What Did Obama Motors Know?

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GM — known derisively as “Obama Motors” because of the crony deal it got from the Obama administration — is once again in the news . . . for a massive corporate screwup.

GM is about to be investigated by Congress in the matter of the company’s recall of 1.6 million vehicles. These vehicles had faulty ignition switches. Their malfunctions apparently led to 13 deaths. GM has lawyered up, for it will surely face many tort lawsuits, as it surely should.  Recalls are not unknown in the auto industry, but what is causing Congress to investigate is that it took GM about ten years to get around to the recall. So GM has hired the big-name lawyer who headed the investigation into the 2008 Lehman Brothers failure to be the conspicuous head of its own internal investigation.

This is called: damage control.

When GM switches fail, drivers report that their vehicles become very hard to steer, and the air bags become disabled. So not only is the likelihood of accidents increased, but the likelihood of extreme injury and death also increases dramatically.

GM employees knew about this problem as early as 2004, when reports about it were discussed in the company’s engineering division. This is according to the timeline that GM itself has released. The company is not saying whether or not its engineers asked for a recall, or when the idea of a recall was first suggested.

In a risible act of hypocrisy, the National Highway Traffic Safety Administration (NHTSA) has presented the company with a list of over 100 questions it wants answered. It now appears that the NHTSA knew of the problem as early as 2007. Its people raised the issue in a meeting. But the NHTSA is refusing to answer any questions about it.

The affair has obviously brought back to the minds of investors the old GM — the one that had to be rescued at the cost of billions of taxpayer dollars.

In a lawsuit, settled last year, brought by the family of a nurse killed in a crash involving one of these faulty switches, the plaintiff’s attorney discovered that GM had an engineering team investigating the problem (found to be prevalent in small GM cars). But this was never publicized, so owners of those cars were never warned that they were at risk.

When it was announced that the US Attorney for the Southern District of New York had begun an investigation, GM shares dropped 5%, because the facts seemed to indicate not just negligence, but outright criminality.

This is just the most publicized of GM’s recent recalls. Current GM CEO Mary Barra has launched several other recalls, including one of 1.7 million higher-end vehicles (SUVs and Cadillacs) troubled by an airbag deployment wiring defect. The total number of GM vehicles recalled has now hit 4.8 million for the first quarter of 2014 — a sixfold increase from the number for all of last year. The company has issued seven major recalls in just the first three months of this year.

GM has put aside $300 million to cover immediate costs, but this is obviously not going to cover all the eventual costs. One critic has called for a fund of $1 billion. Some dealers are already reporting slower traffic in their showrooms. Meanwhile, some experts, such as corporate crisis consultant Larry Kamer, are suggesting that this crisis is a good opportunity for Ms. Barra and the “new” GM to show how much they care for customers. Kamer was a consultant for Toyota during its 2010 recall. Toyota recently settled with the U.S. Justice Department on that recall.

Barra has stepped forward to admit that the recall took too long, to offer her condolences to the families of those killed, and to announce that she has assembled a team to help the company handle and “learn from” the incident. Given that Barra was executive director of GM’s manufacturing engineering division while the deaths occurred, one is entitled to be a little skeptical of her new-found burning desire to enshrine the company as the Quality Queen of automotive technology.

As one report notes, Barra has reason to worry. The affair has obviously brought back to the minds of investors the old GM — the one that had to be rescued at the cost of billions of taxpayer dollars. The article notes that Toyota took a major hit to its image from its recall two years ago. Toyota had to pay the Justice Department $1.2 billion for misleading customers. Attorney General Holder boldly declared that the Toyota deal will “serve as a model for how we treat cases with similarly situated companies,” though he didn’t address how that relates to GM.

Here is where one gets suspicious. The feds went after Toyota with a furry when it had its recalls, although the main accusation against it — that some models had “sticky accelerators” — was never proven. When it was charged that floor mats improperly installed by one Lexus dealer in San Diego led to the death of a family, Holder turned his department loose on Toyota, and Secretary of Transportation Ray LaHood loudly proclaimed that Toyota owners should be afraid for their lives.

Of course, while the feds were going after Toyota so furiously, they owned GM. This stank to heaven. However, it is now clear that even as Holder and LaHood were conducting their Obama-jihad against Toyota, their own Obama Motors was known by their own NHTSA to be killing people. Cover-ups are common in government, I suppose, but a cover-up of this magnitude, of a company that had been socialized by the self-same government, is something rare.

Given Eric Holder’s record as an ideological hack, we can laugh at the idea that his Justice Department will honesty investigate GM.

Add to this the fact that at the time a little-noticed provision of GM’s bankruptcy deal was that the “new” (i.e., socialized) GM would not be liable for the tort claims of the “old” (i.e., pre-bailout) GM. This doesn’t just hint of corruption — it reeks. It isn’t clear to what degree GM will use that shield. Law professor David Skeel thinks that while GM is legally safe in using the bankruptcy shield, it would look bad to do so — hardball to the max. And lawyers are already sidestepping the issue by filing suits alleging that the value of some GM models have been hurt, rather than going directly for personal injury tort.

So not only did the Obama administration orchestrate a crony bankruptcy that handed over assets primarily to the administration’s own financial backers, but it apparently stood by and let innocent people die without ordering appropriate recalls. This, so it could run on the election mantra, “Bin Laden is dead, and GM is alive!” Yes, GM was alive, but a number of its customers were dead.

Given Eric Holder’s record as an ideological hack, we can laugh at the idea that his Justice Department will honesty investigate GM. Perhaps what we need is a special prosecutor — somebody outside the control of Holder’s Justice — backed with enough assets to cleanse the stables of Obama Motors.




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Government Motors Goes Subprime

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President Obama continues pointing to his crony bankruptcy bailout of GM as a success. Never mind that it stiffed the secured creditors to favor the UAW, a huge backer of Obama and the major cause of the domestic auto crisis to begin with. Never mind that that GM was allowed to carry forward losses from the bankrupt entity to offset future earnings, stiffing the taxpayer and giving it an unfair advantage over Ford and the foreign auto makers, none of whom got the bailout. Never mind that when GM went public again, the UAW was able to sell its shares first, which enabled it to be made whole while the taxpayers saw their shares diminish in value.

Now it turns out that much of the recent sales growth GM has bragged about is due to GM jacking up its sales with subprime loans.

In the auto industry (like other industries that sell products and offer financing to the customers), the credit worthiness of customers is judged by their FICO scores, which range on a scale from 300 to 850. Subprime customers are those with a score below 660. In the fourth quarter of 2010, subprime loans accounted for 4.8% of GM’s sales. In the first quarter of this year, they hit 8.32%, which is over one-third higher than the industry average (6%).

Why is GM taking on more risky debt in a chancy economy? Edward Niedermeyer (editor of The Truth About Cars) puts his finger on it: “[GM] may be trying to goose short-term sales with subprime lending to boost its stock price, which is tied to the government getting out of its GM investment.”

Indeed. The federal government still owns nearly 30% of the stock (500 million shares). The stock price is only about $20 per share, close to the post-IPO low. For us to get our $26 billion in direct support back, the price would have to hit $53 per share.

So GM — controlled by the Obama administration — is pushing junk loans. This is rich, coming from the same guy who sold the Dodd-Frank financial regulation bill by claiming that greedy capitalists had duped innocent buyers into risky subprime loans.

What’s greedy for capitalists must be ethical for neosocialists.




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More on Government Motors

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Earlier this year, President Obama went on one of his gloating tours, touting the wisdom of his nationalization of General Motors and Chrysler. Theirs was a corrupt bankruptcy that strongly rewarded the UAW, one of Obama’s major financial contributors. The new GM then posted a few months of improved sales, leading to much crowing by all the corrupt cocks.

But lately, the road for what is derisively termed “Government Motors” has become rather bumpy, as illustrated in a recent story. The report is about how the New GM is trying desperately to get a dismissal of a class action lawsuit filed on behalf of 400,000 Chevy Impala owners.

The suit, filed by one Donna Truska, argues that the Impalas — made between 2007 and 2008 — had defective rear spindle rods, leading to rapid tire wear. The plaintiff claims that GM has breached its warranty, and demands that GM fix the cars.

But the new GM argues that since the cars were made by the Old GM, it is not liable for the repairs, and the 400,000 Impala owners should therefore go to hell. Of course, the New GM was only too happy to take over the losses of the Old GM so it could stiff other taxpayers out of future taxes on the New GM, but it doesn’t want to assume any liabilities.

And of course, back in March of 2009, as GM headed toward bankruptcy, Obama promised that in any action he took to “save” GM, consumers would have their warranties honored. As he trumpeted at the time, “Let me say this as plainly as I can. If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired just like [sic] always. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty!”

Another Obama lie, of course. He stood behind GM warranties about as much as he has stood behind the American dollar . . .

Meanwhile, shares of the New GM hit a new low of $22 a share.




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