Viability slipping away at GM - according to auditors

[Jim_75Sahara]

Objectively speaking, GM appears doomed unless they can instantly produce a white-hot best selling car AND abruptly cut their costs in an amazing manner. Billions in federal loans are merely providing the burn through money rather than leading to mega-changes. AND --- moving on to Chrysler, why should taxpayers blow billions on a high-risk bailout when the Cerberus investors choose not to make further investments in Chrysler?! Put up your own money or shut up. Anyhow, I sure hope that Ford is in a stronger position than GM and Chrysler.

[robspeed]

Objectively speaking, GM appears doomed unless they can instantly produce a white-hot best selling car AND abruptly cut their costs in an amazing manner. Billions in federal loans are merely providing the burn through money rather than leading to mega-changes. AND --- moving on to Chrysler, why should taxpayers blow billions on a high-risk bailout when the Cerberus investors choose not to make further investments in Chrysler?! Put up your own money or shut up. Anyhow, I sure hope that Ford is in a stronger position than GM and Chrysler.

chrysler clearly has to go, and ford should buy GM.

[Armond]

this is why I dont believe in bailing out companies and people....the management at GM needs to file for bankruptcy,reorganize and start from scratch...where did the tax payer money go?

[f1reverb]

I've posted this link to Chapter 3 of R. Buckminster Fuller's 1981 book "Critical Path" before, and here's an excerpt regarding the car companies . . .

http://www.maebrussell.com/Critical%20Path/Critical%20Path%20excerpts%201.html

"There were many desirable and useful items that could be mass-produced and successfully marketed. Young people wanted automobiles, but automobiles were capital equipment. In 1920 capital equipment was sold only for cash. There were enough affluent people in post-World-War-I U.S.A. to provide an easy market for a limited production of automobiles. In 1920 there were no bank-supported time payment sales in the retail trade. The banks would accept chattel mortgages and time payments on large mobile capital goods, such as trucking equipment, for large, rich corporations. Banks would not consider risking their money on such perishable, runaway-with-able capital equipment as the privately owned automobile.

Because the banks would not finance the buying of automobiles and so many money-earning but capital-less young people wanted them, shyster loaners appeared who were tough followers of their borrowers when they were in arrears. Between the ever-increasing time-payment patronage and the affluent, a market for automobiles was opening that could support mass production.

In 1922 there were about 125 independent automobile companies. They were mostly headed by colorful automobile-designing and -racing individuals for whom most of the companies were named. They survived by individually striving each year to produce an entirely new and better automobile, most of which were costly. Many accepted orders for more than they had the mechanical capability to produce. Their hometown financiers would back these auto-designing geniuses so that they could buy better production tooling and build larger factories. Wall Street sold swiftly increasing numbers of shares in auto companies. More and more of them went broke for lack of production, distribution, and maintenance experience on the part of the auto-designer managements.

In 1926 the Wall Street brokerage house of Dillon, Read and Co. made a comprehensive cost study of the auto-production field. They found that 130,000 cars a year was, in 1926, the minimum that could be accounted as mass production and sold at production prices. Any less production had to carry a much higher price tag. To warrant the latter, the cars had to be superlatively excellent. The English-built Rolls-Royce brought the highest price on the American market. There was fierce competition among Packard, Peerless, Cadillac, Pierce-Arrow, Locomobile, Lozier, Leiand, and others for the top American car. All of those premium cars' frames, bodies, engines, and parts were manufactured within their own factories. There were several in-between classes, such as that of the Buick. Most of the 100 or so cars in this intermediate range were assembled from special engines, frames, and other parts made by independent manufacturers.

The mortality in auto companies was great. Dillon, Read led Wall Street out of its dilemma by buying several almost bankrupt companies, closely located to one another, such as those of the Dodge family, whose joint production capacity topped the 130,000 units per year mass-production figure. They named their new venture the Chrysler Company. Dillon, Read fired the auto company presidents, who were primarily interested in new-car-designing, and replaced them with production engineers. Wall Street followed suit and put in production engineers as presidents of all the auto companies—except Ford, who owned his company outright and had no obligation to Wall Street and its legion of stock buyers. Old Henry himself was already the conceiver, initiator, and artist-master of mass production.

Because the American public was in love with the annual automobile shows, the Wall Street financiers who had thrown out all the colorful auto-designer presidents started a new game by setting up the Madison Avenue advertising industry, which hired artists who knew how to use the new (1920) airbrush to make beautiful drawings of only superficially—not mechanically—new dream cars. They made drawings of the new models, which required only superficial mudguard and radiator changes with no design changes in the hidden parts. Parts were purchased by the big companies from smaller, highly competitive parts manufacturers operating in the vicinity of Detroit.

This was the beginning of the downfall of the world-esteemed integrity of Yankee ingenuity, which was frequently, forthrightly, and often naively manifest in American business. Big business in the U.S.A. set out to make money deceitfully—by fake "new models"—and engineering design advance was replaced by "style" design change.

In the late twenties first Ford and then General Motors instituted their own time-financing corporations. The bankers of America said, "Let them have it, they'll be sorry—autos, phew! We don't want to go around trying to recover these banged-up autos when the borrower is in default." The bankers said, "It is very immoral to buy automobiles 'on time.' They are just a luxury."

What the bankers did like to support in the new mass productivity was tractor-driven farm machinery. Farm machinery was easy to sell. As the farmer sat atop the demonstration plowing or harvesting equipment, with its power to go through the fields doing an amount of work in a day equal to what had previously taken him weeks, he said to himself, "I can make more money and also take it a little easier." So the bankers approved the financing of the production and marketing of the farm machinery. They held a chattel mortgage on the machinery and a mortgage on the farmland itself and all its buildings. The bankers loved that. There was enthusiastic bank acceptance of the selling of such equipment "on time" to the farmers. The bankers did not consider this "immoral." The farmer was "producing food wealth." The automobilist was "just joy riding."

============

" The Securities and Exchange Commission reforms removed J. P. Morgan's two directors from the boards of almost every one of the U.S.A.'s great corporations—except Henry Ford's—whose interlocking directorships had formerly given Morgan prime control over U.S.A. industry. With the termination of Morgan's control of all the major corporation boards such as those of U.S. Steel and General Motors, these great corporations' managements found that they were no longer beholden to J. P. Morgan, and only to their stockholders. "All we have to do now to hold our jobs is to make money for the stockholders."

At this moment the U.S.A. had evolved into a managerial capitalism, in contradistinction to the now-defunct, invisible "finance capitalism" of which J. P. Morgan had been the master.

What became noticeable at this time was the uniformity of position taken by all the great corporation managements in respect to actions taken by the New Deal—for instance, the great corporations' across-the-board refusal to expend surplus on research and development.

To discover how that came about it first must be realized that the industrial-enterprise underwriting and expansion-financing of the private banking houses of Wall Street could not have been carried on without the advice, contract-writing services, and legal planning of the world's most powerful and most widely informed legal brains. As a consequence the corporation law firms of Wall Street, New York, were peopled with the most astute thinkers and tacticians of America—if not of the whole world. When the Great Crash of 1929 came and events of the Depression occurred, as already related (and the great poker hands were called, and the New Deal had prosecuted the guilty and housecleaned the system and socialized the prime contractors, etc.), it was the counsel of Wall Street lawyers that governed the positions taken by the new, self-perpetuating, industrial-giants' managements. It was the former J. P. Morgan's and other financiers' lawyers who now counseled all the as-yet-solvent big-industry managements to guard their surplus and refuse to cooperate with the New Deal.

Furthermore the Wall Street lawyers could see clearly what the public couldn't see—i.e., that while the New Deal was unilaterally socializing the system, it was doing so without exacting any contractual obligation on the corporations to acknowledge the government's economic recovery strategies. The corporations gave no legal acknowledgment of their socialized status. It was clear to the Wall Street lawyers that without such contractual acknowledgment the government socializing was a one-sided, voluntary commitment on the part of the political party in power. Therefore, in fact, none of the big corporations had lost their free-enterprise independence by accepting the enormous government rehabilitation expenditures.

Since the Wall Street lawyers and brethren in other parts of the country were called upon to fill the Supreme Court bench from which body they could determine the province of "free enterprise," the lawyers reasoned somewhat as follows: "A socialized system—as clearly manifest by the U.S.S.R.—cannot tolerate free enterprise's freedom of initiative. There is no lucrative law practice in socialized states—ergo, if we are to survive, we lawyers on Wall Street had best figure out how to go about keeping the fundamentals of capitalism alive amongst the few great industrial corporations that as yet remain solvent despite the 1929 and 1933 Depression events."

The Wall Street lawyers saw clearly that it was those surviving corporations' undistributed surplus which certified that capitalism had not gone entirely bankrupt despite its banking system's failure.

Operating invisibly behind the "skirts" of the as-yet-live corporations, the Wall Street lawyers very informally, but very seriously, organized far-ahead-in-time research-and-study teams consisting of the most astute corporation lawyers to be found in America. From these teams' realistic conceptioning they formulated a grand strategy that would keep capitalism's private enterprise alive and prospering indefinitely as run invisibly but absolutely legally by the lawyers.

The latter's research discovered that they would not soon be able to popularly and legally overthrow the New Deal. It was clear that not until World War II was over might they find conditions suitable for untying all the economic controls established by the New Deal."

=================

"Just before the U.S.A. entered World War II, the Wall Street lawyers instructed the heads of great corporations to say to Roosevelt, "We heads of the corporations of America were not elected by the American people. We were chosen by our stockholders. Our job is to make profits for our stockholders. At the time of World War I a lot of business people were called 'profiteers.' As we enter into World War II war production, we don't want to be called 'immoral profiteers.' If you want cooperation from us, Mr. Roosevelt, you as government are going to have to be the one to initiate our corporations' being properly rewarded for our cooperation."

Mr. Roosevelt said, "I agree. You are beholden to your stockholders, so you are going to have to pay them dividends." Coping with this dilemma, the United States Treasury Department agreed that it was legitimate for the industrial corporations to make up to 12-percent profit per each product turnover. The New Deal said, "We the people, as government, are, however, going to renegotiate with you all the time, continually inspect you, to be sure you are really earning your profits." As a consequence of all the continuous renegotiation by the government, those U.S.A. corporations earned an average of 10 percent on every turnover. This meant that in World War II for every annual war budget—running at first at $70 billion per year—10 percent, or $7 billion, was earmarked for distribution to the stockholders of the corporations. Complete socialization of the stockholders of the prime U.S.A. corporations was accomplished.

Amongst the prime contractors identified by the New Deal were all the leading automobile companies. For example, Chrysler was picked out to produce the war tanks. With their powerful position established with the government, the U.S.A. automobile manufacturers, on being asked to convert all of their productivity to war armaments, agreed amongst themselves to put into storage all of their production tooling and to resume their post-war auto production with the models they were last producing at outset of war. New production tooling would cost them several billions of dollars. They had their Madison Avenue companies grind out advertisements showing the G.I. soldiers saying, "Please keep everything the same at home until I return."

Because Germany's, Italy's, and Japan's production equipment was destroyed during World War II, they were free after the war to start using the newest war-advanced technology in both the designing and the production of their automobiles. That was the beginning of the end for the U.S.A.'s prestige as the world's technological leader. The U.S.A. post-World War II cars were inherently seven years passe in contrast to the smaller, faster foreign cars. The "Big Three" American auto producers undertook to manufacture while keeping the foreign cars off the market and while they themselves exploited America's market need for a geographically expanding economy's transportation.

In the late 1960s the "Big Three" automobile companies of America found that their distributors were disenchanted with decreasing financial returns and with frequent bankruptcy. To hold their distributors G.M., Ford and Chrysler deliberately manufactured a few of their mechanically well-designed parts with inferior materials that were guaranteed to deteriorate electrolytically or otherwise. The replacement of these parts guaranteed that all the distributors' car buyers would have to return to them for service on a high-frequency basis, at which time the distributor would replace the parts catalogue-priced so high that the distributor was guaranteed a profitable business. This continuing deceit of the customers—we the people—was the beginning of the end of the American automobile business and the once-great world esteem for Uncle Sam. U.S.A. discreditation has been brought about without the U.S.A. people's knowledge of the money-maker-world's invisible cheating.

Throughout all pre-World War II years employers had maintained that unemployed people were unemployed because they were unqualified for survival, socially expendable. Then World War II saw young people deployed on war tasks all around the world. In view of this loss of labor vast amounts of automation were incorporated in the U.S.A.'s home-front war production. With the war over, the government found the cream of its youth all unemployed, and because of the automation there were no jobs in sight. Because they were the proven "cream of the youth," no one could say they were unemployed because they were unqualified, so the as-yet-operative New Deal created the G.I. Bill, which sent all those young people to prepaid college and university educations.

By World War II's end labor was earning so much that, for the first time, it was feeling truly secure, affluent, and successful. Emulating the pattern of the rich, individuals of labor were becoming little capitalists, with many enjoying the realization of their own home and land, with two shiny new post-World War II cars in the garage, their kids going to college, and some savings in the bank. The workers began buying shares in IBM and other superpromising private enterprise companies.

The Wall Street lawyers, being astute observers of such matters, realized that this labor affluence had brought about a psychological reorientation of the body politic. People no longer remembered or felt the depression of spirit that was experienced in the Great Depression of social economics following the Great Crash. The Wall Street lawyers' grand strategists saw this as the time for breaking through the New Deal's hold on government, an event which, up to that time, seemed impossible. The lawyers said, "Whoever can get the victorious, supreme-command American general of World War II as their candidate for President will be able to get the presidency." They captured Eisenhower. Eisenhower had no political conviction, one way or the other. His vanity was excited at the idea of becoming president of his country.

The Wall Street lawyers explained to Eisenhower the prevailing new psychology of affluence and convinced him that the new affluent majority would elect a Republican. Thus they successfully persuaded him to be a Republican. With the healthy economy the new wage-earner capitalists, with a vested interest in maintaining the status quo, readily voted for Eisenhower on the Republican ticket. Elsenhower's Wall Street lawyer-managers explained to him that he had been able to win the war because of the vision, courage, and ingenuity and the productive power of American free enterprise. They convinced Eisenhower that "the U.S.A. is, in fact, free enterprise." They also convinced him that the Democrats' New Deal was socialism and therefore the inherent enemy of free enterprise.

As soon as the Wall Street lawyers had Eisenhower in office in 1952, they instructed him to break loose all the economic controls of the New Deal. They had him cut all price controls, all rent controls, all interest-rate controls; they had him terminate anything that was stymieing the making of big money by big business. For instance, they persuaded Eisenhower to allow the insurance companies to invest their vast funds in common stocks. Before Ike's liberation of the insurance companies they were allowed to put their funds only in "Class A" bonds and similar investments. Cheered by the capitalist-owned sector of the press, his Wall Street lawyer-advisors for a long time had Ike feeling like a great liberator.

The Wall Street lawyers' grand strategists put the Wall Street lawyer John Foster Dulles in as Ike's Secretary of State to dictate the American foreign policy of "Soviet containment," and Foster Dulles's Wall Street lawyer brother Allen Dulles was put in as head of a new brand of absolutely invisible, U.S.A.-financed, capitalistic welfare department, the CIA, established ostensibly to cold-war-cope with the secret-agent operations of our enemies. So secret was their operation that the people of the United States and its Congressional lawmakers had no idea of the size of the unlimited funds given to the CIA, nor for what those unknown funds were expended. The CIA and Allen Dulles had a U.S.A.-signed blank check for X amount of money to do X tasks. I call the CIA, "Capitalism's Invisible Army."

The great U.S.A. corporations, having been saved in 1933 by being only "unilaterally socialized," and having in the subsequent fifteen years become powerfully healthy from enormous war orders, immediately after Eisenhower's election started escalating prices. Their logic was that the first corporation head to increase prices in a given field of production would be the first to be able to distribute that "upping" as profits to his stockholders and thereby to gain for himself greater economic management status and personal wealth."

[WH]

Objectively speaking, GM appears doomed unless they can instantly produce a white-hot best selling car AND abruptly cut their costs in an amazing manner. Billions in federal loans are merely providing the burn through money rather than leading to mega-changes. AND --- moving on to Chrysler, why should taxpayers blow billions on a high-risk bailout when the Cerberus investors choose not to make further investments in Chrysler?! Put up your own money or shut up. Anyhow, I sure hope that Ford is in a stronger position than GM and Chrysler.

Ceberus has no $ to put into Chrysler as they bought 60% of GMAC for 16 billion in the past years. GMAC is now a bank holding company so their getting TARP funds, but they're in bad shape. Funny the holding company that owns Chrysler was also funding sales of GM!

As for the automakers in general, I can't understand why Exxon Mobil just doesn't step up and buy controlling interests in GM and Chrysler through stock purchases. They could easily buy both for less than the profit reported last quarter. That way they control the supply of oil and some of the main users of petroleum! Makes some sense, no?

WH