Following yesterday’s impressive news from Ford Motor Company of their $1 billion profit in the third quarter, one may have wondered how the two government run American automakers fared by comparison. The answer was not long in coming, as following immediately on the heels of Ford’s news was a very dire report that GM, Chrysler are struggling mightily, and that their eventual demise was very likely only briefly delayed by the government’s intervention including the wasting of $75 billion of the American taxpayers’ money.
Analysts quoted for the story agreed that both companies are far from profitability, are still at great risk of failure and are likely to need at least one if not multiple additional rounds of federal bailout funds in order to overcome their current predicament. Of course, the problem with this is the federal government has no money to invest, already owns a large percentage of these “dead” companies and would simply be throwing good money (taxpayer money) after bad.
In slightly more than 24 hours we have been reminded of the lesson we long since should have learned from watching the second half of the 20th century. Capitalism works; Socialism, Stateism, Fascism fail. For those who are slow learners, this lesson will continue to play out for years to come in the quarterly reports of Ford versus GM and Chrysler, of Geico versus AIG, of J.P. Morgan Chase versus Citigroup and on and on. if someone out there is still not convinced perhaps a review of the performance of Amtrak, the U.S. Postal Service or the Department of Education would clarify things for them. Despite monopolies in both passenger train service and mail service, the federal government can’t profitably run Amtrak or the post office! And since the federalization of the American education system our world ranking has declined at a statistical rate that borders on impossible.
The government has never, can’t now, nor will ever be able to successfully run anything. The sooner the American people get this fact through their collective heads, the sooner priorities can be adjusted to getting government out of the way of business resulting in the best environment for the potential prosperity of the greatest number of Americans.
Today, Ford Motor Company reported a 3rd quarter profit of $1 billion, stunning socialists everywhere, mainly Washington Democrats, and in the process demonstrating for all those who may have forgotten that, surprise, surprise, capitalism still works. Having initially gone to Washington with its big three cohorts, GM and Chrysler, to seek a government bailout in light of the economic collapse; Ford quickly realized what all good capitalists know, that allowing Congress and the president to take ownership of their company would be the end of Ford as a productive entity. Withdrawing from the bailout process, Ford’s management team continued implementation of the turn-around strategy they had begun in 2005. It would appear they have gotten it right.
Meanwhile, down the road at GM and Chrysler Obama was firing CEOs (something he had absolutely no authority to do), shareholders were being diluted on a massive scale, unions were being forced to take huge pay cuts and the companies are being forced to sell off assets such as Hummer, Fiat and Saturn. Yet, with all that, profitability is nowhere in sight – not this quarter, not next year, perhaps never. Instead, billions of American citizens’ hard-earned dollars are being poured down the drain to save what in reality may not be savable.
That’s how capitalism works; it isn’t pretty and not everyone gets a gold star on their quarterly earnings or a ribbon just for participating. Some companies succeed and some fail. Often the failed companies come back following bankruptcy, or they are acquired by their competitors. In some cases they simply cease to exist. The beauty of the free market is that this only happens if the market has determined that the company is worthless and beyond saving.
Too bad Congress and the President don’t seem to understand these simple laws of economics – laws they should have learned in Econ 101. Instead, like a parent who tries to protect their child from every potential harm only to end up creating weak adults unsuited to the competitive real world (see Generation Y), the government continues to bail out businesses and in some cases whole industries resulting in weaker American companies and a weaker American economy overall. Imagine what might happen if they would only get out of the way. Perhaps the car companies in America would be more like Nissan and Toyota – highly competitive, tremendous market-leading products year after year, well-paid workforces and most importantly of all, consistently profitable and never having asked for one penny of taxpayer money!
Recently General Motors, or as I like to call them, Government Motors announced plans to invest nearly $300 million dollars in a joint venture with a Chinese company to build GM trucks in China. If you are at all like me, this announcement probably leaves you a little confused. After all, wasn’t this company on the verge of bankruptcy. Wasn’t Jack Wagner, its CEO crawling up the Capitol steps begging lawmakers for a bailout? Weren’t thousands of American GM employees being laid off and factories being closed? Where does a bankrupt company get $300 million to invest in a foreign venture? The American taxpayer; where else?
GM has been building cars in China for years now, and currently builds Buick, Chevy and Cadillac models. This venture will add light trucks and minivans to their Chinese production. To date almost none of this production ends up in U.S. showrooms, but how much longer can we expect that to last?
This week Government Motors managed to add insult to injury for the American taxpayer when they announced a new sales strategy, a sixty day money-back guarantee. That’s right, buy it and drive it for sixty days (up to 4,000 miles) and if you don’t like it, they’ll buy it back. No wonder this company has lost $88 billion since 2004. This may just be the worst idea in the history of automotive sales. A returned car with 3,800 miles is worth thousands less than it was new. It will not take very many of these to off-set any gain in market share GM manages to snag with this gimmick.
When this silly stunt fails to save the company, the management team will undoubtedly come up with another. Or perhaps they will decide to invest further in China. Either way, more of the American taxpayer’s hard-earned money will be wasted trying to save a dinosaur that was brought down by complete management incompetence and grotesque union greed.
Once again Congress is bribing some Americans using money stolen (okay taxed, but what’s the difference?) from other Americans. Democrats have decided they know best what cars their fellow citizens should be driving and want to manipulate the people’s behavior in their chosen direction. [On a side note, where is manipulate in the Constitution? I can’t find it.] Tuesday the House voted to provide $4 billion so that anyone who turns in a gas guzzler and buys a new car can get a $4500 rebate from Uncle Sam.
First, Democrats ripped off the shareholders and debt holders of GM and seized 83% ownership of General Motors using money they stole from the American taxpayer (well, actually the American taxpayer’s grandchildren, but that’s another story) and now their trying to rescue our $50 billion they poured into a dead company by ‘stimulating’ GM’s sales with more stolen funds.
But the greatest travesty here is the injustice of these kinds of measures. If your neighbor buys a new car or truck this year and the new vehicle gets 10 mpg better than their previous one, they get $4500 of your money and mine toward the purchase, no other strings attached. If the new auto gets just 4-9 mpg better than the old one they still get $3500 from our crazy Uncle Sam. Many Americans (estimates are around 9 million) were already going to buy a car this year and will now get a nice bonus courtesy of their fellow Americans for doing something they were already going to do. The hope is that this legislation will generate more sales, but how many more and will those additional sales be worth it?
Who loses in the end? The same taxpaying citizens who always lose. Those who listened to the politicians, the talking heads, or more likely, their own common sense and got out of gas guzzling autos in the last few years will once again be paying extra taxes so that others, who did not make good choices, can get a $4500 gift. Yet another example of Congress stealing from some and giving to others. Does no one see the injustice of a government behaving this way?
House passes cash for clunkers to boost new car sales – Jun. 9, 2009.
Can there be a more blatant example of the stupendous incompetence of government bureaucracies (and there are soo many to choose from), then the latest news that they have somehow managed to run the U.S. postal system into the ground. Think about that – even with a federally mandated monopoly they cannot operate profitably. The USPS lost $2.8 billion in 2008 and are seeking financial aid from Congress in order to stay afloat. Now before you say it, let me remind you that neither GM, AIG nor any of the other bailout recipients had the post office’s luxury of zero competition and forced consumer usage. Sure, there are FedEx and UPS if you’re sending a package or an overnight envelope, but in this country, if you are mailing a letter, bill, advertisement, magazine or even ‘junk’ you have no choice, you must use the post office.
With all this guaranteed patronage, the unfettered discretion to raise prices whenever it suits them (not surprisingly, it suits them often!) and the monumental competitive advantage of tax exempt status, they still can’t make it work. Meanwhile FedEx and UPS are going strong, FedEx most recent quarter ended with a $97 million profit. Of the three, the post office has by far the lowest customer approval rating as well.
For those of us in business, the idea of having the federal government force the entire population to use our product exclusively and still not be capable of operating profitably or satisfying our customers is unimaginable. We operate in the real world where you have to earn your customers patronage and loyalty, where price increases come with an inherrent risk of lost business, where a competitor could open a new location or develop a new service and take market share away.
In the end, the USPS, with none of these worries, and with the backing of the U.S. government, still can’t manage to run its business effectively. And with that we see the demise of the last example of a service or function the government performs better than the private sector. The government can’t balance its budget, but expects its citizens to do so. Can’t educate the country’s youth, but refuses to allow parents a choice in what school their child will attend. Can’t protect its borders and yet has the audacity to allow illegals to sue an American who protects his property since his government won’t. And, now we find that the government can’t effectively run a monopolized business. Yet the administration has the audacity to take over GM and expect to survive going head-to-head with all the world’s succesful auto makers. I wish them luck with that. Common Sense and experience tells us this can’t possibly turn out well.
Just this week the President of the United States fired the CEO of a publicly traded U.S. corporation. He did so without consulting the company’s board of directors. He did so without consulting the company’s stockholders. And he did so without ANY authority.
Now the media is lobbying against Mr. Wagoner getting his separation pay. Monday night while being interviewed by Greta Van Susteren, Rick Kline of ABC news suggested (actually more like dreamed of when) public opinion would force Obama to reconsider paying the ousted CEO, Rick Wagoner’s $21 Million separation contract. Never mind that this individual was a 32 year employee of GM or that this money was legally earned and GM is contractually obligated to pay it; Kline, seems to believe that public outrage should over rule legal contracts. Kline cited the public outrage surrounding the AIG bonuses and Congress’ actions to place a retroactive tax on that legally earned money. In case you missed it, and I can see how you might have since the media didn’t bother to report it, that Democratic action turned out to be UNCONSTITUTIONAL. Whooops!
Folks, this is the French Revolution with the tax code as the guillotine! This is open class warfare being egged on by the press. Two weeks ago a group in Connecticut organized a bus tour of the homes of the AIG executives. This is a community organizing group in action – in case you were still wondering what that entry on our President’s ever so thin resume was all about. Stirring up the masses against their fellow citizens is their specialty and it is extremely dangerous.
Maybe you don’t have any sympathy for AIG or GM executives. That sentiment is understandable. But, you must ask yourself where it will stop? This week the House Financial Services Committee led by everyone’s favorite lunatic, Barney Frank, has approved legislation that would impose government controls on the pay of all employees (not just top executives) of companies that have received capital from the U.S. government. Yet again, the Democrats are trying to impose a retroactive tax measure that would change the terms of legally binding compensation agreements already in place.
As usual, I’m left doing the usual stunned stare at the computer screen asking myself, “What the heck is wrong with people?” Unjust, illegal actions by our government should concern all American citizens regardless of their feelings about the individuals being targeted. Some day, that citizen may be you! Will it be ok if the government rewrites your employment contract ex-post-facto? Will it be alright if protestors march in front of your home because they think you make too much money?
Remember, the French Revolution began due to economic turmoil. Citizen’s unhappy with their financial status became determined to oust the ruling elite (read – upper class). At first, the King and other members of nobility were the targets of the outrage, but eventually some 30,000 people were executed as “enemies of the Revolution” many of them common citizens (people we’d today call middle class) who argued for reason and Common Sense, people who dissented.