GM Exit Strategy: Taxpayers Eat Billions

The Obama administration said Wednesday it will sell 200 million shares — or 40 percent of its remaining stake in General Motors Co. — back to the automaker and announced plans to completely exit the Detroit automaker by March 2014.

The Detroit automaker said it will purchase 200 million shares of GM stock held by Treasury for $5.5 billion — or $27.50 per share — nearly $2 above the stock’s closing price on Tuesday. GM shares jumped sharply on the news and were up 7.5 percent to $27.36, or $1.90, early afternoon in very heavy trading.  …

Still, taxpayers will almost certainly lose billions of dollars in the $49.5 billion GM bailout – and the government would need to sell its remaining shares for about $70 each to break even. If the government sold the rest of its stock at current prices, taxpayers would lose more than $13 billion. But profits from the bank and AIG bailouts will largely offset the auto bailout losses.

via The Detroit News.

No surprise here right?  We all knew this was coming… now that the election is over?  Right?

Businesses Expanding but Not Hiring

A majority of owners of midsized businesses in the Chicago area plan to expand in the next three months, but only a third say they will hire more workers in that time, according to a new survey.  …

The most recent poll … found that nearly 60 percent of surveyed businesses planned to expand in the next six months. …At the same time, just 30 percent plan to add staff in the next three months. In the spring survey, 42 percent said they planned to hire soon.

via Crain’s Chicago Business.

Businesses are terrified of the government.  So what do they do?  More as slowly as possible.  Hire as few as possible.  Be as conservative as possible.  Because the G is going to come and screw you up real bad at any minute.

Business are terrified of Obamacare.  The costs associated with bringing on new people is dizzying.  Hire someone today and down the road you may just have to fire them because their health care costs are out of control.

Running a business is hard.  Really hard.

Any business that tells you that they”could use “help from the government” is so big that they are fully in bed with the government.  Much like GE, or GM.  Recall that GE paid no taxes on $14B in income in 2010.  The GM fiasco speaks for itself.

The life blood of this country is in the small and medium sized businesses.  Right now these businesses are sick and we’re not nurturing them the way we should.  But they future is our future.

This country is heading in the wrong direction.

Treasury Won’t Sell Take a Loss on GM Shares

General Motors Co. executives want the Treasury Department to sell its almost 27 percent stake in the company because, they say, the feds are hurting their image and government pay restrictions are chasing away top talent.  …

Government officials weren’t interested in the deal.“At GM’s Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake,” the Journal notes. “While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s.”


This is the Treasury department playing politics.  Treasury is supposed to be “above” politics.  It’s supposed to control the U.S.’s monetary policy such that our economy grows at a steady pace.

The question now is did Tim Geithner make this decision or did it come from Obama himself?

GM (Temporarily) Laying off 1300 Due to Low Volt Sales

General Motors Co. announced the temporary suspension of Chevrolet Volt production and the layoffs of 1300 employees, as the company is cutting Volt manufacturing to meet lower-than-expected demand for the electric cars.

“Even with sales up in February over January, we are still seeking to align our production with demand,” GM spokesman Chris Lee said. The car company had hoped to sell 45,000 Chevy Volts in America this year, according to the Detrot News, but has only sold about 1,626 over the first two months of 2012.

“GM blamed the lack of sales in January on “exaggerated” media reports and the federal government’s investigation into Volt batteries catching fire, which officially began in November and ended Jan. 21,” the Ann Arbor (Mich.) News reported.

The laid-off employees will be rehired April 23rd, when GM resumes production of the Volt.

via Washington Examiner.

I kinda think the headline should be, “People don’t want a car that starts on fire; Media to blame.”

This is the kind of story that would only appear in a country where the government ran the auto company… oh, wait….

Who’s Pro Business?

Recently published is a series of stories on where it’s easier/better to start and run a business.  Whether we like it or not, businesses employ people; people do not employ businesses.  Creating and maintaining a pro-business environment is not easy.  But sure Illinois generally, and Chicago specifically, are failing… or are they?

First, a national story out of Inc. magazine telling us that  it’s easier to start a business in Rwanda than in the U.S. |  Well that can’t be good.  Perhaps this is why Hillary Clinton recently toured a GM plant in Uzbekistan.  Yep, creating 6,600 jobs and giving away $160k in entrepreneurial awards in Uzbekistan is a sure sign that maybe the U.S. has it’s job creation priorities a little out of whack.  You hard earned tax dollars at work.
Then we have Crain’s Chicago Business which confidently pronounced that Illinois’ business climate outshines its neighbors.  The three main reasons are low effective tax rates, easy access to capital, and a more educated population.  After telling us how wonderful Illinois is — and after most people have stopped reading — we find out the bad news:

The costs to operate a business in Chicago are:

  • 25% higher than in Des Moines,
  • 20% higher than in Indianapolis, and
  • 15% higher than in St. Louis.

Then we get this:

Catalyst Exhibits Inc., a trade-show exhibit management company, moved last week to Pleasant Prairie, Wis., from Crystal Lake to save money. The company, which employs 92, had been considering Elgin but chose Wisconsin, which provided a $1.2-million low-interest loan and a $500,000 grant.

“It wasn’t completely incentives,” says CEO Tim Roberts, who estimates he’ll save 20% a month on building costs, not to mention savings on health insurance and workers compensation premiums.

Oh, cheaper to manufacture in Wisconsin, I see.  I wonder why?

Illinois has the third-highest workers compensation rates in the nation, at $3.05 per $100 in payroll, though recent reforms are expected to lower those costs by about 9%. Indiana has the lowest in the nation, at $1.16. For a manufacturer, it could mean an extra $900 per employee annually. Wisconsin is in the middle, at $2.21 per $100 of payroll.

Illinois also is more unionized than neighboring states, with 16.4% of its workforce organized, compared with 15.1% in Wisconsin, 13.8% in Iowa, 12.2% in Indiana and 11.1% in Missouri, according to the Bureau of Labor Statistics. Unionized employees tend to have higher wages and more rigid work rules, driving up labor costs, which are the largest expense for most companies.

The rest of the article is where things get really bad.

Business owners worry they’ll have to pay the price for decades of fiscal mismanagement by Illinois’ elected officials. A yawning state budget deficit led to this year’s income tax hike. Even more ominous is the $93.5- billion funding shortfall in state employee pension plans. Illinois’ pensions are only 51% funded, the worst in the nation. Wisconsin’s plans are fully funded, Missouri’s and Iowa’s are about 80% funded, and Indiana’s is at 67%.

Ya, that’s a problem.  But we’re going to fix that right?

Indiana Gov. Mitch Daniels and Wisconsin Gov. Scott Walker have moved to rein in pension costs, pushing unions out of government work. Illinois Gov. Pat Quinn, who depended on unions for political support, has been unwilling to go as far.

Oh, Illinois is just going to keep piling on the debt.  So how do we get out of this hole we’re digging?

Illinois “won’t have any choice but to raise taxes again, and they don’t seem to be willing to cut,” says Mr. Roberts, a Barrington village trustee. “As far as the next 10 years, the odds in Wisconsin are much better for us.”

But at least our elected officials and the government bureaucrats are working hard to keep businesses in Illinois right?

Neighboring states also are developing a reputation for being more business-friendly. “When I call the secretary of state or whatever agency in Indiana, I get a positive response,” says Mark Winzenread, chief financial officer of Indianapolis-based Walker Information Inc., which previously had an Illinois office. “I don’t get that in Illinois. It’s generally a frustrating experience.”

When the 180-person consulting firm moved its headquarters just a short distance a few years ago, the state provided $600,000 to extend a road two miles. “We had one or two meetings and got it done,” he says.

Mr. Farrell, the former ITW CEO, says Illinois will have to fix its attitude and its finances or risk losing business to other states.

“I love Chicago, I really do,” he says. “Do you think I can look another CEO in the eye and say this is a great place to bring a plant? No. Most of the large companies in the state are very nervous about where we are.”

Oh, ok.  So there you have it. Illinois is broke.  Has access to capital and lots of smart people.  But it’s a financial mess, heading off the cliff, and the politicians and bureaucrats are clueless of how to help business because they’re all beholden to union interests.

Of course, in May 500 CEOs considered a wide range of criteria and ranked Illinois 48 out of 50 of states for business.  That’s right, Illinois in only behind New York and California.  Well we have to see how our neighbors rank in order to see if the Crain’s story is even close.

  • Indiana  – 6th
  • Iowa  – 22nd
  • Wisconsin  – 24th, and
  • Illinois  – 48th.

Hummm.  It appears safe to say that the position taken by Crain’s is at odds with the position taken by 500 business CEOs.  Kinda makes me wonder who came up with the Crain’s position and if it was their own idea or if it was provided to them.

I believe that Illinois has all of the elements needed to be an awesome state for business.  We do have not only manufacturing talent but technical know-how and access to capital as claimed.  What we need to do is balance our budget, reduce our spending, have pension reform, and elect people who really want to help businesses in the state.  It can be done.  We just need different leadership.