Obama Motors, electric cars, bankruptcy, and making economic sense

Economics 101 Series Introduction
James Madison on Property
Everything I need to know about economics – by some French guy 160 years ago
Van Jones tells Nutroots there’s plenty of (other people’s) money out there
Obama Motors, electric cars, bankruptcy, and making economic sense
Time for another trip to the woodshed for little Timmy Geithner: Economics 101 do over
Who Pays for Paid Sick Leave?
Can’t find any economics in Christina Romer’s advice

It’s entertaining to watch Robert Gibbs mount a spirited defense of the bailout of Obama Motors but he seems to struggle a bit with how things really work and who did what to whom. In defense of Mr. Gibbs we have come to understand that he doesn’t really know that much about basic economics and business. With the President off to Detroit to tout an Obama Motors electric car and such you would think the people behind the curtain in the administration would have pumped Mr. Gibbs up a little better in anticipation of questions about bailouts and the economy. But they didn’t and the next thing you know poor Mr. Gibbs, armed with nothing more than a pea shooter, was taking on Rush Limbaugh during a press conference (Thursday, 7/29/10).

Told by a reporter that “You had Rush Limbaugh today — today or yesterday — talking Obama Motors again,” Gibbs, who doesn’t often provide free advertising by taking on his critics by name from the podium, let fire.

“Look, Rush Limbaugh and others wanted to walk away. Rush Limbaugh and others saw a million people that worked at these factories, that worked at these parts suppliers, that had — that supported communities, and thought we should all just walk away. The president didn’t think that walking away from a million jobs in these communities made a lot of economic sense,” Gibbs said.

Mr. Gibbs is a little confused about what Rush and a sizable majority of the country wanted then and still wants today.

Let the free market do what the free market does, respect and defend property rights, and comply with the bankruptcy laws that had been applied to other companies, regardless of size, in a position where they couldn’t pay their bills.

It’s not all that complicated to grasp.

Chapter 11 bankruptcy doesn’t mean companies just disappear and all of the employees are on the street looking for jobs. Operations continue and debt payment is restructured in a bankruptcy court to establish a pecking order for payment of creditors and debt holders. This is not nuclear physics. This is basic business, economics, and accounting stuff.
Chapter 7 – companies cease all operations immediately and assets are liquidated.

Despite all of the tales of agony and woe it would have been possible for the government to intercede in the case of GM if need be to arrange some sort of modified Chapter 11 rules. Continued operations could have been facilitated without the need to put billions of taxpayer dollars (debt) at risk. In bankruptcy court the holders of valid debt obligation would not have been utterly and totally screwed and tax payer funds (debt) would not have been used to give a share of Obama Motors to the UAW. You can trace the line on these two things back to that rather inconvenient principal left over from those pesky Founding Fathers – property rights.

Having taken more flights than I care to remember on Northwest Airlines between 2005 and 2007 while they were in bankruptcy, I’m pretty sure the process works. Some jobs were eliminated and others continued but at reduced salary. The airline continued to operate and only a few of my flights were cancelled or delayed significantly; neither of which had anything to do with bankruptcy proceedings. On the subject of airlines, Delta, United, and U.S Air all went through the bankruptcy process around the same timeframe. The big dog of the airlines industry, American, avoided the process but just by a whisker. Thousands of companies either directly involved in the airline industry or relying on a substantial amount of revenue from activities related to the industry and their employees were also affected by these bankruptcies. The point is the world didn’t come to an end because some very large and very important companies went through a bankruptcy process.

With regard to the million of jobs and communities that is nothing more than Mr. Gibbs at his best playing his role as a melodramatic demagogue.

Let’s recap the “economic sense” of Rush and us common folk out here in America.

Playing by the rules
Allowing the free market to operate
Respecting property rights
Upholding the law by allowing for Chapter 11 bankruptcy when called for

Now let’s contrast that with President Obama’s concept of “economic sense”.

Using taxpayer dollars, debt actually since there really wasn’t any money left in the nation’s piggy bank, for

Billions of dollars for political payoff to the UAW and
Bypassing the bankruptcy laws and disregarding property rights of holders of legal debt obligations
Forcing a company to build a $41,000 “Electric Edsel” that goes a whole 40 miles before the battery is drained that will not sell even with $7500 per car in taxpayer money to subsidize a rebate. (My apologies to Ford but the Edsel remains a symbol of a vehicle which probably should not have been built in the first place)
- That $7500 rebate with gas at $3.50 per gallon is 2143 gallons of gas which at the average fuel economy of an Obama Motors passenger vehicle, 31.3 mpg, is 67,071 miles of driving range.

A few tiny, stubborn, inconvenient facts about electricity and batteries

Electricity to recharge batteries is not free
Despite all of the wild fantasizing and “green energy” science projects, some other color of energy derived from really, really old dead, rotten, smashed plants will still be needed to make the majority of our electricity for some time to come. With no new nuclear power plants having been built for the last 20 years there has been little incentive for the free market to develop better, cheaper ways to produce energy with nuclear power. With irrational natural resource recovery restrictions in place for the past thirty years or more additional sources of natural gas have not be brought to market thereby diminishing opportunities to take advantage of newer more efficient, clean burning gas turbine technology for electric power generation.
Batteries are still big, heavy and require either a long to recharge or more government subsidies to shorten the recharge time.
- There’s more you should know about what a screw job this battery mess is but there’s too much to include in this article. See the related post “Electric car batteries; hype, reality, and subsidies, oh my!!”

Yes sir-eee Bob Mr. Gibbs, that there President Obama feller is just eat up with economic sense.

“We’ve got auto companies that for the first time since 2004 all showed an operating profit in the first quarter of this year. It’s adding jobs. And the money that this administration invested — about $60 billion — we believe we’re on the path to recouping all of that. That’s a significant story.

Let’s look a little closer at the facts, those stubborn and sometimes inconvenient things, about auto company profits this year.

The head of Obama Motors was caught in a slight of hand report (OK maybe it was a lie) about of having paid back a government $6.7B loan early. In fact they used government bailout funding from a $13.4 working capital escrow account to “pay back” a $6.7B government loan.
Obama Motors reported $865M profit in the first quarter of 2010
Ford Motor Company (no bailout dollars) reported $2.1B (and another $2.6B in 2^nd quarter). Surely even Mr. Gibbs and the people behind the curtain wouldn’t try to take credit for Ford’s profitability would they?
About that path to recouping the bailout money; exactly, no let’s make it easy, “approximately” how long is that path to recouping those funds?

Mr. Gibbs calls that a significant story. Out here in the middle of the country we call that a whopper. And one more thing; we don’t believe the Deficit Fairy will come along one day and make all that additional debt go away that was incurred to buy auto companies and payoff the UAW for political support.

“I’ll let those that sat in the cheap seats a year-and-a-half ago and wanted to walk away” from a million workers, he continued, “explain to every one of those workers why they made that decision.”

Here’s how this one works out here in the middle of the country.

We check the price of the luxury box, then we check the old budget, we determine that it’s cheap seats or no seats at all, and then we make the “decision”.
Here’s another way to think of it. Think of a luxury box as something like gassing up Air Force One to fly the misses to New York for date night or checking the funds available and making the “decision” that date night is (a) the chain restaurant and a stroll in the park or (b) leftovers and a movie.

I realize that we use some pretty complex decision making rules out here in the middle of the country and that all that stuff about free markets, playing by the rules, and property rights might be a little difficult to understand. Perhaps Mr. Gibbs should stop by some out here in the middle of the country some time for a little detailed explanation. Who knows, he might get lucky. It might be grilling night. Then again it might be leftovers night. Either way it gets the job done out here in the cheap seats in the middle of the country.

Finally, he wrapped it up: “And then you should ask Mr. Limbaugh — I don’t know what kind of car he drives, but I bet it’s not an F-150.”

Dang Mr. Gibbs almost got one thing right but of course the F-150 (F as in Ford) is not a car and it’s not an Obama Motors vehicle. Not sure how Rush feels about Ford trucks but he was a big fan of the GM cars. I’m pretty sure I recall GM being one of his “obscene profit center” sponsors before they were converted to Obama Motors.

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