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  • Morning Bell: 'We Don't Want Government to Run Companies'

    Sunday on NBC’s “Meet the Press,” President-elect Barack Obama told Tom Brokaw, “We don’t want government to run companies. Generally, government historically hasn’t done that very well.” Obama is right. Government has a miserable record as a corporate manager. We shouldn’t want politicians or federal bureaucrats managing private companies.

    Unfortunately, that is exactly what liberals in Congress are poised to do. Under the latest plan to come out of Speaker Nancy Pelosi’s (D-CA) office, Congress “would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make.” Yale management professor Jeffrey Garten told the New York Times:

    I don’t know that we’ve seen anything like this since the government told the automakers what kind of tanks to make during World War II. And that was just for the duration of the war — this could be for much, much longer.

    The latest bailout plan, which the Senate hopes to vote on today, calls for an initial $10 billion for General Motors and another $4 billion for Chrysler. But everybody knows these payouts are just a down payment. The car companies would then have to submit a business plan by March 31, and the plan would have to be approved by Congress before any additional funds could be released. As Harvard Business School professor emeritus Malcom Salter asks: “Think about this: Who in the federal government would have the tremendous insight needed to fix this industry?” Remember, almost half the members of Congress are lawyers.

    Detroit’s problems are structural and cannot be cured by an injection of taxpayer money. There are plenty of other “more nimble” automakers (such as Toyota, Honda and BMW) building cars on American soil and making a profit doing so. The biggest problem for GM and Chrysler is their completely uncompetitive labor costs, which come to more than $70 an hour. Some have disputed this number, but have offered no evidence to refute it. Here is how the numbers break down: about $30 in hourly base pay becomes $40 an hour after average overtime pay is included; then another $33.58 an hour is tacked on benefits that include health care, dental, life insurance, disability, unemployment insurance, pension payments and payroll taxes. These numbers come from GM itself. All of these costs are for current employees and do not include any payments or benefits for current retirees. If you factor in the $4.9 billion GM paid to retirees and surviving spouses in 2006, the hourly wage goes up another $31, leaving GM with labor costs of $100 an hour! Contrast that with the $43 an hour Honda pays its workers.

    Hungering for taxpayer money, the Big Three continue fear mongering. They keep pushing an “analysis” of the employment impact of bankruptcy, which completely disregards the fact that firms protected by bankruptcy proceedings continue to operate and provide jobs. For example, yesterday the Tribune Co. filed for bankruptcy and yet somehow the Chicago Tribune still put out a paper today. Nor does the 3.3 million job losses the Big Three claim would occur take into account how other industries would respond. Using the much more detailed Global Insight Short Term U.S. Macroeconomic model, Heritage’s Center for Data Analysis estimates the bankruptcy of the Big Three automakers would cause a loss of 453,000 jobs. Every single job loss is extremely unfortunate, but ask yourself: How much worse will  job losses be after Congress is done running the auto companies into the ground?

    Quick Hits:

    • According to Gallup, 51% of Americans say they oppose a taxpayer bailout of Detroit.
    • According to a study by ICF International, the development of America’s vast domestic oil and natural gas resources that had been kept off-limits by Congress could generate more than $1.7 trillion in government revenue.
    • Five of the men accused of planning 9/11 attacks said they wanted to plead guilty to murder and war crimes but withdrew their offer when they learned a plea might deprive them of the death penalty.
    • With Congress poised to vote on a rescue for the nation’s auto industry and Obama promising to launch a massive public spending program, Capitol Hill has once again become the scene of a lobbying free-for-all.
    • Obama will meet with Al Gore tomorrow in Chicago to discuss global warming.
    Posted in Ongoing Priorities [slideshow_deploy]

    22 Responses to Morning Bell: 'We Don't Want Government to Run Companies'

    1. Dick Lanham, Lockpor says:

      Why in the world were not the detainees at Gitmo tried and, if found guilty, executed or imprisoned in Max facilities or, if not guilty, let go years ago?

    2. Virgil Bierschwale, says:

      The following is an article I wrote this week titled "Why the current rescue plans wont work"

      You can click here to read it http://www.keepamericaatwork.com/index.php?option… and I am pasting the article here

      Virgil
      http://www.KeepAmericaAtWork.com

      Lets look at the history of offshoring and what it did to our economy.

      In the 70's our companies began offshoring our blue collar jobs and while it was terrible for those involved, it didnt affect us that much at the time

      Because the average wage at the time was less then 25,000 and the percentage as compared to all jobs was probably less then 10 percent

      So if you take an avg tax rate of 25 %, you would be cutting 6,250 times 20 million out of the budgets which would be about 125 BILLION dollars

      And this would take 375 BILLION out of the revenue of the retailers, manufacturers and raw material producers

      However, the reason it didnt affect us that much was because these people were able to find jobs paying in the same 25,000 range.

      Now lets fast forward to the period from 2000 until now and see what the differences are

      Now we have white collar workers making between 65 to 100,000 dollars and blue collar workers making between 25,000 – 65,000 and we have between 15 to 20 % of them out of work because of offshoring or the resultant layoffs because of offshoring

      Now the tax rate is closer to 30% for this salary level and we're going to use an average salary rate of 50,000 even though I believe its higher.

      So now we are taking 500 BILLON from our town, county, state and countries budgets which is slowly forcing all of them to cut expenses which means that the services that you have come to expect are going to be cut.

      And this would take 1 TRILLION 500 BILLION out of the revenue of the retailers, manufacturers and raw material producers

      This wouldnt be too bad to our economy if our people were finding jobs that paid similar or better then the job that they had that was offshored, but they are not and they are typically finding jobs paying in the 25 – 35,000 range.

      Whats even worse is that all of the proposed jobs will pay in the 25 to 35,000 range which won't help at all because we are still missing close to 2 TRILLION in taxable wages and money to spend with our retailers, manufacturers and raw material producers.

      Now do you see why our retailers, manufacturers and raw material producers are going out of business or asking for handouts ?

      Whats worse is that all of our governments plans from the economic stimulus checks to the bailouts will not work because they do not address the root cause and they only address the symptoms.

      The root cause is the offshoring of jobs and the solution is to bring these jobs home and this will fix all the symptoms and it will allow our retailers, manufacturers and raw material producers to stay in business and it will allow our town, county, state and federal budgets to keep providing the services that they always have provided.

      As for you folks in other countries that are reading this article.

      Your country is experiencing the same problems because your leaders followed our lead.

      Reverse the mass transferrance of wealth from your country to others and your economy will prosper and thrive.

    3. Norm says:

      Anybody that would want to meet with Al Gore must be equally insane!

    4. Michael Curran, Tumw says:

      Without sounding redundent,the socialist government acting against the car companies could very well undermind the GDP of the United States. The action of the consummers could lead to an avoidance of purchases of American cars due directly to the governments mandated manufactoring demands. It is more than unsettling to witteness the feds running a manufactoring company when that same federal system has failed miserably in tending to its own governence.

    5. Becky W. Guilford, says:

      I would offer that the readers look to the government control of the railroads in WWI (The USRA) as an example of how miserable a job the politicians were in runing a business. The lessons learned in that situation led FDR to make one of the better choices he made in respect to the country in WWII. He chose to not take over the railroads and the result was far better on the whole than it was in WWI. If any thing is taken from this example it should be that congress, the president and the officials of the government would be far better off to leave the auto industry alone, and it would be wise for the industry to say no if there are any strings attached to the offer of loans.

    6. Virginia MN 55792 says:

      When is the oversight committee going to be established (which was promised) when Congress bailed out Wall Street and big banks?

    7. Michael J O'Bri says:

      The Comptroller of the Currency, John Dugan, reported yesterday the after 8 months, 58% of the government sponsored re structured mortgages re default. Not surprising, but very disturbing. Disturbing because this extends the time the housing sector requires to recover and the economy as a whole revive. Our democratic leaders know more than anyone else in the known universe, including Adam Smith and the underlying forces of free markets. But Barney Frank, Pelosi, Reid, and Dodd have politicized the free market economy, and perhaps beyond repair. The housing solution is simple, but painful. There exist an excess inventory of houses, not enough qualified home buyers at the current price levels. Foreclosures and price resets must occur to bring prices into equilibrium [demand and supply], then, and only then will the housing inventory decline and the sector revive. The system must rid itself of bad credit and be replaced with good credit. Should we continue recycling this sub prime bad credit, then we extend the economic recovery. Additionally, the outcome of breaking the Moral Hazard principle has proven to be true: rewarding for bad behavior only encourages more bad behavior. Washington does not get it.

      Now another free market principle Pelosi, Reid, Dodd, and Frank want to implement is a Car Czar. Foreign car manufacturers will grab on to this free market principle quickly. This is another enticement to have foreign car manufacturers come and be profitable to our country. The United States of America was once known for its free market principles, but under a democratic controlled congress they have used the communist manifesto model to re invent America. Indeed, President Bush has not seen a bill that he has not liked as well. He is no conservative.

      Bankruptcy chapter 11 [reorganization], not 7 [liquidation] is the most appropriate solution for the big three bozos. The very reason why the unions do not want chapter 11 is obvious: a more competitive wage, collective bargaining [reduce legacy cost] agreements and products. The unions have set the eyes upon the coffers of the taxpayer, examine what they have done to Detroit and the state of Michigan. The management of the big three must go. Write your representative and tell them the truth: the American people can only continue to enjoy the high standard of living if we continue to live free: and that means a free market economy among other freedoms that these democrats want to take away.

    8. Ken Jarvis - Las Veg says:

      USA Version of Socialism

      Started by the GOP Administration in 2008

      Investors – In this case Taxpayers – have always run companies.

      With the BIG 3 Auto makers

      It is OBVIOUS they don't know how to run a car co.

    9. MikeB Minneapolis, M says:

      I sent this letter to my Senator and other Senate and House colleagues with slight revisions.

      Senator Coleman:

      I appreciate your response to my earlier e-mail. Since then, I have watched much of the testimony given by the auto executives, the President of the UAW and others in front of the relevant Senate and House Committees. Of all the questioners I heard, my vote for the best summary analysis goes to Senator Bob Corker of Tennessee. He, properly, looked at each of the three auto manufacturers’ situations separately. While I understand you are occupied with this recount process, I do hope you will find time to try to influence your colleagues keeping the following points in mind. I have piggy backed on some of the Senator’s points with my own views.

      For Chrysler, Senator Corker noted that its owner, Cerberus Capital, had plenty of money but was not willing to invest any more in the company. Further, Chrysler has no future as a standalone company and only wants to survive long enough to be acquired by someone else. He could also have noted that, following Daimler-Benz’s acquisition of Chrysler, Daimler was not able to make Chrysler successful and nearly gave it to Cerberus in order to get rid of it. Cerberus was also not able to make it a successful company. And those failures preceded the recent upheaval in the capital markets. It is simply not credible to think that the $7B low interest loan they are now seeking is suddenly going to provide the key to sustainable success. Chrysler should get no assistance.

      For Ford, he noted that its presentation and plan shows that they do not need any money; but, what the heck, if the government is going to be giving out low interest loans, they were prepared to support their industry colleagues and take some as well. Ford should get no assistance.

      With respect to General Motors. Senator Corker correctly pinpointed their problems as the only reason the hearings were happening at all. He suggested that if the taxpayers were going to play any role, it should only be after the other key stakeholders had reached agreement on their respective “sacrifices”. This group includes the UAW, management, debt holders, dealers and suppliers among others.

      My own view is that no such agreement can be reached outside of the bankruptcy court, and I am in favor of that as the best approach unless there is a reasonably similar “forcing” process which is developed. I agree with the Senator that once GM gets the money, we lose our leverage. Further, while now the government is in the position of considering options which may assist GM, if GM receives funds and continues in trouble, the government will be in the position of causing GM’s eventual bankruptcy by not putting more money in. The political implications are quite different, as you would appreciate. GM should get no money based on the plan it has submitted.

      I’ll make a few other observations:

      False dichotomies, nonsensical premises, irrelevant points and suspicious claims-

      1. The government bailed out Wall Street without any hearings and in a very short period of time. Why such a probing of the auto industry? Is Paulson willing to shovel money to people who wear Gucci’s versus Levi’s? That is unfair.

      Please note that Wall Street, in this case, has far more employees and is important to far more individuals and business than the auto makers. Also note that “Wall Street” refers to banks all over the country and with locations and people all over the country. Most don’t wear fancy shoes and many would be happy to be paid as the auto workers are. Whether what was done with the first piece of the TARP funds was done properly or not has absolutely nothing to do with how the auto companies should be treated. We are not dealing with children who want to make sure they each get the same number of presents at Christmas.

      2. The UAW and the auto companies have been working very hard to cut costs, switch their product lines to fuel efficient cars and made other progress toward becoming economically successful. Therefore, they deserve the money to complete what they have started.

      No, this is not a business school class where effort counts toward a grade. It does not matter what you have done so far when it comes to telling me to put my money at risk. You have not demonstrated even the beginnings of an ability to become consistently profitable much less successful.

      3. We recognize that our continued focus on large SUV‘s and other low mileage vehicles was a mistake. We promise to continue to move our production to more fuel efficient cars and that will help ensure that we succeed.

      The focus on SUV’s, etc. was simply the only rational product choice. The cost structure of the three companies is such that they lose money on each small car they built. The much ballyhooed Chevy Volt is expected to sell for $40,000 when and if it becomes available. If GM can make a profit at that price, good for them but it is not much of a stretch to say that the features and capabilities of that car will mean its market is small and narrow. Switching more production to smaller cars only makes sense if they will be profitable and competitive, neither of which has been demonstrated to date.

      4. If we don’t rescue the Detroit Three, it is the end of the American auto industry.

      No, there is a fine American auto industry operating outside of Detroit. The ownership is not as American (many American investors own shares and debt of some of the transplant parents as do many foreign investors own shares and debt on the Detroit Three), but the employees and dealers are. Further, they seem able to produce vehicles which American consumers want, increasingly, to buy. Remember, Chrysler was owned by a German company for 8 years and only became American owned again in 2006.

      5. Bankruptcy will result in a liquidation of the assets rather than a path to a more rational business model.

      Airlines have been bankrupt for years and still operate. Delphi, one of the auto industry’s largest suppliers, has been in bankruptcy for several years and continues to operate and is hiring. Its employment went from about 185,000 pre-bankruptcy to 170,000 at the end of 2007, not a large drop. If there is a sustainable business model for any of the Detroit Three, it can only be created with entirely new white and blue collar compensation and benefit plans, work rules, dealer networks, debt levels and other modifications. I am not interested in providing the companies money while they negotiate these points.

      6. Wages and benefits account for only 10% of the cost of the vehicles. The implication is that the UAW wages and benefits are not important to the problems of the companies and that if the UAW worked for free, the manufacturing cost of vehicles would be 10% lower.

      This can’t be accurate. Too often have we been told that health care benefits alone account for $1,500-2,000 per vehicle. That amount would approach 10% of the cost to manufacture many of the vehicles. I continue to believe that one of the important cost problems is the UAW contract with its wages, benefits and work rules.

      7. We’ll get the CEO’s to work for $1/year and that will help ensure the economic success of the businesses.

      This is irrelevant other than for posturing purposes by the CEO’s and legislators. The money saved is trivial to the companies and the CEO’s will get compensated in some other way or they will just leave. Why would they turn this very difficult job into volunteer work?

      8. General Motors needs $4Billion by 12/31 in order to pay its bills in January.

      I am very suspicious of this claim. They have provided no detail on cash flow over the next 60 days nor on what else they are doing to survive if the government does not provide funding.

      Senator, I am also sending this e-mail to a number of your Senate and House colleagues. I hope it proves useful.

    10. george dubendris,rum says:

      I believe the other governments subsidize their auto industries.

      I too do not agree with the bailouts at tax payer expense.

      But lets face it the playing field is not level.

      I fully blame management for their give away benefits to the bargaining units. The unions were only doing their job and they did it well.

      Management did not do their job and thats why we are in this situation today.

      As for the government running the companies? Give me a break. All one has to do is listen to the comments of idiots like Sen. Dodd.

      At the risk (tongue in cheek) of being politically incorrect,"that's the pot calling the kettle black."

    11. wang kang, new york says:

      The Great British auto industry, now in a miserable situation, is the best lesson U.S people could learn from it. Auto is the base of heavy industry and military. If you won't drive BMW or Toyota's tank in the next war, stop talking about the huge cost of GM. Company can be fixed. It is not a problem. Why don't fix it later? If you do some investment, you will know that: Don't sell it at the bottom. BTW, I am a Chinese. I-visa holder.

    12. jjay - Louisville, K says:

      And the writers of this article think the auto industry did a better job than government ? Get a grip on reality.

    13. Pingback: “We Don’t Want Government to Run Companies” « America, You Asked For It!

    14. Dell in South Caroli says:

      What's the old saw..? The crazies are in charge of the asylum..? Well, guess what, friends..they're not only crazy, they're greedy and completely uninformed as well. What have any of them ever done to qualify them to build a car? This whole bunch..Pelosi, Reid, Dodd and Frank..probably don't know a radiator from an alternator but they think they can pick a car czar who does! So what even qualifies them for that technical job!?! Seems to me the only job they could do right is cut out the 35% tariff on every new car that's built. No wonder every other country in the world can out-sell us in today's market..we start off with a disadvantage before the doors are ever opened each day!

      God help us for the next 2-4 years until we might be able to get some sanity back into our government. At least they didn't get their super majority so the GOP can maybe slow 'em down a little here and there.

      Also, it seems that everybody wants to blame the Republicans for this whole mess we're in but where were our leaders..(again Frank, Dodd, Paulson, etc.)..while all this was building up? Sitting on their hands hoping they could do their terms before the crap hit the fan, I'll bet! How could they NOT see this coming? The GOP may not have known all they should have when this mess started but, if these people we put into office were really there to serve the American taxpayer, they've surely done a lousy job of it!!!

    15. Pingback: Morning Bell: “We Don’t Want Government to Run Companies” · I Article

    16. Kevin E. vonMoses, G says:

      Quite frankly, those who can, do… those who can't, run for Congress. Maxine Waters is as good an example of a self inflated poltroon as you are likely to find. She honestly believes that SHE and the other know-nothing liberals have the answers.

      From time immemorial the question is whether or not the great unwashed masses could govern themselves or whether they needed an elite to guide them. Jefferson posited the former was true while Hamilton supported the elite/gentry need.

      IF the constituency of the sitting Congress as installed by the voters is any indication, Hamilton just may have been right…

    17. Michael J O'Bri says:

      Mike B – Bravo!

      Ken Karvis – you have been living in Las Vegas way too long. Investors do not run companies; investors elect directors who in turn hire managers. As normal investors, should we not like what the company is doing we can always sell out of the position. In the case of these bail outs, the taxpayer has no such option [we have non voting preferred stock and warrants ]. If the company fails, then it is over for the taxpayer. All we can do is watch hopelessly as our elected government officials waste away our hard earned tax dollars on political promises. Write your elected officails and tell them.

    18. Pingback: “We Don’t Want Government to Run Companies” « Conservative Thoughts and Profundity

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    20. frankz, brewster, ny says:

      the car co's should be bailed out with criteria for the co's to meet. They are suffering the same problems the railroads had with firemen on diesels. It's time the car co's deal with the realities of today, the problem created by the mgmt, unions, & govt in unison. Let's make all three parties give what it takes to make this a viable business.

    21. Linda Fisher, South says:

      We don't need to believe that they will not survive. They need to go through bankruptcy. That is the only way that they can get rid of their labor conracts with the unions. This huge labor bill is one of the reasons they are in this shape. They can survive with the bankruptcy court better than with the government. We need LESS government control, not more in the lives and businesses of americans.

    22. Pingback: - Are You Riled Up? - » Blog Archive » Morning Bell: ‘We Don’T Want Government To Run Companies’ » the …

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