New York, March 10, 2013 - Across the Atlantic, British Prime Ministers regularly submit to interrogation from constituents on contentious topics.
What if President Obama faced tough questions on his bold campaign assertion that GM is “alive”?
In these dangerous days, the American public and the wider world deserve complete answers to the following questions.
1] How is your Alliance with The United American Autoworkers Working Out for its Rank and File and for its Retirees? During the 2012 campaign, President Obama smeared candidate Romney for an article he wrote in 2008 entitled “Let Detroit Go Bankrupt”.
Remarks by the President on Labor Day in Toledo, Ohio before an adoring cloud of union acolytes were typical and, in hindsight, are well worth noting carefully now:
Unions lend crucial support to Democrats. In 2009, President Obama repaid the favor in the preferential way unions were treated in the GM rescue.
Steven Rattner provided “an insider’s account” of efforts to save the American automobile industry in Overhaul—a book whose 2011 paperback edition should be mandatory reading. This work and the latest information published in GM’s 2012 Annual Report seem to make Romney’s case, rather than confirming the widely accepted conventional wisdom that confidently asserts GM’s resurrection.
Does the UAW understand how precarious its position may be thanks to precedents set in the 2008-09 bailout and gathering storm clouds across the global economy, particularly in China, Korea and Europe?
2] Thanks to Your Rescue Plan, Does GM Actually Have a Winning Business Model in its Current Operating Configuration inside the United States?
Even with its slimmer footprint in America, the Company seems hobbled.
Compared to Toyota, Honda, and Volkswagen, GM produces vehicles inside the U.S. using rigid and expensive union labor in few “right-to-work” states.
Further, GM still offers a wide suite of “name-plates” across a broad portfolio of vehicle offerings. Unlike the brilliant “Model T” Ford priced to reach the masses, GM and President Obama are tirelessly “hyping” an over-priced, ill-conceived lemon in the Chevy Volt that is already doing worse than the ill-fated Ford Edsel.
We have no visibility into U.S.-only results for GM and main competitors, but some publicly available numbers do tell a cautionary tale.
Inside the United States, the motor vehicle industry operates well below theoretical capacity, a condition that creates abiding margin pressure on all competitors.
Globally, Toyota produced Automotive Gross Margins of 12.9% during the nine months ended December 31, 2012. Ford produced Gross Margins in 2012 of 11.0%. Supported at huge cost by American taxpayers, GM produced Gross Margins of 6.7% in its Automotive Operation. Prevailing low levels of “industry” gross margins and GM’s sub-par 2012 result three full years after “shock therapy” through bankruptcy are certainly not encouraging.
Can union-influenced GM ever gain competitive production “economics” versus better-positioned rivals?
3] Has the Federal Government Properly Assessed Compounding Risks Across the Vehicle Production, Distribution, and Financing Chain inside the United States?
The “speed bumps” we encountered early on were managed when the Fed had ample room to lower nominal interest rates and when the U.S. had spare capacity to finance stimulus programs.
In 2013, pushing vehicles upon stretched dealers so they can sell them to challenged “sub-prime” customers seems a strategy cut from the epic movie “Dumb and Dumber”.
Ally Financial—GM’s most important financing source, just failed a “stress test”. We do not believe stress test assumptions are realistic enough.
Once “magic dust” printed by the Fed disappears in a secular ascent for interest rates, what finally happens to the complete vehicle industry chain from inputs, to manufacturing, to distribution, to end-use customers and to lenders/lessors?
Are balance sheet reserves and equity cushions for America’s important financial institutions deep enough to weather reasonable, downside cases, ones that potentially are more severe than 2008 through 2009?
For that matter, are accounting practices in use, conservative enough for the Fed itself? Do informed experts seriously believe the Fed has a “fortress” balance sheet?
4] Do Consolidated Financial Results Tell a Complete Tale Concerning Financial Performance? Leading American businesses operate in many nations but generally provide limited and dated information concerning their financial condition inside individual countries.
Further, companies like GM do not publish “consolidating” financial statements. Publishing these would allow investors and regulators to understand how strong or weak constituent businesses may be inside important national markets.
Most Americans do not appreciate how different legal standards actually are, country by country, for determining whether a subsidiary may be engaged in “reckless trading”—operating in a local jurisdiction even when directors should have known that the business in question could not possibly meet its debts as they fall due.
Reading through Overhaul, GM’s 2009 Annual Report and GM’s November 2010 Registration Statement for its Initial Public Offering, I question whether disclosures made to the public and to national governments concerning GM’s “health” were “full and fair”.
For example, it certainly seems that GM Canada may have been in serious jeopardy before June 1, 2009, the day that GM entered bankruptcy in the U.S. Various high level executives pleaded for rescue aid numerous times starting in 2008 and GM U.S. certainly was an important trading counter-party for GM Canada. How then did GM Canada operate for months outside the Canadian equivalent of bankruptcy, as GM U.S. flailed about on the brink?
I wonder what the Governments of Canada and of Ontario knew about the true financial health of GM, inside and outside Canada. For that matter, I wonder what the Governments of Germany, other European nations, China and Korea know about GM’s finances inside and outside their territories now.
As the largest continuing shareowner of GM, why Mr. President do you allow the Company to provide financial information to the public that seems deeply flawed and likely misleading?
5] Are Fiduciaries Who Hold the GM Common Shares You Simultaneously Tout and Seek to Sell, Cognizant of the “Risk Factors” Section in the Company’s Report on Form 10-K?
I do not see a way for VEBA and GM to profit from a long-biased investment strategy in the vehicle value chain during coming months.
In contrast, people such as John Paulson, Jim Chanos, and Kyle Bass understand the structural afflictions that beset companies like GM and know how to protect and build wealth in declining economic conditions.
Perhaps your own funds and those of the UAW/GM are now managed by famed short-sellers. However, if your investment managers practice “long-only” approaches, one wonders why you would countenance destroying the integrity of capital markets? A second and deeper leg down in the Financial Crisis would crush GM securities’ prices, further eviscerate U.S. employment levels, and trim union dues payments.
Which way are you and your associates playing the GM rescue story with your personal funds?
As you start to frame your answers Mr. President, please remember these important words from Patrick Henry:
“The liberties of a people never were or ever will be secure when the transactions of their rulers may be concealed from them.”
Please tell us Mr. President, what is truly “going on”?
Please watch Mr. Charles Ortel discussing GM and other issues on the March 6, 2013 segment with John Betchelor
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