My previous entries have evalauted the government’s strategy for the Chrysler reorganization and its impact on Chrysler, its competitors, and the law. I thought it’d be useful to listen to the President himself in order to better understand his design, in this case from the President’s statement of April 30 on the state of the auto industry.
Since his words are carefully chosen, I shall carefully parse them for you. To read it without commentary, go here: to the entire statement by the President on the Chrysler bankruptcy:
Read it, if you like. Otherwise, I’ll do you the favor of translation of what the President might really have been saying. It’s especially enlightening to read following three weeks of events, the impending GM bankruptcy, and the proposed legislation regarding emmissions caps, CAFE standards, and “Cap & Trade.”
Yes, I find it all scary:
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
April 30, 2009
REMARKS BY THE PRESIDENT
ON THE AUTO INDUSTRY
Grand Foyer
12:08 P.M. EDT
THE PRESIDENT: Hey, guys. I know you haven’t seen enough of me lately, so — (laughter.)
One month ago, I spoke about some of the problems that have led to the crisis in the auto industry, and about what would be required to ensure that General Motors and Chrysler emerged from their current troubles stronger and more competitive.
Okay, it’s standard rhetoric, but what does the President really mean by “stronger” and “more competitive”? I don’t believe he’s talking market share here. As we’ll see below, he’s operating from a different set of “principles” than those of a “stronger and more competitive business.”
My team will continue working with General Motors as they strengthen their business plan and move towards restructuring that’s consistent with the principles that I’ve laid out.
And today, after consulting with my Auto Task Force, I can report that the necessary steps have been taken to give one of America’s most storied automakers, Chrysler, a new lease on life.
Old management out. Long live the new management! The “new” here is not a renewed life, but an entirely new one. This is not a renewal, it’s a complete rebuild.
This is a company that has a particular claim on our American identity. It’s a company founded in the early years of the American automobile industry; a company that helped make the 20th century an American Century; and that came to embody, along with the two other members of the Big Three, the ingenuity, the industriousness, and the indomitable spirit of the American people.
Chrysler has not only been an icon of America’s auto industry and a source of pride for generations of American workers; it’s been responsible for helping build our middle class, giving countless Americans the chance to provide for their families, sending their kids to college, saving for a secure retirement. It’s what hundreds of thousands of autoworkers and suppliers and dealers and their families rely on to pay their bills in communities across our industrial Midwest and across our country.
Here is gets ugly. Obama doesn’t realize that the automobile century is not one of the Big Three. That was a creation of the command economy of the 1930s and late 1940s. By 1950 and the Korean War, the Big Three was the auto industry. Before then it was a vigorously diverse, competitive industry with an incredible array of consumer choices.
That the “middle class” is a result of the automobile is true, but not the way the President sees it. For him, unionization created the middle class. In rhetoric, it’s called “correlation” not “connection.” The UAW created a middle class of its workers, but “the” middle class is a creature of far different origins than collective bargaining. It’s a fantasy that unionization created the middle class.
It’s been a pillar of our industrial economy, but, frankly, a pillar that’s been weakened by papering over tough problems and avoiding hard choices. For too long, Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable, and less fuel-efficient than foreign competitors. That’s part of what has brought us to a point where they sought taxpayer assistance.
Here’s where it gets ugly. The accusation is that Chrysler should have been more like Honda. Okay. Let’s see what that would mean: April sales drop of only 25% over April 2008 sales, but claiming the best selling vehicle based on huge consumer incentives and a $1500 bite in profits per vehicle (see Chrysler Drags U.S. Auto Sales to 34% Drop, Trailing Estimates) – but hardly the best selling brand But then, maybe Chrysler should have been more like Hyundai, which only suffered a 14% sales decrease. Or, Chrysler could have been more like Toyota, which fell behind Ford in April sales (dropping 42%), or Nissan, which fell 38% in sales.
What the President is saying is not that Chrysler should make smaller cars, but that consumers should buy smaller cars that Chrysler ought to be making.
But as I’ve said from the start, we simply cannot keep this company, or any company, afloat on an endless supply of tax dollars. My job, as President, is to ensure that if tax dollars are being put on the line, they are being invested in a real fix that will make Chrysler more competitive.
More dictation of consumer choice: the only way the government can guarantee Chrysler’s success is by skewing the market to Chrysler’s favor. And it won’t be by freeing consumers to choose, for they’d go and choose the kind of cars Obama does not like. The equation is all too simple, and all so ugly.
That’s why I rejected the original restructuring plan that Chrysler offered last month. It was clear that if we put tax dollars in that plan, it would be a bad deal for American taxpayers and would not put the company on a viable path. But it’s also clear that if Chrysler was able to form a partnership with the international car company Fiat, there was a chance Chrysler could have a bright future.
This one is amazing: “that’s why I rejected…” Wow.
After consulting with my Auto Task Force, industry experts, and financial advisors, I decided to give Chrysler and Fiat 30 days to reach an agreement. And the standard I set was high — I challenged them to design a plan that would protect American jobs, American taxpayers, and the future of a great American car company. But over the past month, seemingly insurmountable obstacles have been overcome, and Chrysler’s most important stakeholders — from the United Auto Workers to Chrysler’s largest lenders, from its own — from its former owners to its suppliers — have agreed to make major sacrifices.
A touch of honesty here: “Chrysler’s most important stakeholders” –>> the UAW. The rest — the lenders, “former owners” (still the owners, btw), and suppliers — were discarded in the government deal.
So, today, I am pleased to announce that Chrysler and Fiat have formed a partnership that has a strong chance of success. It’s a partnership that will save more than 30,000 jobs at Chrysler, and tens of thousands of jobs at suppliers, dealers and other businesses that rely on this company.
It’s a partnership that the federal government will support by making additional loans that are consistent with what I outlined last month. As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler. In addition, considering Chrysler’s extensive operations in Canada, the government of Canada is also committing resources to ensure that Chrysler has a chance to succeed, and we’re working closely with them.
This is assuming the bankruptcy is a done deal as this “partnership” has demanded upon the courts, creditors, and the government “partners.” Oh — and consumers, eventually.
It’s a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry. Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry, and as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technology to Chrysler to help them do the same. Fiat is also committed to working with Chrysler to build new fuel-efficient cars and engines right here in America.
This one is interesting to me: Fiat specializes in small cars, not in alternative fuel cars. Obama wants to mandate small cars. Otherwise, there’s no reason for Fiat.
Now, this partnership was only possible because of unprecedented sacrifices on the part of Chrysler’s stakeholders, who are willing to give something up so that this company — and all of the men and women whose livelihoods depend on it — might see a better day. Chrysler’s management, and in particular, its CEO, Robert Nardelli, have played a positive and constructive role throughout this process. The United Auto Workers, who had already made painful concessions, agreed to further cuts in wages and benefits; cuts that will help Chrysler survive, making it possible for so many workers to keep their jobs and about 170,000 retirees and their families to keep their health care.
Or, they could have lost everything in a real bankruptcy.
Several major financial institutions, led by J.P. Morgan, agreed to reduce their debt to less than one-third of its face value to help free Chrysler from its crushing obligations. The German automaker, Daimler, agreed to give up its stake in Chrysler and contribute to the company’s pension plan, further easing Chrysler’s financial burden. And countless Americans across our country will be making major sacrifices, as well, as a result of plans to consolidate dealers, brands, and product lines.
While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them. I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don’t stand with those who held out when everybody else is making sacrifices. And that’s why I’m supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.
Please re-read this one. Rule of man, not of law.
No one should be confused about what a bankruptcy process means. This is not a sign of weakness, but rather one more step on a clearly charted path to Chrysler’s revival. Because of the fact that the UAW and many of the banks, the biggest stakeholders in this whole process have already aligned, have already agreed, this process will be quick. It will be efficient. It’s designed to deal with those last few holdouts, and it will be controlled. It will not disrupt the lives of the people who work at Chrysler or live in communities that depend on it. And it will not affect the ability of American consumers to buy a Chrysler, or to get it serviced and repaired. It’s a process that has the full support of Chrysler’s key stakeholders and the full backing of the United States government. And I have every confidence that Chrysler will emerge from this process stronger and more competitive.
“No one should be confused” as to what kind of a fraud that is this “bankruptcy.” A little honesty would speak to what it is: a survival plan for the UAW.
I know that there are some who will insist that bankruptcy, even for these limited purposes, is a step that should not have been taken. But it was unsustainable to let enormous liabilities remain on Chrysler’s books, and it was unacceptable to let a small group of speculators endanger Chrysler’s future by refusing to sacrifice like everyone else. So I recognize that the path we’re taking is hard. But as is often the case, the hard path is the right one.
Changing the topic: no one can possibly question the financial situation of Chrysler and the need for bankruptcy. That’s a fact. What should be questioned here is the government response to it. The President is downright misleading in this paragraph.
The path we’re taking also involves steps to shore up financing, because we cannot have viable car companies without strong car financing companies. It’s now clear that Chrysler Financial — the institution that finances Chrysler cars and dealers — would on its own require an unacceptably large stream of taxpayer money to remain viable — and that’s something I refuse to provide. And that is why, as part of this agreement, GMAC, an independent bank holding company that finances General Motors, has agreed to finance new Chrysler sales. We will be providing additional capital to GMAC to help unlock our frozen credit markets and free up lending so that consumers can get auto loans and dealers can finance their inventories; a measure that will help stabilize not only our auto market, but the broader economy, as well. And tomorrow, the Small Business Administration will be announcing it is expanding eligibility for some loans to include more suppliers and dealers, including RV dealers.
And guess what will happen to GMAC as soon as GM goes through another such “bankruptcy” as Chrysler.
So these are some of the steps that we’re taking to make it easier for Americans to buy a car. If you are considering buying a car, I hope it will be an American car. I want to remind you that if you decide to buy a Chrysler, your warrantee will be safe — because it is backed by the United States government. And to further boost demand for autos, we are working to accelerate the purchase of a federal fleet, and we’re also working with Congress on fleet modernization legislation that can provide a credit to consumers who turn in old cars and purchase cleaner, more fuel-efficient cars.
Please re-read this one, too. These seemingly innocuous little “steps” are 1) hardly small; and 2) just a start. Competitors beware.
As pleased as I am about today’s announcement and about the opportunity Chrysler has to remake itself, we know that far too many Americans in far too many communities are still struggling, as a result of layoffs not only at plants that produce cars, but at the businesses that produce the parts that go into them and at the dealers that sell and repair them. And that’s why, as I discussed the last time we gathered here to talk about autos, I’ve named Ed Montgomery to be the Director of Recovery for Auto Communities and Workers. Ed will be traveling to Michigan next week with representatives from all the key government agencies represented here, reaching out to our hardest-hit areas, cutting through red tape, ensuring that the full resources of the federal government are getting to the workers, the families, and communities that need it the most.
Now, these are challenging times for America’s auto industry and for the American people. But I am confident that if we as a nation can act with the same sense of shared sacrifice and shared purpose that’s been shown by so many of Chrysler’s stakeholders, if we can embrace the idea that we’re all in it together — from the union hall to the boardroom to the halls of Congress — then we will succeed not only with Chrysler, we will not only see our American auto industry rise again, but we will rebuild our entire economy and make the 21st century another American Century.
The final deciept, willing or not, is that the President has entirley ignored the causes of the automotive business. He blames Chyrsler’s predicament on its uncompetitiveness, yet he give nothing to those conditions that led to the situation. He might start with government-imposed collective bargaining, government regulations that skewed the market towards an unhealthy combination of big and small (SUVS and economy cars, with the family car regulated out of existence through CAFE), and the cummulative uncompetitive conditions of manufacturing in the rust belt.
For a touch on the “legacy costs” of GM, Chrysler, and Ford, please refer to Brian Sullivan’s take from his Fox blog:
The Wall Street Journal describes the primary terms around the $17.4 billion dollar loan as:
The deal’s ambitious targets for the companies include replacing two-thirds of their debt with stock; using more stock instead of cash to fund retiree health-care obligations; eliminating much-criticized union “jobs banks” that pay laid-off auto workers; and establishing wage structures and workplace rules that are more competitive with foreign rivals.
Notice the pension costs faced by GM and Chrysler are not even discussed. They are obvious in their absence. It is clear that the pensions are sacrosanct, the cow so sacred that it dare not even be discussed. Sadly, that cow is also the one kicking the lamp over in the barn and setting off the inferno.
Reference again the New York Times story a week ago laying out the cost differences between the domestic and foreign auto companies. According to the article, on average GM, Ford and Chrysler pay $3 per hour more in actual wages, $5 per hour more in vacation and overtime, just $1 per more in current benefits, but a whopping $13 per hour more in legacy costs such as pensions. Put another way, the legacy costs per worker per hour are more than all the other higher costs combined. Yet the UAW, automakers and the government only continue to discuss the wages and health care issues and leave the real problem of pension reform presumably to the imagination.
The problem is growing worse by the year, as the UAW workforce continues to age and place an increased burden on the companies. Check out this page from the UAW’s own website, written back in 2003. It notes that the average age of a GM/Delphi worker was 48.9 that year with the average length of service at 23.3. 30 years of service is the primary retirement figure. This means that in less than 7 years (2010, as this article was written in 2003) most GM/Delphi workers would be eligible to retire with full benefits. All the the ripe old age of 56.
We have made great progress. We can make great American cars. Chrysler and GM are going to come back. And I am very confident that we’re going to be able to make once again the U.S. auto industry the best auto industry in the world.
And I want to thank my entire auto team who worked so diligently on what I consider to be a much better outcome than it looked like we were going to see 30 days ago.
Thank you very much, everybody.
END
12:20 P.M. EDT
Watch these words reformulate and bend around the next steps:
1) GM “bankruptcy” w/ government and UAW ownership
2) Government incentives to purchase Chrysler & GM vehicles
3) Government “disincentives” to purchase the competition
4) Emmisions caps to force small car production
5) CAFE standards rise for same
6) Gasoline tax for same
7) Other regulatory responses to the invetibable consumer revolt against market mandates.