Sunday, November 23, 2008

The Auto-Industry Cure

As the big three entered their plea for help on Capitol Hill, their gleaming corporate jets stood ready to whisk them back to their corporate headquarters. The media pounced on this and America became outraged. Who is running their P.R. operation??? This should be the first department within each firm that should be gutted. While most on Capitol Hill favor some type of assistance to keep them on life-support through these illiquid times, they have to clearly show the Capitol Hill crowd as well as the American public that they have a plan for long-term survival. There is no question that most of us here in the Midwest want to see them survive.

The Nardelli Idea
One of the not much noticed, nor talked about ideas that come out of the Capitol Hill hearings was one put forward by Bob Nardelli (CEO--Chrysler). He opined that perhaps a National Lab could be created to develop alternative fuel sources for the transportation industry. His reasoning was that it didn't make much sense for each of the big three to push R&D funds into developing alternative fuels when we could get economies of scale by funneling some cash to one lab and transfer the technology. Good idea, but why create another government lab when one of our existing labs could develop a technology. The talent pool is already there at Fermi, Argonne, Los Alamos, or Sandia.

Ford
Already on its way to becoming a winner. I suspect that it is just a liquidity problem as the banks tighten their lending programs and the market for commercial paper is not particularly strong. Should consider having its finance unit apply to become a bank and seek Troubled Asset Relief Program (TARP) funding. Treasury could package a nice deal that would benefit the taxpayers and help Ford provide funding up and down its supply chain and to its dealer network.

Chrysler
Can easily be a winner on its own. It has some of the best management and financial minds with Cerberus as the private equity firm that owns this puppy. Again, Chrysler can have their financing unit apply for bank status and tap TARP funds with strings attached. Like Ford, such a move could eventually create a self-sufficient credit facility to insure their long term survival.

GM
The biggest loser among the bunch, but necessarily a lost cause. It is well past time to break this monster up. Here too, the GMAC could apply for bank status and then tap the TARP funds to ensure liquidity is injected into their system. Other steps that will need to be made if we are to see its survival might include the following:
  1. Rick Wagoner (CEO) must go. This guy proved to be, through his utterly abysmal performance in testimony on the Hill, that he is a bobo. Where did they recruit him??? Off the ninth hole at the nearest country club??
  2. Put a dagger in the Pontiac brand. Transfer the TransAm / Firebird nameplates to the Saturn division.
  3. Spin-off the Saturn brand as a "employee-owned" company. Perhaps Kirk Krekorian through his Tricinda Corp. could re-emerge as a major investor and put this unit on the road to profitability.
  4. In recent years the Buick brand has become a solid and creative unit that has tremendous market share in China of all places. This division could also be spun-off to profitability. Perhaps Carl Icahn and T. Boone Pickens could team-up to place solid management in place to run the company. It would give Boone an outlet to develop a top-selling vehicle that runs on nat-gas.
  5. The new GM could be composed of Chevorlet, Cadillac, and Hummer. If the leftover management can't make with whatever funds are made available to them as well as their highly touted Chevy Volt, then bankruptcy will be the road they will need to travel.

UAW

These fellas need to get out of their 1930's thinking and start to think competitively. The only other option will be to get run over by the global economic pressures. Their goal should be to become a stakeholder in the survival of each of these companies instead of an impediment to their economic viability. This is a classic case of Union leadership out of touch with those that work on the factory floor. The goal here is to create and preserve American manufacturing jobs not play the "pta" game. The usual featherbedding, instituting of stupid work rules that impede productivity, and labor banks must go.

Government

Get out of the manufacturing business. Stop trying to micro-manage how autos should be made, what standards for fuel mileage and safety need to be met. There is a viable independent sector that educates consumers on what are the best automobiles available for purchase. If a manufacturer wants to create a Yugo, then they will fail !!!!!!

It is hard to believe that in the early age of the automobile there were more than 2500 different "manufacturers" and now we are down to three. It is incumbent upon all the players in this high-stakes game to insure their survival. But it will have to be done with pain, sweat, and creativity. It is time for this industry to embrace the twenty-first century or surely it will go the way of the Checker, Cord, DeSoto, Duesenberg, Hudson, Nash, Packard, Studebaker, Stutz, and Tucker to name a few of the glorious brands that drove American roads.

Thursday, November 20, 2008

Capital Market Angioplasty

Listening to the TARP (troubled asset recovery program) testimony the other morning on Capitol Hill by the Big Financial Three [Paulson (Treasury), Bernanke (FED) and Bair (FDIC)], I was most impressed by both Benanke and Bair while concluding that Paulson was nothing more than a blowzy bobo. This guy was once the CEO of the once venerated Goldman Sachs?? He is a better obfuscater than most of the blowhards on Capitol Hill. While Paulson has made some tweaks to the TARP following on his interpretation of the use of the funds, which will eventually save the taxpayers some money, he has steered away from the original intent of the legislation. The overriding intent was to purchase the "toxic" paper thereby providing additional liquidity to the financial markets.

When Paulson was asked, quite simply, what portion of the TARP funds had been used to deal with the "toxic" paper? His reply was that his department was working on it. To completely ignore the original legislative intent and develop his own program is extremely egotistical. It is no wonder Paulson is referred to as "King Henry" in many financial circles. The "King Henry" tag is further evidenced by his calling the big six or eight bankers into Treasury and force them to take TARP funds. At the least at that time he should have delegated the authority to the big bankers the task of utilizing a portion of the funds forced upon them to purchase some of the "toxic" papers. This could have been the start of the foreclosure mitigation goal.

Along the lines of the Sheila Bair (FDIC) mortgage forbearance program could have been initiated to re-liquefy financial markets and at the same time enable some homeowners to hold onto their homes during their financial distress. Further development of a forbearance program could include a BLM (big long mortgage) of the type the esteemed financial planner, Ric Edelman, advocates. These newly inked mortgages could then be backstopped by the government similar to the SBA's (small business administration) 504b loan program provided to small businesses. Under such a mortgage program the government can guarantees 50% of the loan, the big bank is liable for 40% of the loan and the mortgagee (buyer) has 10% at risk. This way everybody has skin in the game.

What is necessary is for capital markets to undergo this type of angioplasty to begin to liquefy the financial markets. Bankers can begin to have the confidence to make prudent loans to consumers and small business people and get this economy rolling again. "King Henry" needs to put down his scepter, roll-up his sleeves, stop making speeches all over the country, and get to work.

Sunday, November 9, 2008

Xenophobes Partly to Blame for McCain Loss

Aside from the extremely strong headwinds (unpopular Bush, economic meltdown, etc.), John McCain faced, the Xenophobic wing of the Republican party should share the blame for his loss. The loss of the states of Florida, Colorado, New Mexico, and Nevada is inexcusable. In politics, perception is reality. Today there is a strong perception that the Republican party has a significant mean streak because of the many strong xenophobic voices on the immigration issue.

In 2004 Presidential Election, nationally, latino voters went 53% for Kerry and 44% for Bush. In 2008, the latino vote went 67% for Obama and 31% for McCain. Although, McCain had a more rational approach to immigration reform, there is a strong developing perception within the latin community that the Republican Party is menacingly mean spirited on this issue. US Senator Mel Martinez (R-FL) echos this analysis. The xenophobic label the Republicans have been tagged with transcends the latino community; what of other immigrants from other countries yearning for freedom and prosperity? Did you know that in Poland they call the Chicago Metropolitan area Polonia? That is because the Chicago area has the largest polish population outside of Warsaw, Poland. Can this xenophobic label be a reason for the loss of three Republican leaning US house seats within the last eight years? Could be. A more measured approach to immigration reform could greatly improve the Republican image within all immigrant communities. As newly elected Republican Congressman, Aaron Schock (R-IL) has stated, "We are a nation of Immigrants", implying that Republicans should tread lightly on this issue.

Republican Opportunity toward Immigration Reform
While the immigration issue will undoubtedly be a top priority of the new Obama administration, Republicans have a solid opportunity to take a meaningful and measured approach toward solving the issue. They must propose a reform program that is a win-win situation for all. Among the key elements that it should include are:
1. Yes our borders need to be secured. And that means all borders; Canada on the North, Mexico to the South, the Atlantic shipping ports to the East and the Pacific shipping ports to the West, not to mention the shipping ports in the Gulf of Mexico.
2. Create a solid assimilation program for those already here illegally. It should never be advocated that they just be thrown out of the country. Every time I hear such a strident message, I am reminded of that awful movie Gangs of New York. Use your imagination on that. Republicans need to approach those hardworking, taxpaying, and law-abiding illegals in a more helpful manner.
3. Create an expanded worker visa program who wish to work here in the United States and eventually desire to seek US citizenship. And yes, many foreigners still desire to come here to become part of the American dream. Whether they come here to escape the narco-democracy of Mexico, escape the impoverished countries of Asia, move from the hard-life of Central and Eastern Europe, or escape from the increasing socialistic and tyrannical countries of Latin America, all that seek to work hard and contribute to a prosperous America should be allowed to do so.
4. Develop a national immigrant ID that allows those gainfully employed to stay here without any extraordinary punitive punishment for coming here illegally. Obviously, we should establish certain conditions that must be met and then monitor whether they are being met. These conditions might include; (a) must be employed, (b) must pay taxes, (c) must be law-abiding and not have a criminal rap sheet of any kind, (d) not seek government assistance of any kind, (e) must take English immersion classes.
5. Penalties should be imposed for those not following any newly promulgated immigration laws. And they should be enforced once established.

Part of the lure of the Republican Party is its principles especially evident during the Reagan era. One of the strongest has always been America as the Land of Opportunity. This opportunity should be extended to all immigrants presently here and all that will follow.


Saturday, November 1, 2008

Action Now Urgently Needed on Federal Budget

As we enter the "Age of American Socialism" neither candidate for President is talking about what kind of cuts they would make to keep the ugly head of inflation from rising after all their campaign promises. Whether McCain wins or as the polls, pundits and prognosticators predict, Obama wins, both will need to deal with a bloated federal budget. Herewith are some areas that can be cut in order to secure a better future for our country.

Eliminate the Department of Education
It makes no sense to send our hard earned monies into Washington, D.C. only to have the Feds skim their cut and re-deploy what crumbs are left back to the states to further whatever education goals legislated by Congress. All of the loan and grant programs can easily be administered by the Treasury. Since that department has now declared itself as the official lender of the U.S. Government. The rest of the programs deployed by the Educrats can just be axed. Since the department was originated during the Carter administration, all of the great innovations in Education have originated at the state and local level. This is where the action happens, this is where it should stay.

Cut the State Department by 25%
The next Secretary of "foggy bottom" can figure out where specific cuts should occur. He or she can begin by throwing a bone to the Jeffersonians that continually warn against foreign entanglements and stop funding programs that aid nation-states whose purposes run counter to our national interests.

Cut the Agriculture Department by 20%
Whoever the Ag Department Secretary might be they should embrace free-market principles and shrink this department accordingly. We are no longer an agrarian nation, though we can be considered the bread basket to the world. Fewer and fewer people are involved in agricultural as technology and productivity have steamlined those numbers. Clearly the bloated must go.

Cut the Defense Department by 10%
Begin by rooting out the wasteful spending within. Then reduce the number of troops based in foreign lands. If a country seeks our continued presense there, then they should be willing to pay for that privilege.

Though it is unlikely that the current congress, even after the election on Tuesday will make cuts such as these, it is incumbant upon fiscally conservative back-benchers to continually press for such cuts. Someone has to sound the alarm that the U.S. Government debt time bomb will soon explode our Nation into dust.