Barack Obama – Vulture Capitalist!

by Richard H. Frank

Since Barack Obama cannot run on his record of accomplishments as President, he and his minions have chosen to attack Mitt Romney for his record as a venture capitalist while running Bain Capital.  This tactic is in furtherance of dividing our nation into the haves and have-nots or the 99% against the 1%.  Unfortunately, the average American voter has no concept as to how venture capital works in the free market and thus swallows the lies and distortion spread by Obama during his re-election bid “hook, line and sinker.”

Joe Biden credits Obama and his administration as single-handedly saving the American auto industry with the $80 billion bailout of General Motors and Chrysler in 2009.  Examining the facts with regard to General Motors paints a drastically different picture, however, and in fact shows Obama using many of the tools available to venture capitalists in the GM bailout.

In order to set the stage for the events leading up to the Government-forced bankruptcy, it is helpful to understand some facts concerning the world’s once largest corporation.

During the 20th Century General Motors Corporation grew to become the world’s largest successful corporation with 91 manufacturing and assembly plants in the U.S. alone. During the 1980s foreign competition, armed with low-cost labor and in many instances Government subsidies, began to erode GM’s market share which fell steadily from approximately 50% to the low 20% by the end of the century.  Efforts by management to curtail costs and reverse the downward trend in market share were met with fierce opposition by labor unions and contractual commitments that hindered increased productivity and cost reduction.

Notwithstanding this opposition GM either sold or closed 43 of  its U.S. facilities between 1981 and 2008 reducing its operating  locations by 30% while still operating  under oppressive legacy costs acquired under previous contract commitments.

By 2008 GM was faced with receiving Government loan guarantees or bankruptcy.  Hence, along came Barack Obama and his Government takeover structured to reward labor unions at the expense of creditors, shareholders and bondholders.  Under Obama’s Automotive Czar, the Government pumped $50 billion of the taxpayer’s money into the ailing corporation and immediately announced the eventual closing of 14 additional U. S. plants and three parts and service centers resulting in the loss of 20,000 jobs.  This action further reduced the number of U. S. facilities by 23% although without the necessity to recognize any previous contractual commitments while operating in the Government-arranged auto bankruptcy.

The consideration given to labor unions was a share in the new General Motors and a seat on the Corporation’s Board of Directors.  Up to this point it would appear that Obama and venture capitalists had a lot in common as to how they approached saving a company.

1.  They both infused large sums of money while actions to curtail costs were devised.

2.  They closed obsolete and unprofitable locations.

3. They fired excess labor and management personnel from closed facilities and reduced remaining workforces as required to increase productivity and achieve consolidation of operations.  The major differences, however, between the Government bailout and the acquisition by venture capitalists are stark in comparison:

  • Venture capitalists use their own money.  The government uses our money from tax revenues and/or borrowing from China to continue to keep GM afloat.
  • Venture capitalists are required to follow  bankruptcy law and honor creditor claims according to statute.  The Government ignored the law and entered into arrangements that benefited organized labor over creditors, shareholders and financial institutions; hence the term “crony capitalism” has been coined to define the bailout.
  • Venture capitalists invest to create value and profit by making enterprises successful.  Barack Obama spends our money to do whatever he and his administration deem politically expedient to support their agenda without regard to creating value.

In the years following the bailout of GM, what have we learned?

Dan Ackerson, Chairman of the “New General Motors” reported in a speech that 70% of GM vehicles are produced outside of the U.S.  I guess that equates to a large portion of the $50 billion bailout going to create jobs outside the U.S.  Does Obama count those jobs as either being saved or created?

While 14 plants and three parts and service centers were closed in the U.S. as part of the Government bailout, 11 assembly plants and 4 powertrain plants have been opened by GM in joint ventures in China, along with 2700 dealerships.  Where did the money come from to make these investments?  Certainly not from operating profits from the “New General Motors.”  More of our tax dollars to creat jobs in China with SAIE and FAN?

Ackerson also stated in 2011 that a new “Advanced Technology Center” was being built to assure the company’s success in China.  More alarming is the transfer of advanced technology from the U.S. to China under the joint venture arrangement between GM and the Communist Chinese Government.

Saginaw Steering Gear was acquired by Pacific Century Motors and became Nexteer.  Under the Obama Administration oversight ownership of Nexteer was quietly transferred to AVIC, a Chinese Communist Government association.  Another example of Obama’s crony capitalism.

As the campaign rhetoric heats up over the coming months and Obama mounts his vicious attack on Mitt Romney and Bain Capital for destroying jobs in the quest for profits and moving jobs overseas, keep the story of the “New GM” in mind and it will expose Obama for the hypocrite he and his administration really are.

Big Government Tinkers with the Economy: Americans Bear the Cost and Pain

by Richard H. Frank

What will it take for Barack Obama and Washington politicians to admit the Government does not and cannot create jobs or wealth for our nation?  Every day we hear of another scandal involving some Government-administered program.

Consider the accomplishments of the following Government programs:

  • TARP (troubled asset relief program)
  • Obamacare (Affordable Health Care Act)
  • Stimulus 1 ($787 billion in Government spending for shovel-ready projects)
  • American Jobs Act ($447 billion for infrastructure projects)

TARP allegedly saved America’s financial system.  Banks and insurance companies were given billions of dollars to bail them out of bad investments and the chance to take writeoffs and amend their balance sheets.  Addition billions of dollars were provided to assist homeowners in avoiding foreclosure by modifying their mortgages in an attempt to save their homes.  What happened is that the banks took the money and have elected to withhold the funds from the public in the form of loans, mortgage modifications and encouraging investment in the private sector.

The Government takeover of General Motors and the claim that Obama single-handedly saved America’s automotive industry is another fabrication for the campaign trail in 2012.

The truth is that the American taxpayer can kiss the $56 billion in Government investment in the New  General Motors goodbye forever. Obama will claim $20 billion has been repaid through the sale of Government shares during the first public offering leaving a mere $26 billion to be repaid.  This does not take into account the tax relief of $45 billion granted to the Corporation.  In order to recover the remaining investment, Government shares would have to be sold at $55/share.  Today’s market price stands at $22.32/share with  the year-to-date stock price performance down 39.8%.

Also take notice of General Motors financial performance.  The press releases tout the massive improvement in sales and profits year over year.  The August 4, 2011 earnings report trumpets a profit of $3.0 billion on sales of $39.4 billion.  As an investor I would be hard pressed to buy shares in a company having return on sales of .7% let alone pay $55/share.

The latest example of waste deals with the green energy initiative by the Obama Administration.  The solar panel company Solyndra managed to burn through $535 million taxpayer dollars in just over one year.  Of course, no one in our Federal Government is willing to accept responsibility for oversight of that “investment” even though the Department of Energy held a seat on the company Board.

As for “Obamacare,” the bill that had to be passed to find out what was in it, we are finding out every prediction of forcing companies to drop insurance, cost increases and rationing of care are coming to pass.  When Congressman Wilson said Obama lied during his state of the Union speech, he was correct.  There are now 50 million uninsured because companies are finding it cheaper to drop full-time employees with insurance coverage in favor of keeping part-time workers onboard.

Stimulus 1 turned out to be nothing more than a payoff to big unions in the form of paying the states to increase or keep current Government-funded positions in union represented functions.  The result was Obama’s claim that he had saved or created over 3 million jobs.  Conversely, the private sector shed over 2.5 million jobs during the same period.  Jobs that created value and paid taxes to support the Government jobs Obama takes credit for creating.

As for the “American Jobs Act” it is just more of the same.  An attempt to impose taxes on the “rich” (people earning over $200k/year) and redistribute wealth instead of creating an environment for free market economic growth. When Government is allowed to pick winners and losers the American public is the ultimate loser!

Every economic indicator for growth is negative.  Weekly claims for first time unemployment benefits continue in excess of 400,000. Energy prices rise and inflate the price of every commodity we consume.  Bank foreclosures skyrocket while real estate prices continue to plunge.

Yet, Barack Obama can only see the 2012 election and because his record of accomplishments is virtually non-existent, must turn to demonizing Congress as obstructive to his programs as his only path to re-election.

America will have to endure the albatross of Barack Obama and his Administration for the next 14 months before he can be voted out of office and returned to his role as community organizer-in-chief, living off taxpayer-funded pension the rest of his life.

Cooking the Books at the “New General Motors”

by Richard H. Frank

The buzz word for the past two years within the Obama Administration has been “transparency.”  I, along with most Americans, interpret the word to mean the truth and nothing but the truth.  Is that too much to ask of our elected Representatives?  I think not.  However, we continue to be deluged with political spin on every topic that the Administration is desperate to take credit for including the calculation for unemployment, jobs saved or created and the latest financial performance reported by Government-owned General Motors.

The liberal news media in this Country points to the miraculous turnaround by the company from historic loses reported in 2009 to the $4.7 billion in profit for the fiscal year ending 2010.  The report fails to mention that their net income amounted to a meer $.9 billion.

Nonetheless, let us examine the company’s performance using “transparency” as follows:

  • The reported $4.7 billion profit is based on sales of $135.6 billion and equates to 3.4%.
  • Net income of $.9 billion on the same sales equals 0.7%.
  • Selling prices for their products on the average increased 7% and probably are responsible for the majority of the profit.
  • Incentives averaged $3397/vehicle or 9.9% of sales
  • More than half of the revenue generated came from China where units sold were up 2.6 million while in the U.S. units sold were up 2.2 million.
  • Operating profits in the U.S. totalled $800 million, a major boost of $5.7 billion over the previous year.

All of these indicators for improvement look promising; however, the question remains – “Are they sustainable?”  General Motors still owes the taxpayers $27.2 billion from the original bailout of $49.9 billion. Repayment of the remaining $27.2 billion is contingent upon sale of shares of stock held by the government which appears unlikely given the real performance numbers for the company. The performance noted above is also the result of the Corporation enjoying a tax exemption of up to $49.4 billion on future earnings, a little known goody contained within TARP.  This certainly doesn’t equate to working on a level playing field when compared to companies such as Ford Motor that releases a real transparent earnings statement in their annual report. At best one might conclude that the New GM broke even in 2010. Financially, the country would have done better to invest in an interest bearing saving account as would most investors that know a good stock buy when they see one.

General Motors reports cash reserves approaching $35 Billion with net cash equal to $1.0 Billion. Obviously this must be TARP money as the performance does not support these balances reported.

Ford Motor Co. P&L 2010 Summary – Annual Report (in $billions):

  • Net Income – $6.56
  • Operating Income – $8.30
  • Income after Tax $7.57
  • Tax Paid  = $.73 or 9%
  • Gross Cash $20.5
  • Net Cash $1.4

The question remains “Why couldn’t the same or better performance have been achieved at GM without Government intervention following the traditional route to bankruptcy?”  We may never know the answer, however it would have saved the taxpayers $49.9 billion which is now part of the massive national deficit.

Ford Motor Company survived without the Government – why not General Motors?  The answer is straight forward and simple.  Policies, and a reward to the Administration’s Union supporters.

A transparent view of the new General Motors is the best prediction of their ability to survive.  Don’t hold your breath waiting for that sort of analysis so long as the Obama Administration is involved. We may not be able to change what was done in the case of GM, but we must insist on an honest accounting on the part of our government.

Detroit Laid Waste by Multiculturalism and Political Correctness!

By: Richard H. Frank

Those of us fortunate enough to have been raised in the City of Detroit during the 1940s and 1950s carry memories of a vibrant, warm, industrious city with thriving civic centers and a downtown area possessing museums, theaters, luxury hotels, fine department stores and elegant restaurants. Some of the finest public parks were located within the city limits and along the riverfront where Bell Isle provided Detroiters an escape from the drudgery of work and the impact of World War II and The Korean conflict that followed.

The public education system within the city was superior and prepared their graduates with a solid foundation in the three “Rs” as well as a thorough understanding of accurate and “unedited” World and American history, social studies and civics. The High School curriculum gave students the option to pursue three fields of study. The offerings included a General Education program or a vocational -geared curriculum and of course a College Preparatory program. Those students that did not meet standards for advancement were held back and required to repeat their studies until meeting the minimum standard. Upon graduation from high school and entering college I found that most all required freshman courses had been covered during high school and made the transition to college life particularly easy.

Opportunity for young people to embark upon a career was varied and unlimited particularly in the Automotive Industry or other supporting businesses. Detroit was truly the Motor City with great companies such as General Motors, Ford Motor Company, Chrysler, Packard, Hudson and Kaiser-Frazer all having headquarters or operations in the Metropolitan Detroit Area. Machine tool builders thrived during the war and continued to grow as demand for American made automobiles continued to increase. All seemed bright for the future of this the fourth largest city in America up until 1967 and the civil unrest that ensued then and for years that followed.

The City became the model for Lyndon Baines Johnson’s “Great Society” which flourished in Detroit. Welfare took root within the minority segment of the cities population and was spurred on with Aid to Dependent Children that rewarded women for birthing children with no male to provide support. Today hundreds of thousands exist on Federal Well fare, free housing and food stamps.

Frosty Wooldridge a US Journalist chronicles the demise of this once great city under the banner of “Multiculturalism: a perfect method to kill our language, culture country and way of life.” He writes that between 1970 and 1990 he watched Detroit descend into the abyss of crime, debauchery, gun play, drugs, school truancy, car-jacking, murder, gangs and human depravity. Urban renewal came in the form of burning entire city blocks on each October 30 in celebration of Devil’s Night. All of this occurring under the leadership of a corrupt city government headed by Mayor Coleman Young.

During the same timeframe the Federal Government imposed onerous fuel and safety standards upon the Automotive Industry greatly increasing the cost of manufacturing vehicles and impacting market share for the domestic manufacturers. These actions by government coupled with management agreeing to continued union demands for increased wages and benefits were the first crippling blows to an industry following the same path to self destruction as had the Steel Industry in America just a few short years earlier. The seeds to the demise of manufacturing in America were sown during this period and Detroit would be the first casualty among many cities to follow.

The policies of the Coleman Young administration and the Detroit City Counsel set the benchmark for cronyism, incompetence and arrogance. The Mayor is quoted to have said “As a black man, I am the MFIC.” The IC stands for in charge. You can fill in the rest. Detroit was fundamentally transformed from a city with a mix of ethnic heritage including German, Italian, French, Latino and English to a population having 67% African Americans. The change was largely due to the exit of the city population.  Detroit plummeted from the fourth largest city in America to the eleventh and continues to slip each year. At one point the city boasted 1.8 million citizens and now is approximately 912,000. Legal and illegal immigrants have filled the void of those leaving the city. Muslims account for over 300,000 and Mexicans number 400,000 throughout Michigan many of whom are attracted by the numerous welfare programs available in the state.

The call to worship for Muslims is heard over the city and seems to many like America’s Baghdad. High school drop-out rates exceed 75% and classrooms resemble more foreign countries than America where few speak English and illiteracy rate is 50% and rising.

Unemployment within the city hit 28.9% last year as the auto industry left the city. By any quantifiable measure Detroit is on life support left in the grip of incompetent city government and unions such as the Teacher’s Union that make no concessions to improve their situation.

In Time Magazine’s October 4, 2009 article entitled, “The Tragedy of Detroit”, Daniel Okrent stated “That because the story of Detroit is not simply one of a great city’s collapses, it’s also about the erosion of the industries that helped build the country as we know it today. The ultimate fate of Detroit will reveal much about the character of America in the 21st century.”

In Detroit we reap what we have sown. First the attack on our education system and the dumbing down of America, followed by unending welfare programs, well intended but destructive, as we reward people for making no contribution to taking care of themselves or their family. Next, continuing the unrelenting attack on the free enterprise system by government with regulations that stifle economic growth.

We need to take a lesson from countries like the Netherlands where immigrants from Middle East Muslim countries have established ghettos that breed home grown terrorists intent on imposing their radical ideology upon others. We have seen it in Madrid, Spain, London, England, Paris and France with bombing of trains and subways and riots. As their numbers grow so will their power to enact Sharia Law that negates republican forms of government.

You will not find Multiculturalism and Political Correctness mentioned anywhere in our Constitution. These are the creation of the political progressives and liberals in government and if allowed to grow unchecked will make every large city in America follow Detroit to their eventual end as a center of terrorism and tyranny. President Obama has pledged to fundamentally change America. This is not the kind of change Americans want.

I knew and lived in Detroit when it was a jewel. I fear that this once great city will not be able to rise from the ashes and return to its previous status in my life time. Let’s hope and pray that I am wrong.

And by the way, where is any reporting whatsoever on either network news or cable news stations, of the economic conditions of this great city?  You can’t have an honest debate about welfare programs, unions, job losses, or the economic condition of our country without shining the spotlight on what has happened in Detroit.

The New GM – Who Will be Left Holding the Bag?

by Richard H. Frank

On August 11, 2010, Daniel F. Akerson was elected CEO and Chairman of the Board for the “New General Motors.”  That will make three CEOs in approximately 14 months since the company emerged from bankruptcy in July 2009.  The announcement comes on the heels of statements made on August 5 by the current “soon to be “past” CEO Ed Whitacre, made at the Automotive Industry Conference held in Traverse City, MI.  Mr. Whitacre’s statements alluded to the fact that, in spite of posting YTD profits of $2.2 billion over the two quarters of 2010, now might be premature to entertain an IPO for stock in the company.  Although not being specific with regard to when such an offering might be appropriate,  his remarks seemed to indicate continued profitable performance might be prudent with establishing a date to go forward with the initial public offering.  Mr. Whitacre’s tenure as CEO will end on September 1, 2010 and he will officially exit the company at year’s end. Coincidence?  I think not.

Examining the Second Quarter earnings report may lend credence to Mr. Whitacre’s cautious approach to pursuing an IPO at this time.  The company reported earnings of $1.33 billion on revenue of $33.2 billion or a whopping 4%, thus bringing  their cash reserves to $32.5 billion.  No accounting is available to determine what portion of the reserve is a result of the original $50 billion cash infusion by the Government to acquire a 61% share in the company.  Nonetheless, the company has experienced two quarters of profitability.

Second Quarter sales of 731,000 units were split between fleet purchases at 42% for autos and 28% for trucks which leaves retail sales at only 30%.  Retail sales continue to lag behind fleet purchases due to the ailing economy, unemployment and the reticence of banks to lend money for consumer spending.

Major fleet sales usually occur during summer months and therefore have a major influence on units sold during their replacement period.  In spite of this fact the New GM lost market share year over year from 19.5% in 2009 to 18.6% in 2010.  Mr. Whitacre’s caution to watch the 3rd and 4th Quarter performance and the potential reduction in fleet sales volume may in fact be spot on.

Despite a deterioration in market share and cautious remarks by Ed Whitacre, the Board of Directors decided to replace Mr. Whitacre on the high note of having achieved $1.33 billion in profit for the last quarter and electing a new CEO, in the person of Daniel F. Akerson, who has announced the filing for an IPO, possibly as soon as Friday August 13, 2010.  I hope Akerson is not superstitious.

So the question all these actions over the past 2 weeks pose is “Why the Rush?”  Could it be that President Obama needs to do something to show how he has saved the American Auto Industry and breathed life into the corpse of the once dead General Motors Corporation? Or is it possibly that the November mid-term elections are fast approaching and he needs to show an effort to recoup the remaining $43 billion bailout in an attempt to gain voter support for his failing fiscal policies?

My personal experience with IPOs is that it takes more than two quarters’ profitability to constitute a reason to invest in any venture. Assuming the company proceeds with the IPO it seems doubtful that they will be able to secure $43 billion let alone establish a credible value for their stock offering.  What of the shareholders of the “Old General Motors”  who hold paper supposedly valued at $.75 a share? Do they have any equity in the New GM?  I think not.

The old adage to “beware strangers bearing gifts” holds true for any IPO for the new General Motors.  Political motivated or not, the track record of profitability coupled with the present economic situation in America should make any private individual  think twice before buying any stock in this company.

The answer to who is left holding the bag with regard to General Motors is either or both of the following:

“You”, the tax-paying public under Obama Motors, and “you” the individual investor as part of an IPO, along with the taxpayer for any portion of shares not sold to cover the $43 billion bailout.  The only people to get rich on an IPO or a bankruptcy are the lawyers and the executives contracted to manage either event.

Uninspiring Language From the “New General Motors”

by Richard H. Frank

The time lag in finalizing and publishing the quarterly report for the “New General Motors” is somewhat frustrating for those of us interested in monitoring the financial progress of this ailing automotive giant.  As I have written in the past, my hope is that this once proud and profitable corporation returns to its position as a leader in our free market enterprise system.  However, I fear the sporadic reports of their profitability seem all premature.

On July 7, 2010, General Motors issued a Press Release, part of which I quote, “…expected, anticipated, possible, potential, target, believe, commit, intend, continue, may, would, could, should, project, projected, positioned'”  are all “words intended to identify forward-looking statements that represent our current judgment about possible future events.” Each and every term above is a modifier and intended to provide an excuse for not meeting some reasonable expectation for performance.

After a career spanning 48 years in the automotive industry, both domestic and internationally, my experience is that any management team using the aforementioned language to forecast future performance would have been fired on the spot.  These terms remind me more of the political rhetoric and doublespeak we hear coming out of Washington, D.C.  Where are the definitive statements based on market share, product innovation and productivity from which reasonable forecasts with some foundation in fact may be generated?

If the management in charge of the “New General Motors” has adopted methodology used by the CBO and Washington bureaucrats, I fear for the long-term survival of the corporation.  My assumptions, however, are based on solid business models for profitability and sustained growth.  If, however, the corporation follows the VW model in Germany, the taxpayer will assure its ultimate survival through unending infusion of cash.

Therefore, I await the latest quarter’s report on profitability in hopes that I may set my fears aside for this once great corporation and hope for the day it may return to being a publically traded entity with the total exit of all and any Government equity.

I pray that my fears are unfounded.

“Liars and Damn Liars!”

By: Richard H. Frank

Then Senator Hillary Clinton, during testimony by General Petraus in support of the surge in Iraq, said one would have to suspend disbelief if they were to accept his testimony. Her comments were partisan and wrong with regard to the General and the outcome of the surge, but would be appropriate today with regard to the New General Motor’s claim of repayment of the government loans five years ahead of schedule.

It doesn’t take a financial genius to figure out that any company that posted a $4.3 billion loss on $5.9 billion in sales has no money generated by operations to pay for anything. In fact they burned through $10.2 billion in cash just to keep operations going and meet their payroll. Therefore, when Edward Whitacre, CEO of the New General Motors, stands up in an ad on television in front of America and says the company has repaid the government loan of $6.7 billion, he either believes the public is stupid or, to say it politely, is misleading them.

Mr. Whitacre and the finance people at the New GM must be taking lessons from the Obama administration when it comes to telling the truth. For example; now that Obamacare is law we are learning the truth little by little and of the lies and/or omissions not talked about during the debate on the 2700 pages of minutia making up the new law.

Repayment of the $6.7 billion by accessing more TARP money is nothing more than a revolving credit account funded by “We the People.”

When our government is infested with corrupt politicians, synonymous with “Iiars and damn liars”, is it any wonder that 80% of Americans mistrust the Congress and the Administration? We have the duty to clean house in the 2010 Congressional and 2012 Presidential elections. Stand up for the vision of our Founding Fathers and elect those candidates that endorse the values and principles enumerated in the Declaration of Independence and the Constitution.