Where’s The Outrage Over GM & Chrysler?

Closer than you think...

Closer than you think…

In my latest post at BloombergView, I look at Donald Trump and Hillary Clinton’s attempts to tap into the populist anger over the auto industry and am left wondering why neither is willing to attack the automakers who actually received bailout money. Trump has taken on Ford’s decision to double production capacity in Mexico and Clinton has attacked the supplier Johnson Controls for relocating to the UK in an “inversion” deal with Tyco, yet neither of these alleged automotive evildoers come close to matching the perfidy of the two bailed-out automakers. To wit:

General Motors, which received a $50 billion bailout, has received a net federal tax advantage of $52 million over the last three years in spite of billion-dollar profits, thanks to a controversial government decision allowing it to carry tens of billions of dollars in operating-loss credits through bankruptcy. GM is also leading the way on importing vehicles from China, and has focused its global export and R&D strategies around that huge potential market in the years since taxpayers bailed it out. Just like Ford, GM is doubling its Mexican production capacity, spending $5 billion on new assembly jobs south of the border.

Meanwhile, FCA isn’t even based in the U.S., having fled to a U.K. tax domicile after receiving more than $10 billion in bailout funds. Putting Fiat’s Italian plants in front of the line for new production, FCA anticipates that its North American production will remain flat through 2018 while imports from outside North America will expand to more than 10 times 2013 levels

This is at the heart of populist anger over the auto industry: Even if the bailout was necessary as an emergency measure, it’s failed to change the behavior of the firms who benefited from it or to deliver any reversal in the fortune for U.S. workers. Fiat-Chrysler survived to become a foreign firm by every possible metric, and GM became a tax-dodging Trojan horse for Chinese cars. And yet no American politician — Democrat or Republican, establishment or renegade — seems able to even identify these real culprits.

Not convinced that the automakers we bailed out are bad corporate citizens of the US? Read on…

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Chrysler’s Canadian Breakdown

 

Southbound and Down? (Courtesy: canadianmetalworking.com)

Brampton: Southbound and Down? (Courtesy: canadianmetalworking.com)

When Chrysler Group LLC announced that it was withdrawing requests for Canadian Government aid earlier this week, my immediate reaction was to think: “there goes another piece of Canada’s auto industry.” Having just months ago watched GM close its Australian operations when it became clear the government there wouldn’t continue to subsidize the industry, it seemed clear that Chrysler would move at least one of its Canadian products to the waiting Toluca, Mexico plant. I was not alone in guessing that Windsor’s minivan plant would be on the block, but in its carefully-worded statement Chrysler indicated it would move ahead with the tool-up for a new generation of minivans there. Chrysler even committed to investing in “substantial product interventions” for Brampton’s Lx platform vehicles (300, Charger, Challenger), which are supposed to hit markets later this year.

So did FCA’s CEO Sergio Marchionne break the political math tying government support to new product investments? Not exactly. He still has plenty of room to maneuver, and lots of possible asks. And the likelihood that a Canada plant will end up losing a Chrysler plant to Mexico remains very high.

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Government Motors 2.0: The Re-Politicization Of GM (From The Left)

 

Once more... with progress!

Once more… with progress!

To hear any General Motors exec since bankruptcy explain it, the post-bailout politicization of “Government  Motors” was the worst thing to happen to the firm since the Pontiac Aztek. After all, the post-rescue  partisan point-scoring was more than just bad PR: it threatened to undercut support with the conservative-leaning truck buyers who are the source of a huge percentage of GM’s global profits. And with the US Treasury selling the last of its GM stock in December, officially bringing the auto bailout to a final close,  GM finally had the opportunity to leave the “Government Motors” era behind and become just another automaker.  2014 was shaping up to be the year GM became just another car company.

Instead, GM opened 2014 with its freshly-appointed first female CEO enjoying a shout-out from the President at the State of the Union… followed by a wave of stories questioning whether said female CEO’s pay was on par with her predecessor Dan Akerson’s. GM has since “corrected misperceptions” about Barra’s total compensation ($14.4m, more than Akerson), but the wave of feminist blowback had already turned GM’s PR slam-dunk into an extended faceplant. Long used to playing the victim of partisan attacks, GM and the auto media establishment clucked at the “irresponsible” and “premature” “speculation” about Barra’s pay, blowing off left-wing concerns just as brusquely as they’d blown off perceived right-wing complaints about bailout policy for years. Just when it had a chance to truly start fresh, GM’s PR ineptitude and ingrained victim mentality seem bent on keeping  “Government Motors” on the political football field… this time, being tackled by the left.

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World War Car: Send In The Hedge Funds

Masters of the Universe tend to leave a lot of fingerprints...

Masters of the Universe tend to leave a lot of fingerprints…

As information technology made global markets a reality in the 1990s, a wave of thought espousing a liberal-democratic “end of history” became widely popular. Thanks to markets and democracy, it was believed, the patterns of the preceding centuries would be replaced with a new global peace, maintained by transnational business bonds whose mutual benefits would prevent democracies from pursuing antagonistic agendas. In certain ways, the theory has proven more than mere wishful thinking: one can imagine far more friction occurring between China and the US, were these two largest economies in the world not woven so tightly together. And yet, in the auto industry, where the line between free market multinational and “national champion” has often been a thin one, the subtext of geostrategic competition seems to be seeping through more and more of the news.

Bertel’s report on the lawsuit against Ferdinand Piëch and Wolfgang Porsche is a prime example of the suspicion, if nothing else, that the US government’s involvement in the auto industry has aroused. Naturally Der Spiegel, the original reporter on the lawsuit, didn’t assert the involvement of the NSA… but in the post-Snowden and post-bailout world, German commentators can’t help but wonder where Singer’s information comes from. Basic logic suggests precisely what can not be reported: How do you know that Piech and Porsche used hardened cell-phones and unbreakable codes, if you haven’t tried breaking in? Though a vocal proponent of free markets, Singer is no longer living in the 1990s; thanks to an arms race in government support for auto industries, his lawsuit’s implication of secret information about Germany’s national champion automaker forces it into the wider context of  US “geonomic” tactics that appears to  include sending Goldman Sachs into Libya instead of the Marines.

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The New, New, New Chrysler: Half Time In A Dutch-based UK Tax Domicile

Go ahead... make my tax year.

Go ahead… make my tax year.

Immediately after the US government funded and brokered marriage of Fiat and Chrysler, the company’s advertising took an unmistakable turn towards themes of national identity and patriotism. From the over-saturated sincerity of Chrysler’s “Imported From Detroit” ads, Ram’s “So God Made A Farmer” sermon and Jeep’s  “The Things We Make Make Us” manifesto, to the dripping irony of Dodge’s “Freedom” spot, every brand in the new “Chrysler LLC” played up its American-ness in a different way. And when Fiat’s 500 was introduced to the US market it was marketed almost exclusively in ways that highlighted its Italian-ness, despite the fact that the car has never actually been built outside Poland and Mexico. Clearly Fiat-Chrysler’s Canadian-born CEO Fiat Marchionne and French-born marketing boss Olivier Francois believe quite strongly in the power of national identity as a marketing tool.

This was already a provocative choice, given that these US-based brands had come under the control of an Italian firm, at some cost to the US taxpayer. But with news breaking that the new Fiat Chrysler Automobiles (FCA henceforth) will be based in The Netherlands with a UK tax domicile and listed on the New York Stock Exchange, this patriotic marketing strategy becomes even more of a liability. FCA would love to have its cake and eat it too: benefit from national bailouts and nationalist marketing while enjoying every tax and banking advantage of new transnational corporate structures. The question is: can it?

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General Motors Ushers Australia Into The Post-Industrial Age

You just keep me Holden on...

You just keep me Holden on…

Amidst the copious news General Motors has made over the last week, one fully-formed and profoundly important story is doggedly evading the notice of the press. Overshadowed by the end of US Treasury ownership and the promotion of GM’s first female CEO, the demise of The General’s Australian unit Holden should not be overlooked. Not because the phenomenon it demonstrates is new… in fact it’s nothing more than the latest example of the GM standard operating procedure that has helped devastate local governments across America. Rather, the tragic turn of events in Australia sends a sharp warning, every bit as poignant as the recent bankruptcy of Detroit, to the American taxpayers about the company they rescued.

The Government Motors endgame is only just beginning…

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The Auto Bailout As Redistribution Of Wealth

So we let them pay back the loans and post losses on equity... then that cash is just sitting there...

So we let them pay back the loans and post losses on equity… then that cash is just sitting there…

At the risk of insulting the considerable intelligence of The Daily Kanban‘s readership by overstating the obvious, the bailout of General Motors was fait accompli a number of years ago, and the apparent linear nature of time makes debate over whether the bailout was “worth it” largely academic at this point. If nothing else, the political outcome of the bailout speaks for itself: President Obama argued for extending federal aid to GM in both of his presidential campaigns, and he won both times.

Unfortunately, the crude national partisan discourse has not done much to help taxpayers truly appreciate the intricacies of the bailout policy itself, its context and alternatives. Like other major policy decisions made in times of great fear, long-term and structural concerns about the policy were dismissed in the rush to do something. Holding the rhetorical high ground, “it could have been worse,” required only that politicians play to their most reliably effective emotion: fear. Everything else could be obscured through sheer complexity. Only now, when there is nothing to be gained from examining the auto bailout other than an opportunity not to repeat history, is the reality of the auto bailout starting to reveal itself in easier-to-understand forms.

With the official Treasury loss on GM’s shares certain to be “close enough for government work” to $10 billion, GM faces the unique opportunity in American automotive history of going to market with a clear unmet financial obligation to the taxpaying public. And yet, GM does have enough cash to now be the likely target of “activist investors” according to multiple news wire reports. One source of these concerns: auto task force member Harry J. Wilson:

The exit makes GM a possible target for activist investors, who may push the company to pay out some of its $26.8 billion in cash through a dividend or stock buyback, said Harry J. Wilson, a member of the U.S. auto task force that helped rebuild the automaker in a 2009 bankruptcy.

“Any company that isn’t efficient about capital allocation is a target for activists,” said Wilson, who is now a restructuring adviser at Maeva Group LLC in Westchester, N.Y. “GM has a huge cash hoard and they are generating lots more cash each year, so they need to be thoughtful about that.”

There you have it: a guy who helped pump GM with cash and structured the deal so the taxpayer loss showed up as equity loss rather than an unpaid loan, is now in the private sector selling the company as cash pile to be raided. Not that GM needs new leadership, or a new strategy to better allocate its generous helping of tax money, but that the public’s loss on GM is a shining opportunity for any billionaire or hedge fund that wants to punk GM for its lunch money. That the task force he served on, ostensibly operating in the name of the public good, gave GM more of the public’s cash than it needed and that he is now available for consultation on how YOU can pocket some of it.

And why not? After all, as GM’s PR boss Selim Bingol recently observed in a Politico piece on GM’s ramped-up lobbying effort

“I think people in general have accepted that the rescue of the company and the industry is the right thing to do. We find ourselves now being able to be a little more forward-looking. I think we are in a position to really partner with policymakers in Washington.”

If Mr Wilson does well enough promoting GM’s cash pile to Wall Street raiders, I can imagine a number of policymakers would be anxious to “really partner” with GM going forward.

Taking Taxpayers for a Ride

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GENERAL MOTORS raised more than a few eyebrows last week by announcing plans to repay what it describes as $6.7 billion in outstanding loans to taxpayers. So provocative was this announcement that it all but overshadowed the real news of the day: G.M. had lost $1.2 billion since exiting bankruptcy in July, and its fourth-quarter results were expected to be worse.

The company’s chief executive, Fritz Henderson, called the repayment plan “a personal commitment.” The Obama administration, wardens of the 60 percent taxpayer stake in the company, declared itself “encouraged” by the news. Many commentators followed suit. But in the premature rush to herald the beginning of the end of the government’s involvement in the auto industry, a number of key considerations were left out. [Continue Reading]