Saturday, May 5, 2012

CEO of GM talks about the government investment in GM

The saving of the Detroit auto industry is a popular thing to talk about during this election cycle.  President Barak Obama was instrumental in engineering the structured bankruptcy and the investment in the industry that was needed.  Mitt Romney, the son of an auto executive, said he would have allowed them to crash.

Even hindsight can’t tell us if the dire prediction about the failure of the auto industry would have ever come true.  But, a threat of some kind was there.  It is too easy to say that they should have allowed the industry to fail because new industry would have risen from the crumbling empty auto plants.  Even if one did, how long would it have been before the benefits of the market failure would have worked its “magic?”

The truth is, in practical terms the auto industry is alive, improving and perhaps in the best condition it has been in decades.

Dan Ackerson, CEO of GM, in an interview with The Take Away’s Celeste Headlee, points out that this wasn’t the first time the country has saved an industry and that the benefits were much more far ranging in practical terms.  Ackerson is a Republican.  As a Republican, he is not likely to give an interview in support of something that a president and congress from the other party did in an election year if he didn’t think it was an important thing to do.

Let’s read what Ackerson had to say about the investment we made in the auto industry.

Dan Ackerson -”This is not the first time that the American government has injected themselves into the American economy. If I asked you, who [was] the biggest owner of commercial property in the United States 1990s, you wouldn't say the United States, but it was. [During] the Savings and Loans crisis, [the U.S.] [pumped] in $394 billion dollars. Call it around $400 billion dollars.  Not $50.  $400 billion.

“So it's not unusual to see governments for a short period of time, inject themselves into a marketplace to stabilize it.  The analogy I like to make, you remember last year when Joplin, Missouri had the terrible tornado or Katrina [in Louisiana], it's in the basic DNA of Americans [that] we don't walk to help our fellow citizens, we sprint.  This part of the country, the arsenal of democracy saved this country in many respects along with many soldiers, marines, coast guard's men.  But it built the arsenal that saved Western Democracies.”

During the world wars in the last century, it was the heavy industry that we had on our home turf and owned by United States companies that built the machinery to defend ourselves and our allies.  Without that heavy industry already in place, it is hard to image that we would have been able to build all the factories needed before we built one tank in time to make a difference.  As another example, during the early part of the last century, the shipbuilding industry was in the same situation as the auto industry was during the last few years.  The United States stepped in to save it because of the importance of having the ability to build on our own shores.  Can you image the need to build heavy equipment in times of a crisis and expecting Honda of Ohio and the other foreign auto companies in Georgia to do the building?  What would happen if we went to war with the home countries of those companies?

Ackerson continues - “[After World War II] what did we do[?]  In the interest of international economy, international trade, we lowered our trade barriers.  We lowered them in Japan, we lowered them in Germany, our mortal enemies.  And they built export economies to the detriment of this part of the country.  It didn't happen overnight with a hurricane or tornado: It happened over 30 years.  So a million jobs were saved, that's what I say.  $150 billion it's been reported in terms of total tax revenues that would've gone by the boards had the company not been saved.”

That doesn’t include the increase in taxes on surviving companies to pay for the unemployment benefits that would have been paid on those that lost their jobs.  Instead, as Ackerson says, many auto workers didn’t lose their jobs and are still paying taxes.

Ackerson - “And all the supply chain that would've gone with us.  And then if you back off and you say, at the time we went under, or we went into bankruptcy, we had about a $25 billion pension deficit.  But think back if we'd gone into bankruptcy and liquidated in '09.  That $25 billion would've gone into the PBGC (Pension Benefit Guarantee Corporation) which is government sponsored.  Footnote to that comment is, $25 billion would've bankrupted PBGC.  And whose dime would that've been on?  It'd have been on the taxpayer’s dime.  That's never in the calculus.”

It might be said that if we hadn't backed the PBGC, we wouldn’t have had the problem with the pension deficit bankrupting the system.  But, then there would have been no pension money for all those currently retired and those that have worked for many years depending on the pension fund.

As for finding private money to invest in GM, Ackerson also addresses that issue. Ackerson at the time GM was going through its problems was managing private equity money for investors.  This is what he has to say about finding private money.

Ackerson – “So when people say, it should've been saved in another way, it should've gone through a bankruptcy, controlled bankruptcy.  I was in private equity.  I was managing many buyouts, where you do a big buyout of corporations with a portfolio of $50-$100 billion.  There was no way you could've gotten me to put a billion dollars into this thing without the restructuring that was really mandated by the government.

“So, you know I know this is a political year and everybody wants to argue for tactical and political advantage.  Again, I don't have the luxury to do that.  I'm not making a political statement.  I would say, let's be pragmatic about it: It worked.

Finally, Ackerson says, “I think the government does have an obligation to step up and help its people.  This wasn't a giveaway.  It was an investment.  It was an investment from the American people.”

Communities are not a separate entity from the people that live in them.  They are not there to just police the streets and facilitate common services.  Communities form for the safety net and security that they provide.

Thank you, Mr. Ackerson.  Your words represent the best of a Responsible Community.

Friday, May 4, 2012

Emergency Manager Law initiative may not be close enough

The Michigan Board of Canvassers was deadlocked on the approval of a citizen’s initiative petition asking for a popular vote on the emergency manager law.  This is one of those situations where you need a score card to keep up on the game.  Yes, it is a game, one that isn’t being played very well by any of the players.

A group that would like the emergency manager law to go away submitted petitions to have the issue placed on the November ballot in Michigan.  The board of canvassers for the state has the task of certifying the submitted petitions.  The board is made up of two Democrats and two Republicans.  They found that there were more than enough signatures according to the law to approve it for the ballot.  But, the board split on the size of the type on the top of the petition.  The two Republicans said the font size was too small, the two Democrats said something like, “close enough.”

The Constitution of the State of Michigan insures that citizens will have input on state affairs with an initiative.  The state law that governs citizen’s initiatives says that the font size on the headline of the petition must be 14 point type.  (MICHIGAN ELECTION LAW (EXCERPT), Act 116 of 1954, 168.482 Petitions; size; form; contents.)  It is understood that the large font size on the header is an attempt to prevent the head line from being unreadable, meaning that the signer would need to rely on the petitioner for an explanation of the ballot proposal.  This in the past has been problem when petitioners don’t properly represent the meaning of the proposal.

A spokesman for the company that printed the petitions says that the headline is in a 14 point font.  But he could be in trouble if he printed the wrong font size.  What the groups should have done is ask for an approval from the board of canvassers in advance of the actual collection of signatures. 

The committee has promised they will take it to court.  This is where this type of issue should be in the first place.  The members of the board of canvassers should be non-partisan.  But, according the Michigan Constitution, it is to have four members and no party is to have a majority.  To leave a decision about a ballot issue with a partisan committee is to know that there will be trouble.  One party or the other, for political reasons, is not going to want the initiative to get through the board.  The objecting party will place tremendous pressure on their party’s board members to find a reason to not pass the initiative. 
The court could rule that the size of the font is indeed, “close enough”.  The requirement to have a certain font size could be determined to be an unreasonable restraint to an initiative.  They have ruled in the past that way with the timing of petition submissions.

But for now, the law is the law.  Close enough is not close enough since there is a specific requirement in the initiative law for the size of the font.  If the court doesn’t decide to let the initiative on the November ballot, the group will have to start over for the next election cycle. 
Let’s hope they do a better job next time.