Crony Car Capitalism
Several recent revelations bring home just what a cesspool of crony
capitalism the American auto industry has become. The Obama
administration and the UAW (Obama's major financial and political
supporter) are running the show.
First is the news that the "new" GM walked away from the crony
bankruptcy proceedings with a huge tax break -- one worth up to $45
billion. It was revealed in the paperwork filed for its IPO that the
Obama administration gave the new GM a sweetheart deal: it will be
allowed to carry forward huge losses incurred by the "old" GM prior to
its bankruptcy. Of course, the IRS doesn't allow the new companies that
emerge from bankruptcy to write off their old losses. But the feds
decided to waive that rule for companies bailed out by TARP.
Thus, the new GM will save about $45.4 billion in taxes on future
earnings, which may allow it to escape taxes for the next twenty years.
This "tax-loss carry-forward" is a huge plum, an asset most of GM's
rivals don't have, and one that no doubt led to its artificially high
IPO stock price.
This brings up the second revelation: namely, the machinations by the
Obama administration during the IPO that consciously helped the UAW make
out like bandits.
The UAW was given a big chunk of new GM in the crooked bankruptcy
settlement. To be precise, the very monster that drove GM off the cliff
-- the UAW -- received 35% of the stock in the new company. With the
sale of the stock in the new GM, the UAW earned an immediate $3.4
billion in selling about one third of its shares.
Moreover, if the UAW can get $36 per share for the other two-thirds of
its shares, it will walk away breaking even -- meaning it will walk away
with its outrageously bloated pension and health care fund fully intact.
The taxpayer, on the other hand, hasn't fared well at all.
In fact, the Obama administration screwed the taxpayer just as
thoroughly as it pampered the UAW. The taxpayer put $49.5 billion into
GM in the bankruptcy, not to mention all the funds shoveled at the
company prior to that. The Treasury recouped only a wretched $13.7
billion in the IPO, mainly because the Obama administration -- in yet
another unprecedented gift to the union -- announced publicly that it
would not sell any more stock for the next six months. This enables the
UAW to dump its shares whenever it wants at a much higher price than it
could get if the Treasury were also selling. The taxpayers will almost
certainly get a lower payout, and they will never recoup their forced
investment in these dinosaurs -- all to enable the UAW to walk away made
Screwed even worse were the old secured creditors -- you know, the ones
near the front of the line in bankruptcy filings way back when America
was governed by the rule of law. The bondholders in the old GM have
bonds as useful as scratch paper. (I won't mention the stockholders in
the old GM, because stockholders -- who are only the legal owners of a
company! -- typically got nothing in bankruptcy.)
The Obama administration car czar, who engineered the crony bankruptcy
-- the aptly named Steve Rattner -- claims that the secured creditors
would have received nothing in a standard bankruptcy anyway. But his
claim is ludicrous on its face: in a regular bankruptcy, the union
contracts that caused GM's and Chrysler's failure would have been
nullified, and the substantial assets of the companies (plants,
inventory, receivables, land, patents, etc.) would have been worth a
substantial amount to other automakers and investment companies. The
proceeds would have gone to satisfy the bondholders at least to a fair
The third recent revelation about the U.S. automakers was the news that
the Obama administration changed the purchasing of vehicles for the
federal fleet dramatically; again, apparently to benefit its supporters.
It turns out that the administration itself has purchased a huge,
unprecedented chunk of American-made hybrid cars assembled since it took
over two of the loser companies. This has propped up the sales of hybrid
cars in the face of widespread consumer indifference.
The U.S. General Services Administration (which handles the federal
fleet of cars) bought nearly 15,000 hybrid cars over the last two years,
or about 10% of the government cars purchased. This compares to only 1%
of the fleet being hybrids just two years ago. Even more striking, more
than 20% of the hybrids the GSA purchased were bought using "stimulus
money" (yes, the GSA got "stimulus money" -- $300 million in total!).
Furthermore, it is interesting to note that of the 15,000 hybrids that
the GSA bought, only 22 were from Toyota and Honda. All the rest were
purchased from GM and Ford. (Chrysler stopped making hybrids back in
2008 after a brief attempt.) The GSA in total bought nearly 25% of all
the American-produced hybrids made over the last two years.
Why is that? We can dismiss the idea that it was because the Obama
administration judges the Japanese hybrids inferior; the Japanese are
widely viewed as having the lead in that technology, and they produced
hybrids before Detroit did. No, it is doubtless because the UAW controls
Ford and GM, and the UAW was (and is) a huge contributor to the
Democratic Party, and the Obama campaign in particular. After all,
consumers are not sold on hybrids -- globally, hybrids account for only
about 2% of all auto sales. But the Obama administration -- to pay off
its union and environmentalist big money donors -- is buying thousands
of hybrids from the American auto makers.
So there you have it. The Obama administration rigged the bankruptcy to
favor the union, rigged the IPO to favor the union, and has purchased
much of the inventory unsalable in the free market, again to benefit the
union (and the environmentalists). But of course, the unions (and the
environmentalists) pumped many millions of dollars into Obama's
campaign. They also and pumped many millions into trying to keep
Democratic candidates in office in the last election.
This is corrupt, crony car capitalism, all paid for by coerced taxation,
from an administration that promised a new era of transparency and
honesty in government. But at the end of the day, the cabal at the top
behaves just like the dirty Chicago machine that spawned it.
"Your first, last, and only line of defense-a Cohort of Roman Heavy
Click to see the full signature.