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.

Obama’s State of the Union Speech More Appropriate for February 2 (Groundhog Day)!

by Richard H. Frank

Prior to the President’s address to a joint session to Congress and the Nation on the State of the Union, I reviewed my blog following last year’s speech entitled “Reality vs. Campaign Rhetoric.”

I fear, as in the movie ‘Groundhog Day” we are destined to relive his speech over and over again until he gets it right or until the electorate gets it right and votes Obama out of office.

The true measure of the “State of the Union” is outlined in last year’s blog and if anything has changed since then, the change has been for the worse.  I expect the Obama speechwriters labored tirelessly to find some undistorted facts for him to claim as his accomplishments.  Obama lives in a different universe than does the rest of America.  Unfortunately, Congress shares much of that same universe as Obama and is willing to accept the myths he spreads as accomplishments.  Half truths are obvious throughout his 65-minute performance to convince America that he deserves 4 more years as President.  Consider these statements compared to the facts:

  • Three million jobs have been created over the past 22 months.  According to the Administration’s own labor statistics, 1.7 million jobs have been lost over the same period since he was sworn into office.
  • His Administration saved the auto industry and GM is once again the world’s #1 producer of automobiles.  The truth remains that last year GM sold an estimated 9 million vehicles worldwide, a number that includes sales of manufacturers in which GM holds minority investments such as in China.  Volkswagan and Toyoto would be the first to challenge Obama’s claim as holding the sales title should their numbers include figures from Scania and truck makers like Man.  As for Toyota, their 2011 sales haven’t been reported for the full year and their estimate is that sales will be down by 7.9 million units as a result of the natural disasters and tsunami experienced in Japan and Thailand.  Should  Toyoto include Wuling sales they will outperform the new GM. As with the employment figures in the U.S., if the numbers don’t support your position, just change the base until they do.
  • “What’s happening in  Detroit can happen elsewhere!”  May God forbid this will come to pass.  Detroit has been transformed into a ghetto as the result of liberal, Progressive, Democrat Government over four decades.  This once proud city with a population making it the 4th largest in the nation in the past has degraded into a wasteland and now occupies 18th position in the nation.  The intercity population has fallen to under 800,000 and is surrounded by decay and a failing infrastructure, and vacant buildings and home line the city’s neighborhoods and provide a magnet for crime.  This area has a 28% unemployment rate under Obama.  Once known as the “Motor City” and the “Capital of Democracy”, it acquired the title of “Murder City” in the 1980s and has continued its rapid degradation since then.  If Detroit provides Obama’s vision for this nation, something is radically wrong with our President’s vision.
  • “Oil production in  America is the highest it has been in 8 years.”  I recall reading an article indicating this increase amounts to less than 2 million barrels a day.   The existing capacity to produce is somewhere between 10 to 20 million barrels per day if it were not for the onerous Government Regulations stifling production.

His statement that he has directed Defense Secretary Leon Panetta to purchase eco biofuel for the Navy once again provides a subsidy to an industry that cannot compete in the free market environment.  Official estimates are that this biodiesel will cost the American taxpayers up to 38% more than diesel fuel derived from crude oil.

Since our President has virtually no record of accomplishment to base his campaign for reelection upon, he must resort to tactics that attack Congress, demonize his Republican opponents and avoid at all costs a debate on “Obamacare.”

His tactics were evident with his every utterance last night:

  • His subtle accusation that Congress is not doings its job in comparison to our military completing its mission in Iraq and Afghanistan shifts the blame to others for his lack of leadership.
  • Stating that every American must do and pay their fair share and play by the same rules is pure class warfare and anti-capitalism.
  • His statement that over the past decade, the rich have benefitted and the poor have suffered due to a tax structure having rates that favor the rich is a distortion of the truth and blatantly false.  An individual having $1 million earnings from investment pays tax at a rate of 15% or $150,000 on those capital gains.  This is over and above the original 25-36% they paid on their investment when taxed as wages.  That amounted to between $250,000 and  $360,000 paid in taxes on those investment dollars.  When Obama compares the total $400,000 to $510,000 paid n investment income to Warren Buffet’s secretary paying 28% on $50,000 income, or $5600, the distortion becomes ridiculous and not worthy of our President.
  • Following his pledge to open 75% of Federal lands and offshore regions for energy production, he qualified the promise by stating he would not walk away from his promise of clean energy and development fo safe energy.  He avoided any mention of the Keystone XL pipeline in his remarks and took refuge behind the “BP horizon” incident in the Gulf of Mexico.
  • In one breath he advocated smaller Government and less regulation when in the next he advocated appointment by executive fiat three new agencies composed of a “trade enforcement unit,” “executive order to remove red tape for infrastructure projects ” and creation of a special unit in the Justice Department to investigate financial crime, sounds  like growing the Government and more regulation to me.
  • His call for “comprehensive immigration reform” came against a statement that our southern borders are safer and more secure than ever.  A claim heavily disputed by Arizona, Texas and New Mexico.  Although not mentioned by name, his proposed reform smacked with elements of the “Dream Act” or amnesty for the children of illegals presently here in America.

The only positive to be found following the President’s address was the focus groups composed of Republicans, Democrats and Independents are no longer swallowing Obama’s rhetoric.

During the 2010 mid-term election “We the People” made our voices heard loud and clear.  Returning to the principles embodied in the Declaration of Independence and the limits of government defined in our Constitution is imperative in this Republic is to survive while individual freedom to prosper is the opportunity provided for every American.

When two-thirds of Americans believe this country is on the “wrong course” under the Obama Administration, it is their duty in the upcoming 2012 election to change course by removing that Administration and replace it with individuals dedicated to protect and defend the Constitution of the United States of America.

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.

President Obama’s State of the Union – Reality vs. Campaign Rhetoric

by Richard H. Frank

On January 25, 2011 Barack Obama will stand before a joint session of the 112th Congress and address them and the Nation, reviewing the accomplishments of his Administration and the 111th Congress, indicating that they saved the United States of America from the “brink of economic and financial disaster.”  Among the praises he will bestow on his Administration will be passage of a stimulus that saved or created millions of jobs under his leadership, legislation that provides government-run health care for 30 million previously uninsured Americans, and saving the American Automotive Industry through forced bankruptcy of General Motors and Chrysler Corporation which in essence nationalized these industry giants at the expense of the shareholders, bondholders and creditors.  He will praise the ratification by the Senate of the arms reduction “START Treaty” between Russia and the United States.

He will attempt to label these achievements as bipartisan, when in fact they are the result of a liberal, progressive-dominated House of Representatives and Senate that has legislated against the will of the people since 2006 when they achieved the majority in both houses of Congress.

The message delivered by Barack Obama will stress the need to suppress uncontrolled spending in Congress and fiscal responsibility.  Don’t be fooled by his apparent move to the Center.  Words are just words and Obama has no compulsion to tell the truth.  Only his actions show his true motives and after two years we know where those motives are rooted.

Step back and examine “The True State of Our Union:”

  • Our Government tells us unemployment is somewhere between 9.6 and 9.8% and appears to have bottomed out.  We know the real number is approaching 18% when those who have exhausted their benefits and dropped from the rolls and are no longer counted.  Additionally, new claims for benefits continue to reflect no improvement in private sector hiring taking place across the nation.
  • The Nation’s debt is rapidly approaching $14 trillion and the existing limit will have to be increased in order to meet current obligations with spending requiring $.40 borrowed for every $1 spent by the Government.  This situation is unsustainable and the Administration has no plan to reduce the debt nor the trend to stop borrowing.
  • Our Government would have us believe that inflation is non-existent.  They calculate the CPI excluding the cost of energy and food which have increased at a rate of 5-7% annually for the past 5 years.  Just ask those Americans that live on fixed incomes what the impact of our non-existent inflation has had on their lives.
  • Health care costs are skyrocketing due to “Obamacare.”  Companies are incurring 20-30% increases in their premiums and seniors are seeing the first wave of rationing of services and the exodus of doctors participating in Medicare and Medicaid programs.
  • The Dollar is on the verge of collapse and is being challenged as the world’s reserve currency.
  • The unrestrained printing of currency by the Fed will ultimately create hyper-inflation and forever alter the standard of living for every American.
  • The United States has no cohesive energy policy to counter the Middle East oil cartel’s stranglehold on our economy.  Energy independence is a must if our Republic is to survive.
  • Government regulation by various agencies usurps the Congressional balance of power and jeopardizes the very security of our nation.  There is no recognition in our Constitution for Czars appointed by the President.
  • Federal tax polices are anti-business and current corporate tax rates are the second highest in the world and have forced industries to look outside of the United States to invest and hire workers.
  • Illegal immigration along our southern border poses a major threat to our national security.  Our Federal Government refuses to enforce existing immigration laws in favor of amnesty as a short-term fix to the problem.
  • The housing crisis looms heavily and Government-sponsored programs to provide home loan modifications are a joke.  Today 5 million homeowners are 60-75 days delinquent with 1.2 million foreclosures forecast for 2011.  Banks will not loan money for new construction without requiring down payments approaching 40%.  They delay underwriting requests for modifications in the anticipation of foreclosing and pocketing late fees until foreclosures may be executed.
  • The Government continues to function under Continuing Resolutions and has not yet provided a Budget for the current fiscal year.  What business would be allowed to function under these circumstances?
  • We have spent  $787 billion in stimulus dollars with no improvement to our economy and easing of the unemployment situation in America.  Jobs  created or saved as reported by the Administration is a sham.
  • Lastly, the nuclear disarmament treaty with Russia weakens our defenses in light of Iran and North Korea’s programs for nuclear dominance in their sphere of influence.  Where is and what is our policy to enforce the promise by the Obama Administration of a “no nuclear Iran?”  What level of extortion will we pay to North Korea to restrain their nuclear initiatives?

No doubt the Obama speech writers are burning the midnight oil looking for the words to turn lemons into lemonade” and the proper adjectives to best describe “The State of the Union, ”  a single word that will be reflected from the teleprompter through Obama’s eloquent delivery to take its place in history.  For me, the proper word, one which he dares not utter, is “devastated.”  In my entire life, spanning three score and ten years, I cannot remember a litany of problems equal to that I have listed in this blog.  The issues (problems) are the result of the electorate  swallowing the hollow promises of the liberal Progressives clamoring for power to govern over our great Republic.  The problem rests in the election of a President, unqualified to fulfil his office who has expressed disdain for our Constitution, the very document he has sworn to protect and defend.

I pray God will guide and lead the new 112th Congress in their initiatives to reverse, suspend and ultimately eliminate the damage done to this Nation by the Obama Administration and the congresses that preceded them.

During the 2010 elections “We the People” have spoken and made our desire for returning to the principles embodied in the Constitution and limited Government crystal clear.  We must assure our elected representatives do not stray from this course to restore a truly representative Government!

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.