Bailout Watch 349: UAW Boss: GM Won't Meet Loan Terms

I used to discount the UAW for Detroit's problems. "It's the cars stupid." Well, GM and Chrysler still aren't making cars that people want to buy but I think Gettelfinger and the UAW will be the straw that breaks the camels back - NOT the cars. While I think anyone with 40% losses in their 401k should be at the gates of Wall Street fat cats with torches and pitchforks....but any UAW worker should be doing the same at Gettelfinger's residence. He is destroying Detroit and endless Obama bailouts won't save a thing.

While this may appear to be a case of feet-dragging by the UAW, the whole equity-for-cash mandate is quite complicated. Don't expect the bond holders to finalize anything anytime soon, either. Believe me, I would like to hear from the leadership that this will be resolved by the (seemingly) arbitrary deadline to everyone's satisfaction. I do take exception to characterizations of our benefits as "unheard of". Throw the soon-to-be-dead JOBS bank into that category if you will, but pensions and healthcare are hardly atypical. As far as outdated work rules, if that were the case, how is it that 9 of the top 10 most efficient assembly plants are union represented, according to Harbour? And one more time, we do not make $70 an hour in wages and benefits. Even the MSM has gotten off of that.

GM's responsibility to the public Larry Burns, GM Vice President of Research & Development, wrote that "The solution lies in sharing the public/private risks and rewards – possibly creating a partnership between the U.S. government, auto manufacturers and suppliers, the energy and infrastructure industries, and other key stakeholders focused on transforming the automobile." Perhaps GM should consider a new model for public-private partnerships beyond the bailout. As the Federal Government issues billions in bailout packages, local municipalities compete for manufacturing jobs with individual firms receiving customized tax packages. Large corporations such as GM have armies of tax advisors, strategists, consultants and attorneys to their disposal. Smaller municipalities may not have these resources, but must pick up where a corporation leaves off. For example, the town of Vance, Alabama and associated local government agencies offered Mercedes–Benz 362 million USD in subsidizes to attract foreign direct investment into the town. The factory builds automobiles and thus increase the town’s share of Gross Domestic Product and the advanced technology that the company brings will increase productivity. This is a common practice in the United States where cities and states compete for corporate investment. Part of the package came in the form of tax breaks against future earnings. Others, such as the construction of new roads, was an advance investment by the city. Thus the city made a trade off between building a road for the company verses building a school or hiring more police. The government justifies the expense because of expected future returns in tax revenues form the factory and employment for the local workers. This is also therefore an attempt by the government to shift the unemployment. General Motors is also accustomed to receiving generous government support, such as $200 million from Canada in March 2005 and subsequent closing of multiple fatalities in Canada. What is the result of these subsidies? Do auto manufactures build a commitment to a community and stay in the long-term? Or do these corporations plan to simply leave for the next best opportunity where another municipality will offer even better subsidizes? Dennis Rondinelli and William Burpitt of the Kenan-Flagler Business School, University of North Carolina, Chapel Hill hold that incentives are not a primary factor for executives considering investing in North Carolina. In Do government incentives attract and retain international investment? A study of foreign-owned firms in North Carolina shows that “In an era of strong global competition, national, state, and local governments are vying to attract and retain investment by international firms by increasing the range and value of public incentives for businesses to invest in their jurisdictions. A survey of executives in 118 internationally-owned firms in North Carolina reveals that they rank state incentives low in a list of factors that they believe attract foreign-owned companies and retain them in the state. Labor force, trans-transportation, quality of life, and overall business climate factors are consistently ranked highest by business executives, and state tax, finance, plant services, and marketing assistance are consistently ranked low. (Rondinelli and Burpitt, Policy Sciences, June 2000). In a similar way, Dafna Schwartz, Joseph Pelzman, and Michael Keren at Ben Gurion University of the Negev, George Washington University, and Hebrew University of Jerusalem, respectively, show that incentives do not contribute to long-term economic development in The Ineffectiveness of Location Incentive Programs. “Many countries use location incentives programs to attract investment into a recipient country as a whole or to priority regions, with the goal of promoting growth....In both cases (Israel and Puerto Rico), the programs led to increased employment in the short run but did not alter the fundamental economic problems of these areas.... there is a governmental failure in their operation of location-related incentives programs and that these governments find it difficult to discontinue incentive programs once they have been introduced. Schwartz, Pelzman and Keren, Economic Development Quarterly, Vol. 22, No. 2, 167-179 2008) Mr. Burns, General Motors has asked for billions in special support from taxpayers. With respect to sharing the public-private risk, the history of auto manufactures such as GM, the risk is primarily on the side of governments, with the sharing of benefits is primarily on the side of the manufacturers. What is your commitment to the public? To put the issue in perspective; what would the financial services subsidiary of General Motors, GMAC, do to a customer who stopped making monthly payments with twenty thousand Dollars in debt? How long would GMAC wait until reposing the auto? The customer may be given some time, but eventually the car would be repossessed. The US Government is not in the business of manufacturing automobiles. If GM is unable to to find capital or debt on the free market, it should be liquidated. In a healthy free market, some companies fail, their useful parts are reorganized, and the sector consolidates or takes a new direction. Creditors and shareholders may loose money, but that was a risk that they knowingly took upon lending and investing in the company. Let bad management pay its price. Perhaps other firms or entrepreneurs will be able to turn some of GM's business lines towards profitability. Let he genius engineers and designers find quality companies to work for. The auto manufactures may cry that the domino effect of a company such as GM closing down will spread to relating industries. Closing GM will lead to the closing of supporting businesses who are not able to adapt. Should the public support funding for a horse and buggy industry because firms producing accessories such as buggy wheels and decorations? The interlinking of supply chains within the industry and related relationships has significant knock-on effects. For some industries this domino effect is stronger, such as the finance sector. This domino effect is not evident in the auto industry, where consumers have been voting for other firms for years. Let Let GM rest in peace. Let Darwinism do its work. Anjan Chhetry Joseph Sherman World Mediterranean MBA Euromed-Marseille, France http://www.euromed-management.com/accueil.aspx