessman, why not demand the government interfere on your behalf and take responsibility for the failure? Isn't this demand for loans after having been forced to near-bankruptcy simply following the law of causality and therefore in your view, justice? The government is responsible for taking the first action, the initiation of force, what happens after that is nothing more than a slow spiral into nationalization. GM is the victim, and so are we.

American Auto Companies for a long while were competitive in a very profitable market niche - SUVs. They were the global leaders in this market and were able to absorb the extra labor costs because these vehicles had a larger mark-up. The quality standards between these vehicles and their foreign counterparts were not with any significant deviation. People did like these American SUVs or they wouldn't have been buying them. What ultimately squashed this competitive advantage was the culmination of two things: Consumer demands for a more fuel efficient vehicles spurred on by rising gas prices and environmental concerns, and a downturn in the economy resulting in lower demand for SUVs because they are largely considered luxury vehicles.

Now the government wants these companies to be competitive in a vehicle niche market (fuel efficient, small cars) that it can't simply be competitive in due to government constraints on how they can do business. It's nothing more than evading reality. They can't both make fuel efficient cars and do so cheaply if the government forces additional costs upon them. So the answer to this by a Socialist run government? Place restrictions on their competitors, loot taxpayer's money and give it to them, structure the tax code to incentivize purchases of these vehicles (meaning punish taxpayers who don't buy these vehicle, and reward taxpayers who do buy them).

And now, today, the CEO of that company, the CEO of that failed company, today he was �asked �to step down by government officials; and what am I to conclude from this?

I suppose I'll conclude that todays events are nothing more than, the law of casuality -in action; or more simply: justice.

You shouldn't consider it justice. Justice would be the government letting the market fix itself, and repealing laws that have been responsible for killing American companies for decades. There is no justice in nationalizing parts of the economy. It's just sad, and distressing.

(Edited by John Armaos on 3/30, 12:00pm)

Post 9

Monday, March 30, 2009 - 11:28am

http://today.msnbc.msn.com/id/26184891/vp/29953967#29953967

Interestingly, I just heard on Limbaugh that the BO administration has already appointed some wet nurse to be installed. He's got a long, odd title (naturally).

Post 10

Monday, March 30, 2009 - 11:37am

re; And now, today, the CEO of that company, the CEO of that failed company, today he was �asked �to step down by government officials; and what am I to conclude from this?

That, when you lie down with dogs, you wake up with a flea collar, and a bed in the doghouse.

Imagine how you would feel, as the CEO of one of the major banks trying to refuse the government subsidy last fall.

"No, we're healthy, we don't want the bailout money."

Then, a rather confused Paulson enforces the following on them: "You have to take the money, or else it will make the troubled banks look bad by comparison, and we must save the industry as a whole."

And then, a few months later, the government rides the populist parade and lurches about adding all kinds of rules on the poisen pill that you were forced to swallow.

Failing banks are supposed to look bad. That is called 'transparency.' Ford should come out of this very strong, as long as they can avoid the government. But, some of that same constructivist nonsense may end up ensnaring Ford by the time this is all said and done. Obama seems intent on putting the 'O' in detritus to give us Detroitus.

This constructivist screw up is going to be spectacular.

There have been mentions in other threads about the resurging popularity of Rand's works on amazon.com top 25 sellers lists, and interest in general. As well, mention of the movie project keeps surfacing, for years. Now seems like the perfect time, from a pure marketing point of view, to release an Atlas Shrugged movie.

The only downside is, people might confuse it for a newsreel.

regards,
Fred

Post 11

Monday, March 30, 2009 - 12:11pm

Obama might really believe he can turn around the automotive industry. When he realizes it's not working he may just settle for letting it operate in a manner similar to the US Postal Service (with annual losses that are simply added to the national debt while the employees' union jobs are safe and their votes in future elections secured). He may then mandate that govt agencies purchase only vehicles manufactured by nationalized companies to ensure he has at least one customer for his overpriced cars. As part of its restructuring plan I'll wager GM expands its production of black sedans for politicians and gets into the armoring side of the business.

Post 12

Monday, March 30, 2009 - 2:33pm

Everybody brings their perspective to this and among us, we share some objective axioms that make the analysis more correct. There is no doubt, as John Armaos pointed out, that government regulations and the general mixed-premise mixed-motive mixed-economy wraps the problem nicely. That said, GM seldom innovated -- though there were exceptions. It was the first US corporation capitalized on $1 million by J. P. Morgan. It began as an "Amalgamated Motors" trust-like entity, more of a holding company, in direct contrast to the "Any Color as Long as it is Black" entrepreneurial model of Henry Ford's Ford Motor Company.

Here are the Chief Executive Officers of the last half-century. Judge for yourself.

Current CEO, appointed by the government:
Fritz Henderson Henderson graduated from the University of Michigan. He joined the auto maker�s Treasurer�s office in New York as a senior analyst in 1984 just after graduating from the Harvard Business School. A string of light-speed promotions followed: Henderson�s was promoted to manager just two years later in 1986 and got another boost, to �director,� the year after that. In 1989, he joined GMAC as director of mortgage banking for New Jersey. A year later, he was made vice president of mortgage banking. He became vice president of finance for GMAC then, in 1994, took over its automotive components group, or ACG, which included Delphi. Henderson�s biggest moment of distinction came when he was president of GM Brazil (c. 1995)

Rick Wagoner received a bachelor's degree in economics from Duke University in 1975. He then attended Harvard Business School, from which he earned an MBA in 1977. After Harvard, he joined GM as an analyst in the treasurer's office. In 1981, he became treasurer of GM's Brazil subsidiary and later served as managing director. In 1992, he was named GM's chief financial officer, in 1994 he became executive vice president and/or president of North American Operations, and in 1998 he was named president and chief operating officer. He became president and chief executive officer in June 2000 and was elected chairman on May 1, 2003.

John Francis "Jack" Smith, Jr.
Bachelor of Business Administration from the University of Massachusetts in 1960 and a Master of Business Administration from Boston University in 1965.
He joined General Motors as a payroll auditor in 1961, moving to its financial group in New York City in 1966. He went on to hold positions ranging from director of international planning to president of GM Canada, president of GM Europe and head of international operations. From 1996 to 2003, Smith was chairman of the board of directors of General Motors, and was that company's CEO from 1992 to 2000.

Robert C. Stempel He received a bachelor of science degree in mechanical engineering from Worcester Polytechnic Institute in 1955 and earned an MBA from Michigan State University in 1970.He joined General Motors in 1958 as a design engineer at Oldsmobile and was key in the development of the front-wheel drive Toronado. He was also involved with the team that created the first catalytic converter.
In 1978, Stempel became General Manager of the Pontiac division and in 1980, he became Managing Director of Adam Opel AG, the German subsidiary of GM. In 1982, he became General Manager of Chevrolet. In January 1984, he became VP and Group Executive in Charge of the Buick-Oldsmobile-Cadillac group. In 1986, he was elected to the board of directors, where he served until he "retired" (the board of directors essentially forced him out, presumably as a "scapegoat" for GM's woes at the time) in 1992.

Roger Bonham Smith Smith earned his bachelor degree in business administration at the University of Michigan in 1947, and his MBA at the University of Michigan Business School in 1953.
Smith seemed to be the last of the old-line GM Chairmen, a conservative, anonymous bureaucrat, resisting change. However, propelled by industry and market conditions, Smith oversaw some of the most fundamental changes in GM's history, although his tenure is commonly viewed as a failure
When Smith took over GM, it was reeling from its first annual loss since the early 1920s. Its reputation had been tarnished by lawsuits, persistent quality problems, bad labor relations, public protests over the installation of Chevrolet engines in Oldsmobiles and by a poorly designed diesel engine. Smith made sweeping changes at GM, which was losing market share to foreign automakers for the first time. He instituted several initiatives that included forming strategic joint ventures with Japanese and Korean automakers, launching the Saturn division, investing heavily in technological automation and robotics, and attempting to rid the company of its risk-averse bureaucracy. Smith's transformation failed to earn consistent profits for GM, while its share of the US market fell from 46% to 35% was the Chairman and CEO of General Motors from 1981 to 1990.

Thomas A. Murphy. Murphy began with GM as a clerk in the controller's office after graduating in 1938 from the University of Illinois with a B.S. in accountancy. During World War II, Murphy served in the Navy for three years before returning to work for GM. He moved up the ranks from controller's office, from finance executive:
VP of car and truck operations
VP of GM 1972-1974
His time at GM was when the automaker was still global leader with a record of 9.55 million cars and trucks sold globally (1978). The impact of the oil embargo in the late 1970s hit GM hard, as well as new policy on safety and regulation. GM remained profitable in the 1980s until Japanese imports began to up the production and lowered costs.
He is credited with saying "General Motors is not in the business of making cars. It is in the business of making money."
He retired from GM as chairman and chief executive in 1980. He was also director from 1980 to 1988.

Post 13

Monday, March 30, 2009 - 6:25pm

Excellent points John Armaos! Particularly important was your point that the government has regulated GM to death.

Stipulating that the CEO quit as part of the bailout agreement does not make the bailout any better. It is still wasting tons of USD holder's money without their permission, and significantly reduces the reliability & value of the USD.

The CEO did not commit a crime as far as I know. It should be up to the company owners on who is hired and fired. Its absolutely ridiculous that the fed is choosing the employees for a private company. Of course, now it is no longer a private company, the fed is buying it... so it seems less of a big deal that it is choosing who it's employees are.

The big deal is that the fed is wasting tons of resources performing functions beyond its role of defending the property of innocent citizens.

Post 14

Monday, March 30, 2009 - 6:44pm

Thanks Dean.

Obama claims he is not running GM, but as far as I can tell, firing management is the definition of running a company.

Post 15

Monday, March 30, 2009 - 7:06pm

Its an old trick. Fascists don't want to "run" anything, they just want total control of operations and profit distribution.

Post 16

Tuesday, March 31, 2009 - 3:04am

Obama claims he is not running GM, but as far as I can tell, firing management is the definition of running a company.

Not to mention covering the warranties of the products produced, and being the deciding factor of what is an acceptable plan for recovery, or not. Obama must think everyone is as stupid as he assumes.

Post 17

Tuesday, March 31, 2009 - 4:51am

TSI wrote:

Obama must think everyone is as stupid as he assumes.

"It may be true that you can't fool all the people all the time, but you can fool enough of them to rule a large country." --Will Durant

Post 18

Tuesday, March 31, 2009 - 4:56am

Integral to the mode of investigation, discovery and explanation within Objectivism, is the truth that all aspects of a problem must be explained without self-contradiction.

The government did not "regulate GM to death." Toyota, BMW, Hyundai and Honda seem to be holding out well enough, and Ford is better off than Chrysler and GM. All of them suffer from fuel efficiency fleet mandates and all benefit from public roads.

The problem of taxation is especially difficult. On the one hand, I reject any claim that a "tax break" is "unfair." If you accept the premise that taxation is theft, then any legislative relief is only holding on to what it yours in the first place. On the other hand, the reality is that if a company enters a town to "provide jobs" and pays no taxes on its property, then the school system, fire department, police, streets, and other infrastructure have to be paid for by others. So, the burden of taxation shifts as some people subsidize the good fortune of others. Untangling that is a challenge, but the first step is to recognize that it is a tangle.

GM benefited from the government's destruction of Hamtramack's "Poletown." The city condemned a community and erased it from the map in order that GM could place there a plant that ultimately did not pay for itself.

If true, free market princples had been applied by the mortgage accountants and payroll auditors and MBAs of GM they would have had to amortize the cost of buying the property against the projected profits from the plant over decades. Instead, GM was handed other people's property free of charge and -- as Objectivism predicts -- they squandered their largess because they did not earn it.

Post 19

Tuesday, March 31, 2009 - 9:45am