GM is the worst company on earth

Here are a series of three letters written to Congressman Frank Wolf (who I've voted for in the past) during the GM/Chrysler/Ford bailout:

Letter One

November 20, 2008

Dear Congressman Wolf,

I was happy to vote for you this past November 4 and I look forward to your efforts these next two years to get our nation back on track.

My decision to write you was spurred by the sick feeling I felt as I read article after article discussing the possibility or, I dread, inevitability, of a taxpayer funded bailout of several American car companies.

I understand the proponents of this action contend that the US auto industry -- Ford, General Motors and Chrysler in particular -- employ hundreds of thousands of people directly and many more hundreds of thousands indirectly and so bankruptcy would be disastrous to our economy. This argument portends poorly for the future of our economy and consequently our prosperity if the failure of a large company is the trigger for federal government intervention. Calling this argument a slippery slope does not begin to do justice to the disastrous consequences of this precedent. One only has to begin listing the number of companies that employ tens if not hundreds of thousands of people to understand the gravity of this action.

I am disturbed by the possibility of a $25,000,000,000.00 handout to the “Big Three” for two reasons: one, I disapprove of government action into the economy on behalf of shareholder owned companies and two, I cannot see how the government will be able to give away $25,000,000,000.00 and effectively protect our investment in these companies.

On the first point, I oppose attempts by the government to influence the economy because the government will invariably disturb the market forces which keep things in order. Henry David Thoreau described it best in his essay, Civil Disobedience:

“For government is an expedient, by which men would fain succeed in letting one another alone; and, as has been said, when it is most expedient, the governed are most let alone by it. Trade and commerce, if they were not made of india-rubber, would never manage to bounce over obstacles which legislators are continually putting in their way; and if one were to judge these men wholly by the effects of their actions and not partly by their intentions, they would deserve to be classed and punished with those mischievious persons who put obstructions on the railroads.”

For example, Congressional action in the housing market is partially responsible for the housing bubble and subsequent bursting of that bubble. Because Congress considers itself all knowing and all powerful, it proclaimed that home ownership is good. This proclamation wasn’t enough, however, and Congress took action that was, in my opinion, constitutionally questionable and most certainly imprudent by asking the FDIC to rank banks according to their efforts to lend in certain areas and to certain people. Now FDIC insured banks are forced to do what the Congress decreed is good because their ability to merge or acquire other banks depends on this evaluation. Why is the Congress getting in the business of telling banks where and to whom they should lend? Why does the Congress assume it is wise in matters of lending and borrowing money? Because it is the largest borrower in the world?

It would belabor the point to discuss Freddie Mac and Fannie Mae as another example of government influence in our economy, which is now coming back to haunt us. Suffice it to say that once again the government has let its arrogance disrupt the controlling forces of our economy and put our nation at risk.

On the second point, how can we lend billions of dollars to the auto industry and hope to see that money again if the “Big Three” are straddled with debt and probably not capable of emerging from a bankruptcy? If the answer is that we cannot, then to consider the merit of such a handout is absurd. If the past of the US auto industry has any ability to foreshadow, then these car companies are doomed to fail with or without our money and any taxpayer handout is thus sentenced to be buried with these companies.

I understand that the Congress has slowly grown more powerful and bloated since the ratifying of our Constitution, and to ignore that fact would be to ignore reality, but just because a wrong has been allowed to perpetuate before should not excuse further abuses. I made sure I re-read the Constitution to be certain that there is no clause giving the legislature the power to intervene in the economy in the way that is now proposed. The power to collect taxes, borrow money and regulate commerce among the several states seem most pertinent to the current situation, but none suggests that the US government should support certain shareholder held companies over others or prop up sick companies because of potential effects on the economy.

Even if we combine the necessary and proper clause with the three previously mentioned clauses and the US government’s duty to ensure the general welfare, it is a stretch to sanction a taxpayer handout to the US auto industry.

I wish more members of our Congress spent their time discussing the ideas of James Madison, Thomas Paine, Henry Thoreau and other great Americans instead of the implications of a taxpayer handout to the US auto industry. In fact, I would prefer Congress debate the specifics of a bill to mint a coin commemorating the Civil Rights Act of 1964 (HR 2040) rather than the bailout of a publicly owned company because at least coining money is among the powers given to Congress.

Sincerely,


Michael


Letter Two


November 28, 2008

Dear Congressman Wolf,

I write to you again on the subject of a potential taxpayer bailout of the US auto industry because of an August 20, 1979 Time article I found describing the environment surrounding discussions of the eventual bailout of Chrysler. The most interesting aspects of the article were the incredible similarities between the economic conditions then and now and the state of Chrysler then and now. Here are just a few examples:

Then: “Its managers, said [Treasury Secretary G. William] Miller, must draw up ‘an acceptable financial and operating plan’ for dealing with the company’s short- and long-term problems as well as spelling out its cash needs.”

Now: “The Bush administration yesterday said Detroit's Big Three automakers must show they have a plan to ensure their financial viability if they are to win support for emergency loans to help them through the current financial crisis.” (http://www.washingtonpost.com/wp-dyn/content/article/2008/11/25/AR2008112502568.html).

Then: “Iacocca disclosed that the company [Chrysler] was considering dramatic cash rebates to customers of up to $500 a car; the aim would be to clear its staggering factory stockpile of nearly 80,000 unsold vehicles, valued at just under $700 million.”

Now: Chrysler is offering at least $1000 cash back on all of their vehicles and in some cases $6000 cash back. It is also offering 0% APR on all of its cars for the first 24 months. See enclosed incentives sheet.

Then: “The company [Chrysler] specialized in making larger cars, vans and recreational vehicles. Since the gas crisis started, sales of these relics have, in Iacocca’s words, ‘been dropping like a rock.’” This is despite the fact that in 1975 “the public was demanding smaller, more fuel-efficient cars.”

Now: High gas prices have once again shifted public demand for smaller, more fuel efficient cars and once again Chrysler and the other two major US car manufacturers are left in the dust.

Then: “As for sacrifices…top managers could well announce token salary cuts and the sale of the company’s three corporate jets.”

Now: GM is reducing its leased fleet from seven planes last year to three, but the stigma remains.” (http://www.msnbc.msn.com/id/27840322/page/2/)

It is amazing how similar Chrysler’s condition in 1979 is to it’s, and Ford's and GM’s, situation today: the problems are the same and the proposed solutions are the same. It is possible that Chrysler is just the victim of bad fortune and it is only a matter of fate that it finds itself in the same predicament in 2008 as 1979. Accepting that suggestion, however, would stretch credulity to its breaking point. Chrysler and now the other two major US car manufacturers are on the brink of bankruptcy because they operate on a flawed business model; a model that is made entirely too complicated by Federal regulation and union agreements. These car companies cannot be successful and should not be expected to be successful under the weight of these burdens.

How to solve the problem? I am not an economist nor am I an industry insider, but I can say with conviction that the solution is not to allow these companies to simply pay lip service to their problems and secure taxpayer money to prolong the inevitable. There needs to be a radical change; a proverbial changing of the guard. If this means bankruptcy, new ownership, interim job loss and a further deteriorated economy, then so be it. It would be much worse to prop up these companies further without solving the problem because the potential future losses will be borne by someone: either Chrysler’s shareholders and debt holders or the American public. The former willingly engaged in business with Chrysler and understood the risks while the latter, a large majority of whom have no interest in Chrysler or encouraging their failed policies, did not. Unfortunately for the vast majority of us, our Congress will most likely decide that we wish to support Chrysler in the face of evidence to the contrary.

The solution must also include the absence of Congress, the President and the UAW. They must not further dictate the way these companies should be run or what kind of cars they should be manufacturing. Their collective influence has been like that of an anchor: in the best case, arresting the progress of these companies and, in the worst case, pulling them beneath the waves. No company will be successful when it has to serve the orders of three different masters.

Your humble constituent,

Michael

Letter Three

December 12, 2008

Dear Congressman Wolf,

I apologize in advance for bombarding your staff with yet another letter about the US automobile industry crisis, but I worry – irrationally perhaps – that if I do not present my viewpoint, that it may not be expressed.

There have been many arguments made for why the Federal Government should loan money to Ford, GM and Chrysler, but the argument that most strains commonsense economics is that Ford, GM and Chrysler are necessary to a vibrant US automobile industry and healthy US economy.

First of all, this argument assumes that Ford, GM and Chrysler should be treated differently from other car companies because the same argument is not made for Toyota or Honda. I don’t think Congress would lament the exodus of Honda from the US. Unfortunately this argument makes little sense in a global economy: how is Ford different from Toyota? Both operate internationally, both are shareholder owned and both manufacture cars in the US. I can buy a Toyota made in the US by American workers just like a Ford. I can become a shareholder of Toyota just as easily as Ford.

Moreover, the absence of Ford, GM or Chrysler will not affect the demand for cars in the US. If Chrysler disappeared tomorrow, the supply of cars would decrease raising prices in the short term, but other car companies would gladly step in to fill that void. If all three went through bankruptcy liquidation, healthier companies would step in to buy up their assets and increase production to meet consumer demand. These existing companies would hire workers and buy supplies. Honda, Toyota and other global car companies would be falling over themselves to build more plants in the US.

Secondly, the argument assumes that Americans should feel an inclination to purchase cars from Ford, GM and Chrysler because they are quintessential American companies. I’m sure some consumers take this into consideration when car shopping, but the present financial condition of Ford, GM and Chrysler suggests that most do not. The American consumer wants the best car for the money he or she is willing to spend. They are free to choose in an open market and the market has spoken against The Big Three.

The last thing I would question is the strategy involved with the proposed auto bailout. The President and a majority in Congress felt it necessary to use taxpayer money to buy stakes in successful banks as a means of averting economic disaster. The strong banks were supposed to use the money to buy weak, inferior banks. If Congress and the President feel compelled to act again to avert disaster in the auto industry, then why has the strategy reversed? Why is the plan to give money to inferior companies instead of superior ones? We should be lending money to Toyota and Honda to purchase Ford, GM and Chrysler! If the Federal government wants some of my salary to lend to car companies, I would prefer it go to the strongest companies; where my money has a chance of coming back; to the companies in which I would invest my own money. I don’t think that is an unreasonable request.

Your humble constituent,

Michael