But I don’t know how anyone thought a bankster–and particularly this bankster–could say this and still wield any credibility.
From Washington’s point of view, divesting its remaining shares will end an uncomfortable and distinctly un-American period of government ownership in a major industrial company.
Sure. Rattner places this sentiment in “Washington’s point of view.” Still, consider the messenger.
After all, he barely mentions here–as he did in his book–that this was not just a bailout of some industrial companies. It was also a bailout of two finance companies, Chrysler Finance and GMAC (he mentions that the government still owns Ally/GMAC, but still calls the scorecard, “nearly complete”). As such, it was also the bailout of the Private Equity firm, Cerberus, that had spent the previous years stripping Chrysler in the hopes of retaining just the finance arms.
He also neglects to mention that the government still pursues the un-American policy of treating banks according to a different set of rules, not only providing them free money, but seemingly exempting them from all laws.
Finally, he shows no self-awareness of his own history, including paying kickbacks so his firm could make big money off of New York State (for which he, like all banksters, got a mere wrist-slap).
I’m not saying the government should hold onto its GM stake forever (though unlike Rattner, executive compensation is the last reason I’d cite to applaud this sale). But having someone like Rattner call government intervention in purportedly capitalist companies un-American only perpetuates the idea that industrial companies should have to abide by so-called rules of capitalism that the titans of capitalism, the banksters, have all but discarded.
[I posted substantially this post yesterday, but the BlogGods ate it along the way. So I'm reposting.]
Along with the deceitful attack on Italians who make better car company owners than GOP Private Equity types and the Lee Iacocca spin, Mitt has rolled out a radio version of attack on the auto bailout. From Greg Sargent, here’s part of the script:
Barack Obama says he saved the auto industry. But for who? Ohio, or China? Under President Obama, GM cut 15,000 American jobs. But they are planning to double the number of cars built in China — which means 15,000 more jobs for China.
And now comes word that Chrysler plans to start making jeeps in — you guessed it — China. What happened to the promises made to autoworkers in Toledo and throughout Ohio — the same hard-working men and women who were told that Obama’s auto bailout would help them?
The ad continues Mitt’s deceptive insinuation that GM and Chrysler aren’t also adding jobs in the US, which they are doing.
But it does something else. It takes a decidedly anti-profit stance.
You see, there are two reasons car companies are so gung-ho to enter (or re-enter, in the case of Jeep) the Chinese market. First, because it’s growing; when I was working in China, auto people considered the rising Chinese middle class to be 300 million–almost an entire US full of population. And most of them were just aspiring to buy their first car. That’s a whole lot of first time car buyers to sell to, as compared to US consumers, who are driving less and replacing their cars at a slower pace given more durable cars.
The other reason to go to China? Profit margins are bigger there than here. When I was in Shanghai in the mid-2000s, the profit margin on Buick Regals was about $2,000, as compared to the roughly $200 profit margin on a similar car here. The margins are closer now (because manufacturing in the US has gotten cheaper and in China has gotten more expensive), but China still offers good profit margins. Selling Buick Regals or Jeeps in China allows GM and Chrysler to accept lower margins on cars here.
By selling high margin cars in China, US companies can be more competitive here, meaning they will be able to expand sales and therefore production here, too.
All this is implicit in Sergio Marchionne’s response to Mitt’s ignorant rantings.
Together, we are working to establish a global enterprise and previously announced our intent to return Jeep production to China, the world’s largest auto market, in order to satisfy local market demand, which would not otherwise be accessible. Chrysler Group is interested in expanding the customer base for our award-winning Jeep vehicles, which can only be done by establishing local production. This will ultimately help bolster the Jeep brand,and solidify the resilience of U.S. jobs.
Marchionne notes 1) you can’t sell in China unless you build in China, 2) selling in China makes the Jeep brand stronger, 3) making the Jeep brand (and its profit margins) stronger makes it easier to keep up US production.
Marchionne’s implicit point should be where this discussion is heading: free trade hasn’t worked out to be fair trade. China–and Japan and Korea–still protect their markets, meaning if you want to sell there, you’ve got to make cars there.
Mitt has promised to get tough on China. But his series of auto ads have made no mention–not a peep!–of how he’ll reverse this practice and make it possible for Jeep to export cars made in Toledo. Indeed, when Obama launched a trade dispute over auto parts in September, Mitt scoffed at the effort (and ignored Obama’s decent and sustained effort launching trade disputes, one of which pertaining to specialty steel recently won at the WTO).
“The president may think that announcing new trade lawsuits less than two months before the election will distract from his record, but American businesses and workers struggling on an uneven playing field know better,” Mr. Romney said in a speech to the Hispanic Chamber of Commerce in Los Angeles.
Mitt Romney wants to attack American companies for going where profits are. And he’s doing so without discussing why that’s necessary.
That makes him neither a tough guy nor a good businessman.
As part of its effort to pretend that Mitt would be good for the auto industry, the campaign had Lee Iacocca sum up why Mitt would be good for the auto industry.
The first paragraph of specifics reads:
When Mitt Romney is president, he will reduce our nation’s corporate tax rate to 25 percent from 35 percent – currently the highest combined tax rate in the industrial world – so that American car companies can compete on a level playing field at home and abroad. He will also stop the extra tax automakers are forced to pay when they want to bring home their profits to reinvest in the United States. President Obama could have done this the day he took office since his party controlled both houses of Congress, but he chose not to. [my emphasis]
Obama, of course, has a tax credit specifically for manufacturing companies, meaning under Obama the auto companies would pay less than under Mitt.
But the other part–particularly against Mitt’s egregious claims that the auto bailout has helped Chrysler and GM move production overseas–is even more ridiculous.
Iacocca says Mitt would be better for the auto companies because he’d allow the auto companies to repatriate profits from overseas without paying taxes.
But that assumes, of course, they’re making profits overseas. It would mean they were doing precisely the thing Mitt is attacking–moving into new markets, like China.
So on the same day Mitt attacks Chrysler and GM for making and selling cars in China, generating greater profit it can use to support workers here, his campaign sends out a post boasting that Mitt would require Chrysler and GM to contribute less domestically on the profits they made by making and selling cars in China.
So Mitt is still trying to dig himself out of the hole he created when he declared, “Let Detroit go bankrupt”?
I suspect most of the commentary on this ad will focus on the irony that, had Mitt had his way, all of GM’s dealers would have gone under, and without the buyout deals they ultimately got.
Me, I’m a bit surprised that Mitt didn’t choose an IN Chrysler dealer. Not only did Chrysler offer its dealers a much stingier package, but some dealers from IN fought losing their franchises all the way to SCOTUS, and some are still suing over “takings.”
But I’m most surprised by the sparse language used here to portray a dealer closure: “I received a letter from General Motors: they were suspending my credit line.”
Credit lines?!?!? Mitt wants to tug at heart strings and hit Obama with an attack akin to the Bain attacks that are working so well in swing states by invoking credit lines?!?!? Really?
Yes, it is true that at the heart of any car dealer is a credit line. But by including that in this ad, it seems to me, Mitt does several things. It reminds everyone who knows what role a credit line plays in a car dealer that the precipitating cause of the auto crash was the credit crash. It reminds viewers that the banksters, in killing their own industry, also killed the car industry. And not just any banksters, either. In GM’s case, the bankster in question was 51% owned by Cerberus Capital, a bunch of high profile Republicans (Dan Quayle and John Snow, among others) who were trying to do what Mitt got rich off: looting companies (in Cerberus’ case, including Chrysler) while profiting from the financialization that such looting offered. Only they were so bad at it, they effectively had to be bailed out by the taxpayers along with GM and Chrysler.
Thus, the villain in this ad–at least as described by the dealer–is someone just like Mitt, only stupider. The villain in the ad is not Obama–not to people who know how the auto industry works. It’s Mitt’s stupid Republican friends.
Someone gave Mitt Romney a shovel just in time to dig
shit snow in MI for the next two weeks. There’s a lot that is fact-impaired in this op-ed doubling down on the “let GM go bankrupt” (starting with the lack of funding for a bankruptcy, meaning a managed bankruptcy was impossible).
By the spring of 2009, instead of the free market doing what it does best, we got a major taste of crony capitalism, Obama-style.
Thus, the outcome of the managed bankruptcy proceedings was dictated by the terms of the bailout. Chrysler’s “secured creditors,” who in the normal course of affairs should have been first in line for compensation, were given short shrift, while at the same time, the UAWs’ union-boss-controlled trust fund received a 55 percent stake in the firm.
He’s complaining, of course, that VEBA (the trust fund run by professionals that allowed the auto companies to spin off contractual obligations–retiree healthcare–to the unions) got a stake in Chrysler while Chrysler’s secured creditors took a haircut.
So, in part, he’s basically complaining that the bailout preserved the healthcare a bunch of 55+ year old blue collar workers were promised. He’s pissed they got to keep their healthcare.
He’s also complaining that banks took a haircut, as would happen in any managed bankruptcy.
But it’s more than that. He’s complaining that a bunch of banks that themselves had been bailed out had to take a haircut. He’s complaining, for example, that JP Morgan Chase, Chrysler’s largest creditor at the time and the recipient, itself, of $68.6B in bailout loans, had to take a haircut on $2B in loans to Chrysler.
Mitt’s op-ed makes him sound a lot like Jimmy Lee, Chase’s top negotiator on the auto bailout, who,
demanded to know why, if the government thought banks important enough to give them tens of billions in TARP money, it wanted to squeeze them on [the Chrysler] deal.
I guess Mitt, too, thinks the banks are so important they should take precedence over retiree healthcare, too.
But as the kind of bankster who, at Bain, relied on government subsidies to fund his “restructurings” that ended up taking people’s jobs and healthcare, that’s not all that surprising.
Still, the UAW retirees who still have healthcare today instead of Jamie Dimon having another yacht probably don’t feel the same way as Mitt does.
The Obama Administration was gung ho to brag about the GM IPO last year. But if I’m not mistaken, this is the first time the White House has bragged nationally about jobs created thanks to the auto bailout (Ron Bloom, who got promoted into an official Assistant to the President role at the beginning of the year, wrote this).
Today brings word of more good news for the American auto industry. GM announced that it would hire 4,200 workers at seventeen of its plants around the country.
President Obama took office amidst the worst recession in a generation and nowhere was this devastion [sic] felt harder than in the American auto industry and the communities it has supported for decades. In the year before GM and Chrysler filed for bankruptcy, the auto industry shed over 400,000 jobs.
Facing this situation head on, the President made a bold and, at the time, politically unpopular choice: Despite calls from critics to simply let these companies – and the entire American auto industry – crumble, he refused to allow these companies to fail. Had the Administration failed to intervene, conservative estimates suggest that it would have cost at least an additional one million jobs and devastated vast parts of our nation’s industrial heartland.
But at the same time, the President did not provide unconditional support. He insisted that the companies and their stakeholders make tough choices and undertake massive restructurings requiring huge sacrifices from all of their stakeholders.
Because of this “tough love,” the American auto industry is now positioned to grow and prosper as the economy recovers. Since GM and Chrysler emerged from bankruptcy in June 2009 the auto industry has added 115,000 jobs – the fastest pace of job growth in the auto industry since 1998. Last year, for the first time in 16 years, the Detroit Three actually gained market share compared to their foreign counterparts.
And these companies are not just making cars and trucks – they’re making the kind of fuel efficient cars and trucks that will power us to energy independence, protect consumers against rising gas prices, and ensure America wins the future.
Some of the workers GM is hiring and re-hiring in today’s announcement will be at work producing larger-than-initially-planned quantities of the widely acclaimed Chevy Volt. And just last month, Ford – which didn’t receive government assistance but which supported our aid to GM and Chrysler and has said publicly that it would not have survived if the rest of the American auto industry had been allowed to collapse – reported its best first-quarter profit in more than a decade thanks in large part to its new fuel-efficient vehicles.
In the wake of an historic recession, there is no doubt that much work remains. And we will not rest until every American who is looking for work can find a job. But today’s announcement is another positive sign – including more than 2 million private sector jobs created over the past 14 months – that we’re seeing across the country.
The comparative silence about the success of the bailout in the terms that really matter to actual people–jobs–not only confirms Main Street suspicions about the White House viewing the economy solely through the lens of the banksters, but it also leads beltway folks like John Dickerson to wonder out loud whether there is anything a President can do to fix the economy (Dickerson must have skipped those weeks when his American history class covered the New Deal).
The effects of the too-small stimulus, though real, are a lot harder to see. But aside from the decade-long Military Industrial Complex stimulus the DC area has enjoyed, the auto bailout and related energy investments was the biggest concentrated stimulus the Administration championed. And it has had an effect, both in hiring at GM and Chrysler, but also in hiring in MI more generally.
It’d be nice if the Administration not only bragged about that, but replicated it for places like Nevada.
Update: John Dickerson corrects me; this July 2010 briefing (a presser leading up to an Obama trip to visit several plants in the MidWest, bragged about jobs created). Thanks to Dickerson for the correction.
Let me say at the outset that the GM bailout was far, far better handled than the bankster bailouts. And as a Michigan resident whose family still has ties to the auto business, I am tremendously grateful for that bailout.
That said, this is why I have not declared mission accomplished, in spite of the successful IPO last year.
You see, no one will be able to weigh the success or failure of the GM bailout for another year or so–until such time as the cars developed entirely under the leadership team picked by a bunch of people who knew nothing about the auto industry start rolling off the lines. As I noted last year, the success of the IPO was significantly premised on a number of business decisions made by Rick Wagoner and others fired during the bailout. Wagoner deserves the credit for his emphasis on China (and places like Brazil), which is the biggest source of GM’s profit these days and was widely touted as the reason it made a good stock buy. And Bob Lutz deserves the credit for GM’s improved product line.
So we won’t know whether the bailout succeeded until we see whether the guys now in charge can make decisions that are as smart as those made by the guys fired in the bailout.
Yet, as MSNBC lays out, thus far, it looks like the finance guys Steven Rattner brought in to run a car company have, predictably, made some really stupid decisions.
[GM CEO Daniel] Akerson recently told the Wall Street Journal that a GM car was just like the can of Diet Coke he was drinking during the interview.
“It’s a consumer product,” he said. “GM has to start acting like a consumer-driven, not engineering-driven, company. We sell a consumer product — our can just costs $30,000.”
Industry insiders with a memory of the 1990s immediately blasted this view as a return to [GM]’s failed [early 1990s] strategy to commoditize a product for which a strong emotional connection is important to drive sales and to cultivate brand loyalty.
“The only difference between GM then and GM now is that this is a company that has only recently emerged from the abyss of bankruptcy, one that can ill-afford a single misstep brought upon by misguided leadership, even though it has the most competitive lineup (of vehicles) it has had in decades,” [auto writer Peter] Delorenzo said.
It’s one thing to try to sell sugar water with nothing more than emotional attachment. But so long as there are well-engineered vehicles like Hondas on the road, you can’t dismiss the importance of engineering in designing cars.
In addition, Akerson (like Ed Whitacre before him) is trying to cut the time to market for GM’s cars.
Now Akerson says speed and cost are the aspects on which he will concentrate, telling the Journal that “during World War II, GM produced tanks and equipment within four years. Why should it take four years to put a car out?”
There have, historically, been two models for cutting the time to market for cars. There’s the model Chrysler used in the late 1990s, which led to the introduction of things like the PT Cruiser that were cute but which weren’t really good cars; that’s one of the things that led to a serious decline in Chrysler’s quality. Then there’s Toyota’s quality driven approach, which has served as the standard for Ford and GM in recent years as they have accelerated their own development time frame.
But as Toyota’s recent troubles show, not even Toyota can make cars in as short a time frame as they do and ensure their quality. What makes Akerson think GM can do what Toyota can’t?
There’s always a lot of tut-tutting when the White House releases the list of people who attend a state dinner. While a lot of that, for the dinner honoring Hu Jintao tonight, has to do with which members of Congress have blown off invites (John Boehner, Harry Reid, and Mitch McConnell, though McConnell’s wife Elaine Chao will attend with her father), I’m rather interested in who will attend from the auto industry.
Not Ford’s CEO Alan Mullaly, who has been working with manufacturers that export to China for years. Not Dan Akerson, who is CEO of that auto company that American taxpayers own that does a great deal of business in China (our investment in GM might be incredibly well-served to give GM this kind of access).
But Bob King, the head of the UAW.
Now, maybe I should be happy that UAW’s head gets a seat at the table with the leader of the country his union has lost so many jobs to.
But I can’t help but remember the transactional language King used to talk about his support for the Administration’s KORUS deal.
King countered that the deal was not perfect; there were many things he objected to about the agreement. However, King added that, “It was important to endorse in order to reward the administration for its good behavior of including labor in negotiations.”
When I asked King why the UAW decided to endorse the treaty without consulting others unions he said, “We were on a tight deadline to endorse. If we wanted to be relevant, we needed to weigh in right away with an endorsement.”
Back then, it sure sounded like King was happy to sell out workers in exchange for 800 jobs and a seat at the table. But now I’m wondering whether King got a literal seat at the table.
When Steven Rattner published this piece on the GM IPO in HuffPo, he had not yet been sued by NY’s Attorney General for allegedly being “willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal, and funneling campaign contributions,” nor had he yet settled–with no admission of guilt–the SEC investigation that alleges he, “delivered special favors and conducted sham transactions that corrupted the Retirement Fund’s investment process.” Thus, it would go too far to call the Steven Rattner that published that piece a fraudster, or even an alleged fraudster.
But a big part of this victory lap is fraudulent.
A key part of Rattner’s argument is that by fixing management issues, Team Auto dramatically altered GM’s value.
A fashionable bit of revisionist history maintains that former GM chief executive Richard Wagoner should not have been fired, especially by a bunch of Wall Street guys turned government bureaucrats. Yet, Ford — which not only avoided bankruptcy but will achieve record profits this year — faced exactly the same challenges as GM: the same United Auto Workers, the same competition from Asian transplants, the same oscillating gasoline prices and the same credit crisis. Why did the two automakers end up on such different paths? Management.
Now, I don’t much agonize over Rattner’s decision to fire Wagoner. I absolutely support the idea of firing CEOs whose companies have to be bailed out. Hell, I even agree that Wagoner’s firing is probably a key part of getting the banksters to trust GM again. But I recognize–as Rattner doesn’t–that Wagoner had started along the same path that Ford’s Alan Mulally had, only about a year and a half behind Mulally, meaning those efforts were more directly affected by the disaster caused by Rattner’s buddies on Wall Street. But on balance, I’m perfectly happy with Rattner’s decision to fire Wagoner.
What I’m not fine with, though, is Rattner’s attack on Wagoner in the same piece he takes credit for two or three business decisions that Wagoner made. Wagoner indubitably presided over GM’s emphasis on China and Brazil, which Rattner calls “enormously successful.”
He likewise oversaw–with Bob Lutz–the development of the GM products now experiencing success in the marketplace, particularly the Malibu, Equinox, and Camaro, which rolled out just as the government came in (the interim team shares credit for the Cruze and Volt).
Its products, while vastly improved in recent years, still do not match those of Ford and its non-U.S. competitors.
And at 15 million, General Motors — with its improved products, tighter management, lower cost structure and better balance sheet — will be gushing profits.
And by negotiating VEBA, Wagoner also had a significant role in setting up the conditions that enabled Team Auto to take retiree health care off GM’s books, a big part of the structural costs Rattner takes credit for.
At least $8 billion of annual structural costs sliced from the company’s bleeding North American operations.
If you want to pump up GM’s IPO price based significantly on its improved product quality and its success in China and Brazil, then you cannot at the same time make the firing of Rick Wagoner a central part of your argument for the value of the company. Either Wagoner did a good job on market and product issues, in which case Rattner’s friends are justified to stress improved product quality and great growth potential in China and Brazil, or Wagoner was a complete failure, in which case the folks pushing this IPO are pushing shit. (I believe GM has a great deal of value, though wouldn’t presume to describe its the fair market value of its stock.)
And if all of that doesn’t lead you to question Rattner’s motives and credibility here, check out whom he designates as the appropriate person to pick stocks.
I’ll leave the stock picking to Jim Cramer while observing that GM’s IPO was priced at a discount to Ford’s trading multiple. That’s understandable, given the uncertainties around GM. At the same time, proving itself to Wall Street and closing that multiple gap remains a source of upside for the newly public automaker.
Jim Cramer, famous above all for pumping up stocks with his overheated bluster.
Look, I’m all in favor of Rattner having the benefit of the doubt as he defends himself against charges of fraud. I’m thrilled that GM had a successful stock offering today, even if I’m cautious about what it means. But I’m not in favor of pumping up the stock price of GM based on a specious argument claiming credit for things Rick Wagoner did, even while pointing to Wagoner’s firing as a key part of GM’s value proposition.
Wall Street and the Administration are hailing the GM IPO and claiming victory.
General Motors Co GM.UL pulled off the biggest initial public offering in U.S. history on Wednesday, raising $20.1 billion after pricing shares at the top of the proposed range in response to huge investor demand.
GM sold 478 million common shares at $33 each, raising $15.77 billion, as well as $4.35 billion in preferred shares, more than the initially planned $4 billion.
Including an option that would allow underwriters to sell more shares, expected to be exercised in coming days, GM looks set to raise $23.1 billion, making it the biggest initial public offering ever.
The strong response to the stock sale reflects a groundswell of investor confidence that GM is moving beyond its unpopular, taxpayer-funded bankruptcy in June 2009 with sharply lower costs and higher profit potential.
Now, don’t get me wrong. I will always remain grateful that Obama bailed out the auto industry, and I am a direct beneficiary of that policy. And I do think many of the decisions and actions Team Auto took last year–most notably the fast track bankruptcy–were the right decisions, incredibly well executed. And I think the cars currently in GM showrooms are good cars.
But this IPO is no great reflection, one way or another, on the success of the bailout.
Indeed, it may be something far worse. It may be a propaganda stunt that will allow the banksters–the ones in charge of the bailout, as well as the current private equity CEO, as well as the firm which consulted on the IPO whose Chairman is auditioning to take on a top advisory role in the Administration, as well as the big banks involved in the IPO whose TBTF status the Administration has fiercely protected–to claim victory. And of course, every single one of those banksters has a huge incentive to create a stunt that will allow the Administration to claim victory. But that won’t say much about or do much to ensure GM’s long-term value.
Mind you, I hope that’s not true. I hope the universe of possible car buyers believe that GM’s cars reflect a value of $33/share or more (the banksters think they’ll be able to drive up the share price in the coming days). More importantly, I hope GM sustains recent improvements in their product line even as the new top executives–particularly the ones who had nothing to do with the currently improved products who have changed the process and people that produced those cars–remain in charge.
But we won’t know the answer to that question for another 2 years or so. And we won’t know whether GM will improve its brand image enough to make cars more profitable for some time yet, either.
And, too, I hope those banksters driving up the price of GM’s stock keep that stock for the long term. I hope this doesn’t resemble a 90s style, pump and dump, IPO. But we won’t know that for a little while either.
What we know is that the bankster-CEO pointed to lower costs (which the bailout did make possible) and GM’s strong position in China (which the purportedly failed Rick Wagoner implemented long before the bailout but which didn’t, by itself, do much for GM’s value before the bailout) in his pitch for the IPO.
In a road show for investors spearheaded by GM Chief Executive Dan Akerson and Chief Financial Officer Chris Liddell, the automaker has emphasized both its sharply lower costs and its exposure to key growth markets like China.
But it’s not clear he said much about the cars. The cars that, one way or another, will ultimately determine the success or failure of the bailout.
In other words, what this IPO seems to reflect is the successful sale of a new balance sheet tied to a market mix that, before the bailout, Wall Street was none too impressed by. It seems to reflect the enduring belief on the part of the banksters that the only value worth measuring is that determined by Wall Street, and not that value measured by the ultimate consumers of a product.
The GM products shepherded through by Rick Wagoner and Bob Lutz are selling well at stores. The GM balance sheet shepherded through by Steven Rattner is selling well on Wall Street.
But what remains to be seen is whether the cars produced in two years by the development process implemented by Ed Whitacre and Dan Akerson will sustain and increase the value of cars in showrooms to match the $33/share value pitched by the banksters.
Good luck and happy GM day.