Word has it that the experienced entrepreneurial minds in Washington and the ever-solicitous-of-their-membership Union leaders have cut a deal whereby the government gets 55% of Government Motors stock and the UAW gets 45% (another report was 50-50, but it doesn’t matter which is correct for purposes of this discussion) in return for writing off a big hunk of cash that was supposed to go into union coffers for retirement benefits.

Upon this news, the price of GovMot popped up eleven per cent., from $1.45 to $1.61.  (This is very confusing to old dears who think stocks are priced in eighths…)   How I wish that you young ‘uns had been taught arithmetic the way we were back in the golden years of “I like Ike.”  We see immediately that 1.45 + 16 = 1.61, and that 16 is very near 14.5, or 10%, just by moving the decimal over.  If we want to be picky about that extra cent and a half, and we do, 1.5 is on the close order of one tenth of 14.5, and through a process known as addition, reach eleven per cent. total.  (And we write per cent. as I always do because it is Latin and an abbreviation for “per centum,” or “per hundred.”)   The error in my instant mental calculations is well within tolerances.

The question is…what on earth caused the rise in the price of GovMot?  

That stock is going to be valuable in traditional terms if and only if the government manages to run GM at a profit, a proposition so absurd that merry laughter resounds at least in the room I’m sitting in.  Let’s see…the new CEO has been shoved into his chair under orders to produce “green” cars that nobody wants, using technology that doesn’t exist, and Harry and Nancy have pushed things along briskly with new, far more stringent requirements for gas mileage and emissions controls, those issues being the very ones which have already devastated the auto industry, other than the cost of union labor.

It is only obvious to old dinosaurs like us that profits derive from manufacturing a product which people are willing to buy at a price which results in income greater than unit cost plus overhead plus advertising plus incentives plus profit for dealers, in this case.  Americans do not want, and will not buy, other than in California, miniscule underpowered tin cans that require being plugged into electrical sockets.  Has it dawned on anyone the electricity isn’t free?  Another spurt of laughter, imagining the office building of the future which has a parking lot which resembles a drive-in movie, the speakers replaced by docking stations so that employees can recharge their cars enough to make it back home.  THAT will clearly be an efficient, economical project, given the low cost of urban land and what power is going to cost under Cap & Trade.

I can report smugly that I am well ahead of the power curve because I stopped considering new cars as far back as catalytic converters, a terrific mileage-destroyer.  NO, Americans are not going to endanger their families in cramped death traps which won’t withstand collisions with shopping carts, particularly at what such inconvenient, inadequate, uncomfortable, unsafe vehicles are projected to cost.  Not in a world where a Jaguar weighing a ton and a half, surrounding us with very comforting steel barriers and incredible luxury, getting 25 mpg, can be had for a few thousand dollars.  I may be partial to collecting Jag-u-ars, but the same holds true of Mercedes, BMW, and whatever you fancy that you can find in good condition, with mileage of less than 125,000 miles, preferably, that is old enough to be exempt.  In time older cars will be mandated to be destroyed–California is already making efforts in that direction–but for now driving our ’83 Mercedes diesel is a good solution.

Here’s a tip from by-gone days:  pay cash for your first car.  Then put an imaginary “car payment” into a savings account every month until you have accumulated enough to buy your next car for cash.  At present you won’t make much in interest, but what you will save by not paying interest on a car loan will still be significant, and the discipline is good for you.  People tend to pay off a car (car notes were three years four decades ago) and go on spending sprees which make it very unpleasant to have to cut expenses again when they buy a new or newer car.

We haven’t even gotten into the true costs of adulterating gasoline with ethanol, which costs more per gallon, destroys your engine, and drives the cost of food products derived from corn up.  Here’s another little tip if you get a new car:  while you are breaking it in, either have your oil changes done at the dealership, which has specially-formulated goo, or run diesel oil in it!  Well, you don’t have to, not unless you want to guard against dissolving the cams or damaging gaskets…What has been done to gasoline and engine oil deserves a whole article and will get it, but we need to return to who is going to profit and how from the shenanigans with GM ownership.

Given that we do not expect Government Motors to be run at a profit which will eventually trickle down to shareholders, where’s the real money in this deal going?  Cui bono?  It could be, mind, that the Auto Workers and Washington are arrogant enough to believe they can do what the old management could not achieve, under new and greater handicaps.  Right, Tinkerbell, “I believe!  I believe!”

The obvious answer is that eventually there will be a bailout which involves buying back the stock the UAW just acquired, at, oh, six or eight dollars a share, d’you think?  Plan big, it’s only tax dollars and counterfeit, so why not make it sixteen a share?  That’s not the question!  WHO is going to profit?  Those with sweet, pure, innocent minds will reply, “The retired auto workers, of course.”  Wrong.  The UNION.  The chances that all of the proceeds of the sale of stock will actually benefit the rank and file is not a proposition that I would rely on, curmudgeonly cynic that I am.

Here’s another cute little provision:  The bosses are going to forego their Christmas and Performance bonuses this year and next!  Wow, justice is done, fairness is achieved, and heartless profiteering on the part of the few has been smacked firmly on the nose.  

Wrong again.  Surprise, boys and girls on the assembly lines, you are losing your Christmas and performance bonuses, too.  I can imagine the outrage; “sharing the wealth” wasn’t supposed to apply to loyal Democratic voters in unions, surely.

By the time the stock price has been filtered through government and the top Union management and GM is shut down completely–can you see any other end?–a very good surmise is that the retirement trust will be doing well to get the four billion traded for the stock.  I don’t know anything at all about the current leadership of the UAW, far less those who will be in command a few years hence, if there is any difference, and they may be as honest as a summer day is long, but I’ve had six decades to see what happens when large amounts of money are at the command of a few people who are not held very accountable.  We know all about purchasing big resorts where union leadership can go to recuperate from the arduous task of crippling business with ludicrous demands for higher wages and better “benefits,” frequently for less labor.

Here’s another way to look at this:  how ridiculous is it that Union demands led to a situation where the part of GM that is on the hook for retirement benefits is held to be half of the value of the company?!  I have never been in favor of unions; I resent bitterly that employers are denied their clear right to fire strikers (who have a perfect right to seek other employment if they don’t like their pay or working conditions) and have watched American institutions destroyed by them.  In the real world forklift operators do not make $86 K.  The employee at my local feed store makes $8/hour doing it.  That’s right at $17 K before taxes.

The real greed we’re hampered by has been political parties greedy for votes paying for those votes with laws and regulations which favored big contributors and loyal voters, and greedy men and women who pushed past the point the traffic would bear.

It is not possible to mandate “a living wage,” because the costs must always be passed on, which results in the recalculation of all prices.  Congress could mandate a minimum wage off $25/hour tomorrow, and within weeks the additional job losses would be incredible and the cost of all goods and services would have increased exponentially.  Life is very simple:  a garbage collector is not worth what a plumber is.  One reason we need “honest money” is that it makes it easier to set the relative value of goods and services and hold them stable.  The current system of fiat money leads to anomalies and lags.  Twenty gallons of gasoline “should” still be equal to the cost of a good pair of shoes, but it isn’t.  Relatively nice apartments “should” rent for half of what they do now, to maintain the comparative cost/value ratios of fifty years ago.

It will be interesting to see how this plays out.  If you  have stock in GM, I’d chart at least the Friday close and get out well before it is clear to all that the behemoth is going belly up.  The government will almost certainly buy Union-held stock eventually, but individual investors aren’t going to get the same cosseting.  You aren’t likely to recoup what you have in such stock unless you bought it fairly recently, but if you hold on too long you aren’t going to get anything.  Will a foreign manufacturer want GM plants after they have been retooled–at vast expense–to make little tinfoil People Pods?  When the final breakdown occurs, my estimate is that GM will be sold off for little more than the value of the buildings…and commercial real estate is on a downward plunge.

Regards,
Linda Brady Traynham   

Update: According to the Washington Post, long revered as a source for truth and total lack of bias, says that  ”The Obama administration is preparing to send General Motors into bankruptcy as early as the end of [this] week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink.” Gee…what a way to bail ‘em out, huh?  Why not just let them go quietly into bankruptcy in the first place? 

Reuters pitches in that the bankruptcy plan “involves a quick sale of the company’s healthy assets to a new company initially owned by the U.S. government.”  Funniest thing about that, and where does “The government’s plans include giving stakes in the new company to GM’s union and bondholders,” which I reported on earlier, fit into all of this?  Probably right where I thought it does.  I’m just a simple Donna Reed housewife and goat owner, so who has an explanation for why Obama would forgive some fifteen billion dollars GM has already received, far less extend further credit, other than to leave a better pay-off to the Union? 

Seems like Mr. Obama said not to long ago that he didn’t enjoy, you know, meddling in the private sector.  A simple solution is to stop doing it.  GM is planning to close eleven hundred dealerships, which means at least another twenty thousand jobs blown away…but those are non-union jobs.   Some pigs are created more equal than others.

Linda Brady Traynham

Linda Brady Traynham is a former editor and analytical project report writer and is now a Whiskey & Gunpowder field correspondent on a ranch in the Republic of Texas. She studied Counseling at Boston University and got her Masters degree in Philosophy from the University of Hawaii.

 

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