Once, We Would Have Called It a Scandal

[shagdrum]

Once, We Would Have Called It a Scandal
by Newt Gingrich

There was a time when we would have called it a scandal.

In 1921, oil tycoon Harry Sinclair gave several prize head of cattle and around $269,000 to President Harding’s Secretary of the Interior, Albert Fall.

In return, Sinclair got the exclusive rights to drill in an oil field in Wyoming. Sinclair’s no-bid contract became the Teapot Dome scandal, the most notorious example of political corruption in America prior to Watergate.

Between 2000 and 2008, the United Auto Workers (UAW) union gave $23,675,562 to the Democratic Party and its candidates.

In 2008 alone, the UAW gave $4,161,567 to the Democratic Party, including Barack Obama.

In return, the UAW received 55 percent of Chrysler and 17.5 percent of GM, plus billions of dollars.

But nobody’s calling this a scandal. It’s time we start.

2000-2008 UAW Giving: $23.7 million to Democrats. $193,540 to Republicans


The almost $24,000,000 the UAW has given to Democrats since 2000 compares with the $193,540 the union has given to Republicans.

In the 2008 presidential election, President Obama was by far the biggest recipient of UAW contributions, raking in $27,340 compared to the $10,600 given to Hillary Clinton, the No. 2 recipient of UAW money.

And so it was no surprise to the cynical Washington political class when the payback began with the Chrysler bankruptcy.

In a rigged proceeding in which the federal government disregarded bankruptcy law in favor of the political outcome it desired, the Chrysler bankruptcy laid the predicate for the much larger General Motors bankruptcy to come. Against law and precedent, the unions were moved to the front of the line when it came to who would benefit from the bankruptcy.

The Obama Treasury Department strong-armed Chrysler’s creditors into a deal in which the UAW was given 55 percent ownership of the company while Chrysler’s secured creditors – investors who would have received priority in a non-political bankruptcy proceeding – were left with just 29 cents on the dollar.

On Monday, the Supreme Court Delayed the Completion of the Chrysler Bankruptcy

Some of these secured creditors, led by a group of Indiana retirement funds, are fighting back. They’ve charged in court that the Chrysler bankruptcy violated the bankruptcy laws and violated their rights as senior lenders.

On Monday, the Supreme Court put a hold on the Chrysler bankruptcy to hear their case.

We don’t yet know which way the high court will rule, or if it will rule at all. But we do know what’s at stake. Indiana State Treasurer Richard Mourdock put it well:

“The issue of secured creditors’ rights is bigger than Chrysler. It’s an essential foundation of our capital markets. And fundamentally, this is about the law.”

“Never Has an American Union Done So Well At the Expense of Shareholders and Creditors”

But the Chrysler bankruptcy was just prelude to the Obama-Administration-brokered General Motors bankruptcy deal announced last week.

The GM deal is yet another example of rank, taxpayer-financed political favoritism.

Once again, the big losers are GM’s bondholders, who include substitute teachers in Florida and retired tool and dye supervisors in Michigan. They hold $27 billion in GM debt but are receiving a 10 percent stake in the new company.

In contrast, the UAW, which is owed about $20 billion from GM, is walking away with 17.5 percent of the company and a cool $9 billion in cash.

According to one analysis, while the bondholders will be lucky if they recover 15 cents on the dollar, the UAW can expect to recover up to 60 to 70 cents on the dollar – four to five times what the bondholders will receive.

As Barron’s Magazine wrote, “Never has an American union done so well at the expense of shareholders and creditors”.

“At a Time When Some American Workers are Facing Stiff Pay Cuts, UAW Workers Gave Up Their Customary Paid Holiday on Easter Monday”


Of course, the Obama Administration has assured us that the United Auto Workers has made “substantial concessions” as part of the bankruptcies that have literally saved the union from extinction.

But as no less than the Washington Post put it, the “union concessions were ‘painful’ only by the peculiar standards of Big Three labor relations: At a time when some American workers are facing stiff pay cuts, UAW workers gave up their customary paid holiday on Easter Monday and their right to overtime pay after less than 40 hours per week. They still get health benefits that are far better than those received by many American families upon whose tax money GM jobs now depend.”

Union members also preserved their right to have six unexcused absences from work before they can even be considered to be fired.

Can you feel the pain?

The Unions Have Been Rewarded With Ongoing Subsidization by the Taxpayers


It is a sign of the degree to which raw politics has dominated its handling of Chrysler and General Motors that the Obama Administration has a 31-year-old who has not yet graduated from law school determining the fate of two multi-billion dollar companies.

For their political support of the Democratic Party, the auto unions have been rewarded, not just with ownership stakes in two giant companies, but with ongoing protection and subsidization by the U.S. taxpayers.

The President has said repeatedly that he wants to get out of the auto business as soon as possible. But does anyone seriously believe that he would accept an arrangement in which GM becomes profitable at the expense of the union and its gold-plated benefits?

Having spent $50 billion to “save” GM and the UAW, does anyone really believe that the Obama Administration will now allow economics and not politics to dictate its future decisions?

In the GM and Chrysler bankruptcies, the Obama Administration has trampled on the rule of law.

It is using the taxpayers’ money to pay back a political group for its political contributions.

There was a time when we would have called that a scandal.

 

[shagdrum]

Can you say liberal corporatism/cronyism?

 

[SoonerLS]

I am not, by any stretch of the imagination, a fan of Obama or the UAW, and there probably are politics, cronyism, and other shady dealings involved in the Detroit bailout, but the UAW receiving stock in GM and Chrysler isn't a very good example of it.

First, it was first proposed by Republican legislators, notably by Senators Bob Corker (R-TN) and Jim Demint (R-SC), and would have been required under a Detroit bailout bill they proposed late last year.

Second, the UAW itself did not receive the stock. It was received, in lieu of cash payments, by the UAW's Voluntary Employee Benefits Association (VEBA) trust; this VEBA assumed responsibility for the pensions and benefits (primarily healthcare) for the UAW retirees under the terms of the 2007 UAW contracts with Ford, Chrysler, and GM.

Third, the UAW and the VEBA did not want the stock, which, as noted, was provided in lieu of cash payments into the VEBA. They fought the plan when it was first proposed by the Republican Senators last December, and continued to do so until forced to accept it in the face of impending bankruptcies (which almost certainly would have resulted in them receiving the stock as debt-for-equity swaps, anyway).

Additionally, UAW President Ron Gettlefinger has plainly stated that the VEBA intends to sell the stock as soon as is practical, because the VEBA needs cash, not stocks, to meet their ongoing obligations to the retirees.

 

[04SCTLS]

If the Unions own a big piece of Chrysler and GM maybe they'll look at their own interests in a different light.
But that may be only wishful thinking.
On the other hand no one is forced to buy a GM or Chrysler vehicle.
They will still have to compete for customers.

 

[Marcus]

And thank you SoonerLS for setting the record straight.

I would also like to point out that GM and Chrysler were not the victims of a hostile takeover by the government. THEY CAME TO THE GOVERNMENT asking for a handout! Regardless of whether you believe we should have bailed them out or not, we did. It's done. So should the government have no right (or responsibility to taxpayers) to set certain rules regarding how that money is spent?

Note that Ford didn't take a dime of bailout money. No one is telling them what to do.

 

[foxpaws]

Also, the UAW doesn't want stock in failing companies. They aren't dumb... GM and Chrysler stock is a terrible investment right now. And, you never want to be heavily invested in stock where your income lies... i.e. if you are employed in the automotive business, you are already heavily invested in automotive, you don't want to have additional exposure by having stock in automotive companies...

As far as benefits, et. al. - it took two to tango at the bargaining table - Management had to sign off... and they were happy to - because as the union benefits go, so go theirs. So as the unions got better medical, pension, vacation, etc. benefits, so did management - for a long time increasing benefits was a win/win situation for both management and union - there wasn't a big incentive to not drive up benefit costs...

the Obama Administration has a 31-year-old who has not yet graduated from law school determining the fate of two multi-billion dollar companies.

Isn't this a bit judgmental - I don't believe Bill Gates, Malcom Forbes or Steve Jobs graduated from law school either - and certainly were well on their way to being incredibly successful businessmen by the age of 31...

 

[shagdrum]

I am not, by any stretch of the imagination, a fan of Obama or the UAW, and there probably are politics, cronyism, and other shady dealings involved in the Detroit bailout, but the UAW receiving stock in GM and Chrysler isn't a very good example of it.

Why should the UAW, get any more stock in GM/Chrysler then what they had before the bailouts?

I would also like to point out that GM and Chrysler were not the victims of a hostile takeover by the government. THEY CAME TO THE GOVERNMENT asking for a handout!

...then Obama leveraged that (through thug tactics) into a payoff for his constituents; cronyism.

So should the government have no right (or responsibility to taxpayers) to set certain rules regarding how that money is spent?

The government should not abrogate the contractual rights of private citizens in favor of their political supporters. They should keep the bailout non-political, which it decidedly is not.

None of what has been raised here in any way lessens or logically counters the criticisms; it only obfuscates them.

 

[SoonerLS]

Why should the UAW, get any more stock in GM/Chrysler then what they had before the bailouts?

Again, it's the VEBA trust that gets the stock, not the UAW, and that stock is being taken in lieu of cash that GM and Chrysler are contractually obligated to pay. Neither GM nor Chrysler entered into that contract under duress; on the contrary, the transference of the UAW retiree benefits from Ford, GM, and Chrysler to the VEBA was considered to be a rather important victory for the Detroit 3, because it relieves them of a tremendous, and increasingly large, debt burden (and concomitant manufacturing cost disadvantage).

Not only were these particular terms (the debt-for-equity swap) originally proposed by Republican Senators, but they were also put into action by Secretary Paulsen when he used the TARP funds to provide bridge loans to GM and Chrysler in December, 2008--under President Bush, not President Obama.

I think there's lots of room to argue about whether or not the TARP funds should have been used for this--or even if the TARP funds should even have been "appropriated" in the first place--but calling it a grand conspiracy between the UAW and the Democrats (and President Obama in particular) is simply not, IMHO, a position that can be supported by the facts.

Personally, I find the Government's ownership position far more troubling than the VEBA's position...

 

[SoonerLS]

The government should not abrogate the contractual rights of private citizens in favor of their political supporters. They should keep the bailout non-political, which it decidedly is not.

I do agree with this, and I think the creditors complaining about these agreements turning 150 years of bankruptcy law upside down do have a point. My problem is with the contention that the VEBA's position in Chrysler and GM is a payback from the Democrats to the UAW--particularly when the plan was conceived of and set into motion by Republicans. There's plenty of meat in this argument without setting up conspiracy boogeymen.

 

[JohnnyBz00LS]

Not only were these particular terms (the debt-for-equity swap) originally proposed by Republican Senators, but they were also put into action by Secretary Paulsen when he used the TARP funds to provide bridge loans to GM and Chrysler in December, 2008--under President Bush, not President Obama.

I think there's lots of room to argue about whether or not the TARP funds should have been used for this--or even if the TARP funds should even have been "appropriated" in the first place--but calling it a grand conspiracy between the UAW and the Democrats (and President Obama in particular) is simply not, IMHO, a position that can be supported by the facts.

My problem is with the contention that the VEBA's position in Chrysler and GM is a payback from the Democrats to the UAW--particularly when the plan was conceived of and set into motion by Republicans. There's plenty of meat in this argument without setting up conspiracy boogeymen.

Well said, shag has been *owned*

 

[shagdrum]

Not only were these particular terms (the debt-for-equity swap) originally proposed by Republican Senators, but they were also put into action by Secretary Paulsen when he used the TARP funds to provide bridge loans to GM and Chrysler in December, 2008--under President Bush, not President Obama.

Yes, and Obama has leveraged that unethically into a politically motivated bankruptcy where by he can pay back some constituents and, arguably, hurt his political opponents financial base (through dealer closings) while also setting this up a tool to enact a radical environmental agenda.

Who originally created, proposed, etc. The TARP funds for this is irrelevant to that point.

but calling it a grand conspiracy between the UAW and the Democrats

I never said conspiracy. I said corporatism/cronyism. No "conspiracy" among various parties is needed for those.

Personally, I find the Government's ownership position far more troubling than the VEBA's position...

Agreed.

 

[Frogman]

Isn't this a bit judgmental - I don't believe Bill Gates, Malcom Forbes or Steve Jobs graduated from law school either - and certainly were well on their way to being incredibly successful businessmen by the age of 31...

But how many of those guys had access to taxpayer's money and used that, instead of their own?

 

[Marcus]

Yes, and Obama has leveraged that unethically into a politically motivated bankruptcy where by he can pay back some constituents and, arguably, hurt his political opponents financial base (through dealer closings) while also setting this up a tool to enact a radical environmental agenda.

Speculation and utterly baseless assertions. You constantly use the same tactics you decry in others here. Can you not see that? Eh stupid question, of course you can't. You just repeat the same talking points over and over again like the trained robot that you are. That's why it's so damned impossible to have anything remotely close to "debate" with you here.

http://www.macombdaily.com/articles/2009/05/30/news/srv0000005465630.txt


Documents show Chrysler dealership closings were not politically motivated

Published: Saturday, May 30, 2009

Claims that the closing of Chrysler dealerships was a partisan political exercise overseen by the White House do not match with the facts available in federal documents for Macomb County dealers.

Conservative bloggers insist that dealer owners who contributed to Republican candidates were disproportionately targeted for closure, with the White House Auto Task Force calling the shots. But a review of Federal Election Commission records reveals a different story.

In Macomb County, three dealerships were closed in the Chrysler bankruptcy process and seven were saved. The FEC records show no noticeable difference in the political leanings of the owners of the 10 businesses.

Anthony Viviano, president of the Metro Detroit Dodge dealer's association and owner of Sterling Heights Dodge, which will remain in operation, said politics was never a factor in the process.

"That's just a bunch of baloney," said Viviano, former president of the Detroit Area Dealers Association.

According to the FEC, Viviano donated $4,150 to federal candidates over the past 10 years, with most of the money flowing to former Republican senator Spence Abraham and GOP Rep. Candice Miller. The only deviation was a $500 contribution to Democrat Carl Marlinga's 2002 bid for Congress.

As with every other Chrysler dealer in Macomb, Viviano did not donate to President Obama or any other 2008 presidential candidates.

The FEC records show a consistent pattern. The surviving dealers donated to Republican Michael Bouchard's 2006 Senate campaign, the National Republican Congressional Committee, the Republican National Committee, the Michigan Republican Party, Abraham and Miller.

One exception was Carl Galeana, who has a bipartisan track record. Over the past 10 years, Galeana, vice president of Galeana Automotive Group, has contributed a combined $16,700 to Abraham, Bouchard, Miller, Marlinga, Democratic Reps. Gary Peters and Mark Schauer and the Democratic Senatorial Campaign Committee.

Galeana's mixed record of political assistance has, presumably coincidentally, matched the mixed results he has experienced during the Chrysler and General Motors march toward bankruptcy protection. Galeana's Van Dyke Dodge in Warren survived, but the future of his other dealerships — Saturn of Warren and Saturn of Lakeside in Macomb Township — remains in limbo.

Two Macomb dealers — Mike Riehl of Roseville Chrysler Jeep and Robert Brent of Orchard Chrysler Dodge Jeep in Washington Township — made no federal contributions over the past decade. Both stayed off the casualty list.

A Wednesday editorial by The Washington Examiner indicated that a number of Chrysler dealerships across the nation slated for closure are owned by people who have donated to Republican candidates or Democrats who opposed President Obama in the 2008 primaries, such as Hillary Clinton. Bloggers quickly latched onto the report and talk-radio commentators followed.

But it appears the flaw in the premise is that most dealer owners prefer GOP candidates, not just those owners who are targeted by Chrysler's 25 percent reduction in dealerships.

According to the Washington-based Center for Responsive Politics, the National Auto Dealers Association membership gives 69 percent of its contributions to Republicans. Some calculations indicate that the tilt toward the GOP is even more pronounced among all auto dealers.

White House press secretary Robert Gibbs said Thursday that the list of dealerships marked for extinction was crafted by Chrysler executives, not the Auto Task Force.

Viviano, a 43-year veteran of the auto business, has a keen sense of the anger expressed by many dealers who will soon shut their doors. Meadowbrook Dodge in Rochester Hills, in which he holds a majority stake, in partnership with his two sons, will be shutting down.

Though the business was highly profitable and ranks in the top 20 nationally for sales volume among Chrysler dealers, Viviano told his sons, Sal and Nino, that the property did not fit the automaker's plan to favor dealerships that have room for expansion and upgrades.

"There was a reason for this. They are sitting on just 4.6 acres. There's nowhere to expand," he said. "We (at Sterling Heights Dodge) are sitting on 20 acres and we have two huge showrooms. Our capacity is four times the size of (nearby competitors)."

 

[foxpaws]

But how many of those guys had access to taxpayer's money and used that, instead of their own?

It just seemed that the Newtster was being a bit judgmental regarding higher education. I realize he has a doctorate in history... but, higher education doesn't really equate to business acumen.

And no, the others I listed weren't playing with our money - however, would I be pleased if Wagoner was going to be playing with our money after what happened to GM on his watch over the last 8+ years? Not really.

Plus, Brian Deese has to be cheaper than Wagoner...

 

[JohnnyBz00LS]

More on the falsehood that Chrysler's dealership closing selections were politically motivated:

http://www.fivethirtyeight.com/2009/05/news-flash-car-dealers-are-republicans.html

Overall, 88 percent of the contributions from car dealers went to Republican candidates and just 12 percent to Democratic candidates. By comparison, the list of dealers on Doug Ross's list (which I haven't vetted, but I assume is fine) gave 92 percent of their money to Republicans -- not really a significant difference.

There's no conspiracy here, folks -- just some bad math.

But its no stretch to imagine where shag gets his talking points from (cough "Rush") or that the statistics are much too complicated for him to comprehend.

 

[fossten]

And thank you SoonerLS for setting the record straight.

I would also like to point out that GM and Chrysler were not the victims of a hostile takeover by the government. THEY CAME TO THE GOVERNMENT asking for a handout! Regardless of whether you believe we should have bailed them out or not, we did. It's done. So should the government have no right (or responsibility to taxpayers) to set certain rules regarding how that money is spent?

Note that Ford didn't take a dime of bailout money. No one is telling them what to do.

The government has no Constitutional authority to take over business, whether they are asked to or not. Furthermore, the Government gave control of the companies to the UAW. They are setting the rules. Say bye-bye to GM.

 

[fossten]

It just seemed that the Newtster was being a bit judgmental regarding higher education. I realize he has a doctorate in history... but, higher education doesn't really equate to business acumen.

That logic applies to the bureaucrats now in charge of Obama Motors.

 

[Marcus]

The government has no Constitutional authority to take over business, whether they are asked to or not. Furthermore, the Government gave control of the companies to the UAW. They are setting the rules. Say bye-bye to GM.

Foss, do you purposely ignore what other people post? As Sooner has explained several times, the UAW does NOT control 55% of Chrysler. It is a VEBA (Voluntary Employee Beneficiary Association) trust that owns the stock. Furthermore, it was the auto makers who pushed for a VEBA, as a supposed win-win for all solution. The VEBA trust is controlled by an independent party AND in this case, it has exactly one vote on the Chrysler board:

UAW health trust names Blanchard to Chrysler board
The Associated Press
Wednesday, June 10, 2009; 11:02 PM

DETROIT -- The United Auto Workers union said Wednesday that trustees of its retiree health care fund have named former Michigan governor James J. Blanchard to the board of the new Chrysler-Fiat venture.

Italian automaker Fiat Group SpA closed a deal earlier in the day to become the new owner of most of Chrysler's assets, saving the company from liquidation. The new company will be called Chrysler Group LLC.

Under the agreement brokered in the days leading up to Chrysler's Chapter 11 filing, the United Auto Workers union is getting a 55 percent stake in the restructured company, which will be used to fund its retiree health care obligations. As part of the deal, the voluntary employees beneficiary association, or VEBA, that was set up to pay those costs received a seat on Chrysler's board.

However, the union's control in the boardroom will be limited. The trust essentially has no voting rights because it's representative must vote with a majority of independent directors. Eight other company directors will be named by Fiat, the U.S. government and the government of Canada.

Blanchard, 66, served as Michigan's congressman from 1975 to 1983, helping to sponsor legislation to provide $1.5 billion in federal loan guarantees to then-Chrysler Corp., which kept the automaker out of bankruptcy court. He served two terms as the state's governor, leaving office in 1991, and later was named U.S. ambassador to Canada by the Clinton administration.

"In his public and private sector roles, Blanchard has wide experience in the auto industry, international trade and related issues," the UAW said in an e-mailed statement late Wednesday.

The VEBA will start paying health care costs next year for about 82,000 retirees. The total health care obligation is estimated at about $10.9 billion, plus additional costs for current workers who eventually will retire. The UAW has said it will need to sell off its majority stake in the automaker to fund the payouts.​

Right-wing pundits have been wrongly perpetuating the ludicrous claim that, by having ownership of Chrysler, the UAW would essentially be able to "negotiate with themselves". Bearing in mind that that's plainly false, let's pretend that it isn't. Considering the UAW has such a large stake in the very company they're negotiating with, it'd be against their interest that they would make any demands that would risk the company's health, and therefore their own retirement benefits. To the contrary, having an ownership stake in the company would make them MUCH more motivated to make the company healthy again. So the argument simply flies in the face of common sense.

By all indications the UAW can't wait to get rid of the stock! Once they do, they can start looting and pillaging again.

As for the constitutionality of the the plan, they way I understand it a company can bypass normal bankruptcy procedures by using "Section 363" in cases where things need to be hurried through. In this case, Fiat made an offer that would have expired June 15th, so there wasn't enough time for bankruptcy to proceed, and a section 363 was used.

Was it proper? Maybe not. But it is not illegal nor unconstitutional. Bear in mind that the plaintifs did not argue in their case brought to the SCOTUS that the deal itself was unconstitutional. Their argument hinged solely on the claim that the government shouldn't have been able to use TARP funds to bail Chrysler out because it is not a financial institution. So they too must have concluded that challenging the legality of the bankruptcy deal itself was a non-starter.

It is a fact that the government used a very loose interpretation of the law which created the TARP funds to give money to GM and Chrysler. Nevertheless, the SCOTUS chose not to hear the case. Only 4 of the 9 justices would have had to have voted to hear the case, but they didn't. So while it sure looks like some creative interpretation of the law was going on, they managed to wrangle it through on a technicality. Sucks doesn't it?

 

[shagdrum]

Though the business was highly profitable and ranks in the top 20 nationally for sales volume among Chrysler dealers, Viviano told his sons, Sal and Nino, that the property did not fit the automaker's plan to favor dealerships that have room for expansion and upgrades.

"There was a reason for this. They are sitting on just 4.6 acres. There's nowhere to expand," he said. "We (at Sterling Heights Dodge) are sitting on 20 acres and we have two huge showrooms. Our capacity is four times the size of (nearby competitors)."

Marcus, this is the only part of the article that has any substance to it and has not been discussed earlier on this forum; specifically in this thread.

And even this is a specious justification.

A business has to first be profitable to justify expansion. This standard, if accurate, is highly presumptuous and naive at best. It is not much harder to move to a different location or buy up other businesses if there is a need to expand. That is a weak rationale at best.

But the fact of the matter is that Chrysler is closing dealerships that are very successful while saving dealerships that are not as successful, but are democrat donors. In this instance, the RLJ-McLarty-Landers dealership, a democrat donor group is getting to keep all it's 6 dealerships open while it's competition is being eliminated.

You get on fossten for ignoring what other people post, but that is exactly what you are doing here. Most of the points you highlight here have already been countered in this thread and you are still hocking those points as if they were new to this argument.

This article points out a lot of the flaws in your argument, and I posted it in that previous thread. You are rudely forcing us to rehash old ground because you won't acknowledge a counterargument already given.

In fact, this last passage of that article that I already cited in another thread and that you are ignoring already counters a lot of what you are pointing out:

Excellent post up by Nate Silver on Huffpo making the argument that nobody should be surprised that lots of the Chrysler dealers getting the axe are GOP contributors because car dealers as a group are overwhelmingly Republican. Says Silver:

"It shouldn't be any surprise, by the way, that car dealers tend to vote -- and donate -- Republican. They are usually male, they are usually older (you don't own an auto dealership in your 20s), and they have obvious reasons to be pro-business, pro-tax cut, anti-green energy and anti-labor. Car dealerships need quite a bit of space and will tend to be located in suburban or rural areas. I can't think of too many other occupations that are more natural fits for the Republican Party. Unfortunately, while we are still a nation of drivers, we are not a nation of dealers."

That's true, of course, but I'm not sure that it ends the discussion. In fact, it may even make the discussion of possible partisan considerations behind the closings even more relevant. Think of it this way: If 88 percent of all car dealers were Democratic contributors, rather than GOPers, how likely is it that the Obama folks would be delivering such an egregious economic blow to the group, a blow that put thousands of people out of work and deprives hundreds of Democratic donors of their means of making contributions?

More likely, the Obama White House would be doing everything possible to avoid closing Chrysler dealerships, especially since the argument for closure has nothing to do with whether any particular dealership is profitable, but whether it is one more than somebody thinks Chrysler or GM should have in order to spread sales like Toyota does it.

If you think I am kidding, let's do a quick review of recent automotive industry history. People in Detroit, the automotive media - and on Wall Street where White House car czar Steve Rattner made his fortune - have been debating for years about the Big Three's need to reduce their dealership count in order to become more like Toyota.

Remember in the late 1970s when Chrysler almost went bankrupt the first time? And did you know all that kept Ford afloat in 1980 was its foreign sales? But despite those jolts, Detroit still didn't resolve the issues presented by serious foreign competition.

Instead of directly confronting the main source of their problem - over-priced labor that put the Big Three at a major disadvantage on costs - Big Three executives tried other approaches to manage what was sometimes called the "over-capacity problem."

Too many dealerships was only a minor part of the over-capacity problem, which at its most fundamental level consisted of having too many factories making far more vehicles than consumers wanted to buy. The ideas was that if they cut back production capacity to match sales, everything would be fine.

That thinking obscured the fundamental problem - too few sales of vehicles that were too costly to build and that increasingly consumers rejected. Detroit has still not solved this problem, although GM got it half right in the last decade by revamping its product line and substantially upgrading its assembly and reliability scores. But GM still hasn't been able to penetrate the UAW's lock on production costs. Ditto Chrysler, which suffers the additional fact of a product line that is in most respects at best merely adequate.

The Japanese automaker's U.S. sales strategy has long focused on having fewer dealers selling more cars per dealership than any of the Big Three. The thinking is that each dealer will make more money and be financially stronger as a result. The traditional Detroit strategy before Toyota came on the scene was the opposite - the more opportunities potential customers have to buy our products, the more likey they are to buy it.

But Toyota's strategy would be worthless if its products weren't sought after by consumers. Dealer count is a secondary issue, product appeal is the key to sales, which are the key to manufacturer profitability.

The tale is told in the numbers, as usual. Check out this excellent analysis by Bloomberg's Katie Merx and Keith Naughton on the math behind the dealer closings. Here's the key passage:

"Average new-auto revenue was $14.3 million for GM dealers and $12.8 million for Chrysler last year, compared with $40.9 million for Toyota, based on data from auto-research company Edmunds.com. Dealers also make money on used vehicles, parts and service.

"Each GM store averaged 444 new-auto sales, while Chrysler had 405, according to consulting firm Grant Thornton. Ford Motor Co. was similar, at 483. Japan’s three biggest automakers dwarfed those totals, with 1,200 for Toyota, 1,150 for Honda and 764 for Nissan Motor Co., Grant Thornton found.

"Shrinking GM’s dealer ranks to about 3,600 would push the automaker’s retailers to an annual average of 750 sales, said Paul Melville, a Grant Thornton auto-retailing analyst in Southfield, Michigan.

"'It’s heading in the right direction, but it’s still only 65 percent of where Toyota is,' Melville said. 'They’ll still have a lot of low-volume stores.'"

So, closing dealerships isn't what will restore Chrysler or GM to profitability. Which raises an interesting question for the White House: If getting Chrysler and GM back to profitability is the goal, why force any dealership to close?​

There is also another interesting fact that the article points out:

Maybe it's significant, maybe not, but a colleague here in the Examiner newsroom just reminded me that White House car czar Steven Rattner is married to Maureen White, the former national finance chairman of the Democratic National Committee. And let's not forget that before Rattner became a Wall Street mover and shaker, he was a New York Times reporter.​

 

[shagdrum]

All this talk of the about the VEBA is mischaracterizing some things.

First, in a normal, non-political bankruptcy these trusts are already protected by the government. So there is no justification for these actions in protecting these trusts.

Second, the VEBA is not separate from the UAW. The VEBA was originally formed by the UAW and is run by the UAW. So to say that the UAW is not going to have control through those shares because those shares are going to be with the VEBA is wrong.

And all the talk about the VEBA is a red herring that distracts from the fact that, as this article shows, what Obama is doing is uncontitutional (Bush using TARP to bailout Chrysler and GM was also unconstitutional, but that in no way justifies Obama's actions). Also what Obama is doing in only explainable as cronyism. He doesn't need to "protect" the VEBA trust fund because it is already protected and he is paying off the UAW at the expense of the bondholder, who's contractual rights he is illegally abrogating.