Ralph Reiland Archive
Mismanagement at the Big Three
It was a dead heat. General Motors sold 9.37 million vehicles worldwide in 2007 and lost $38.7 billion. Toyota sold 9.37 million vehicles in 2007 and made $17.1 billion.
That was the second best sales total in GM's 100-year history and the biggest loss ever for any automaker in the world.
For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold.
Collectively, Detroit's Big Three automakers are currently losing about $5 billion per month, with Ford, General Motors and Chrysler, respectively, burning through $2 billion, $2 billion and $1 billion in cash every 30 days.
Tin cups in hand again during their recent testimony in Congress, leaving their corporate jets at home this time and promising to cut their paychecks to $1 per year, the CEOs from the Big Three came to Washington in even worse shape than during their Congressional appearance in November, upping their money appeal by $9 billion, from $25 billion to $34 billion. That's on top of the $25 billion in already authorized money to retool their plants.
General Motors and Chrysler added a "rush" to their latest bailout request, telling D.C.'s lawmakers that they need, respectively, an immediate $4 billion and $7 billion to ensure minimum liquidity levels, paid prior to the end of December. GM, as well, asked for an additional $4 billion for January and a third handout of $2 billion in the February/March time frame to forestall a financial calamity, plus a $6 billion line of credit from the federal government to ensure ample liquidity.
All told, GM says it needs an $18 billion taxpayer bailout, some 50 percent more than it said it needed just three weeks ago to turn things around.
With its hourly workforce already down 52 percent since 2000, from 133,000 to 64,000, and its executive ranks and salaried employees down, respectively, by 45 percent and 32 percent in the same period, General Motors now says it can get back on its feet by getting rid of its Saturn, Hummer and Saab lines and putting Pontiac on an endangered-brand list.
Also in GM's proposal for survival, and for paying back the money by 2011, is the elimination of 1,750 dealerships, the closing of four of its 47 plants, an additional 31,500 job cuts, and a new age of "full labor competitiveness" with foreign manufacturers in the U.S. within the next three years.
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Should you take Michelle Obama's Career Advice?
There's not a lot of money in Zanesville. Nearly a quarter of the Ohio town's population, 22.4 percent, is living below the poverty line, including 32.3 percent of those under 18 years of age.
That's nearly double the national poverty rate, officially reported by the Census Bureau last August as 12.3 percent overall, nationwide, and 17.4 percent for those under 18.
Still, Michelle Obama stopped by the other day during a campaign visit and warned the locals to not go for the big money.
"We left corporate America, which is a lot of what we're asking young people to do," she told a group of women at a day-care center. "Don't go into corporate America. You know, become teachers. Work for the community. Be social workers. Be a nurse. Those are the careers that we need, and we're encouraging our young people to do that. But if you make that choice, as we did, to move out of the money-making industry into the helping industry, then your salaries respond."
Faced with allegedly skimpy paychecks in the "helping industry," Mrs. Obama complained that "many of our bright stars are going into corporate law or hedge-fund management."
Rather than an honest attempt at providing career advice for the women in Zanesville, few of whom in all likelihood had ever thought about getting a job in hedge funds, it seems that Michelle Obama was simply interested in taking a cheap political shot.
It just so happens that two of the people who took the exact path that Mrs. Obama was railing against -- i.e., choosing jobs in corporate law and hedge-fund management over working in the "helping industry" -- are Hillary Clinton and her daughter.
Hillary spent 15 years at the Rose Law Firm, one of the most prestigious corporate law offices in Arkansas, where she represented large companies and served on corporate boards, including Wal-Mart's.
In 2006, Chelsea Clinton started working for Avenue Capital Group, a hedge fund that manages approximately $12 billion in assets, specializing in trading in distressed and undervalued credit-related securities and the debt of companies that are nearing or have filed for bankruptcy.
The New York Daily News estimated the former first daughter's salary at Avenue Capital to be in the range of $100,000 to $150,000.
What Michelle Obama didn't mention during her stop in Zanesville is that she's done pretty well by helping herself to a sizeable slice of "helping industry" money at the University of Chicago Hospital.
Employed as vice president for community affairs, Mrs. Obama's annual compensation jumped from $121,910 in 2004, just before her husband was elected to the Senate, to $316,962 in 2005, just after he took office.
That's a $195,052 raise -- not bad for someone who looks down her nose at the money-grubbers in "money-making industry."
All told, the total income declared by the Obama household on the couple's 2006 income tax return, figuring his Senate salary, book royalties and her compensation from sitting on corporate boards, was $991,296 -- again, not bad for a couple sacrificing themselves in the "helping industry."
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The Ineptness of Centralized Planning
The so-called "Bridge to Nowhere" in Alaska became a national joke in 2005 after ABC's "20/20" put the spotlight on this particularly fat slice of pork.
The proposed bridge, since cancelled, was to replace a ferry that runs every 15 minutes or so between Ketchikan, a small town on the island of Revillagigedo, and Gravina Island.
The ferry ride, $5 per person ($6 for cars), takes about 5 minutes — a half-mile ride across the small waterway that separates Ketchikan and Gravina.
Ketchikan promotes itself as "the home of the world's largest collection of standing totem poles." At the other end of the ride, salon.com columnist Rebecca Clarren describes Gravina: "The 20-mile-long island, home to fewer than 50 people, has no stores, no restaurants, and no paved roads."
The biggest thing on Gravina is Ketchikan International, an airport with fewer than 10 commercial flights per day.
With an initially estimated cost to federal taxpayers of $320 million, before overruns, the Gravina Bridge was to have been nearly as long as the Golden Gate Bridge and six stories taller than the Brooklyn Bridge — tall enough to permit the largest cruise ships to pass beneath.
The bridge was one of a record 6,371 "earmarks" in the Transportation Equity Act of 2005, an authorization of spending for a five-year period, 2005-2009. Representative Don Young (R-Alaska), as Chairman of the House Committee on Transportation and Infrastructure, got more than his share of the pork.
Alaska, with the nation's third-smallest population, hit the jackpot as the fourth-biggest recipient of funds in the 2005 transportation bill.
Noting that transportation funding is "fed by the gas tax at the pump," Clarren reported on the disparity between states in how funds were distributed in the 2005 bill: "The bill spends $86 per person on a national average; it spends an estimated $1,500 on every Alaskan."
It's a system, in short, that distributes capital according to political power, according to seniority, rather than by way of calculating economic efficiencies and conducting a rational analysis of the nation's transportation needs.
On August 10, 2005, President George W. Bush signed the Transportation Equity Act. New Orleans, 19 days later, was hit by Hurricane Katrina. A year later, the official number of dead in Louisiana attributed to the hurricane was 1,464.
"Regional newspapers, the Army Corps of Engineers, and the Federal Emergency Management Agency itself warned that a strong hurricane could have cataclysmic consequences on New Orleans and the surrounding area," wrote John Stossel a few days after the storm.
"It's been reported that just before 9/11, FEMA warned that the three biggest threats to America were a terrorist attack on New York City, a massive earthquake in San Francisco, and flooding in New Orleans if a big hurricane hit," explained Stossel. "The Army Corps of Engineers asked or $27 million to strengthen New Orleans' levees, so they might not break, but Congress gave just a fraction of that." The chair of the Committee on Transportation wasn't from New Orleans.
In Alaska, meanwhile, "Rep. Don Young was so proud of the House version of the pork-loaded Transportation Equity Act that he named it TEA-LU, after his wife, Lu," reports Clarren. "He has said of the bill, 'I stuffed it like a turkey.'"
As early as 1990, the Interstate 35W bridge in Minneapolis, Minnesota's fifth-busiest bridge, carrying 140,000 vehicles per day, was rated as "structurally deficient."
Last year during the bumper-to-bumper rush hour, at 6:05 P.M. on August 1, the entire span of the bridge broke into sections and collapsed, sending people, vehicles, concrete and twisted metal into the Mississippi River.
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"Every Minneapolis ambulance had been requested to the scene," reported MSNBC. "A freight train was passing under the bridge when it collapsed and was cut in two." Governor Tim Pawlenty called the collapse "a catastrophe of historic proportions."
At the federal level, the Homeland Security Department (HSD) stated that the collapse "did not appear to be terrorism-related." No one at HSD suggested that the collapse was corruption related, directly connected to the irrationality and fraud in Washington and the lack of "equity" in the Transportation Equity Act.
With dive teams still searching several days after the collapse for cars and bodies in the fast-moving river current, the National Transportation Safety Board (NTSB) announced that a team of investigators would be flying from Washington to Minneapolis. No one at NTSB announced that any investigators would skip the flying and focus instead on the shenanigans and ineptitude in the House Committee on Transportation.
Ralph R. Reiland is an associate professor of economics at Robert Morris University in Pittsburgh. Send him mail. Comment on the blog.
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