The Politics of the auto industry
It’s been an interesting week for the auto industry and Congress. The Republicans climbed over the fortress and took control of the U.S. House of Representatives. The Democrats were weakened but kept the donkey flag flying in the Senate. President Obama admitted he had taken a shellacking.
What does this mean for the auto industry?
The elections put three more car dealers in the driver’s seat in Congress. George J. “Mike” Kelly, Jr of Pennsylvania’s 3rd congressional district (R), James Renacci of Ohio’s 16th congressional district (R) and Scott Rigell of Virginia’s 2nd congressional district (R) all won the GOP title of the representative of their district.
There were already three current or former, car dealers in the House. They are Rep. William Shuster, Pennsylvania’s 9th congressional district (R) since 201, Rep. Vernon G. “Vern” Buchanan, Florida’s 13th congressional district (R) since 2007, and John Bayard Taylor Campbell III, California’s 48th congressional district, serving since 2005 (R).
I wonder how the auto manufacturers feel about having car dealers as representatives. Think about it, you’re General Motors or Ford or Chrysler. You just terminated thousands of car dealers and now you have six car dealers representing your – and their – interests in your states.
If you knew your company depended on the help of Congress to get a stimulus for electric vehicles in certain states would you want your representative to be someone you just told to go pound sand?
On the other hand, these car dealers/representatives are all Republican and are not as interested in all the legislation for auto safety that LaHood’s NHTSA was throwing around because of the Toyota acceleration issues. I would be surprised if we saw that initiative come up at all again. The dichotomy is almost as striking as California voting down legalizing marijuana, but electing Jerry “Moonbeam” Brown as Governor – again.
Governor Brown, Mr. I’ll sleep on a mat, is sure to keep California’s energy advancements alive. California was the originator of the clean air act, so expect California to continue to make legislation on that front, especially since they only need a minimum vote, not 2/3s, to raise taxes.
The best part is that the CAFE standard of 62 mpg by 2025 will have a harder time getting passed. First, it’s not feasible at reasonable prices, to build those cars. Second, Congress isn’t going to raise the price of gas. It would be political suicide.
General Motors is taking the IPO dog and pony show on the road.
365 million shares of common stock will go on sale somewhere between $26 to $29 a share. General Motors is hoping to cut the Government ownership of GM from 60.8% to under 50%. It’s a twofer – U.S. ownership goes below 50%, and GM gets closer to getting rid of that pesky title, Government Motors.
General Motors says it also plans to sell about 3 billion preferred shares. It’s not clear who gets the preferred stock. CNBC reported that under mandatory provisions GM has to convert the preferred stock to common shares.
Why is it important to be under 50% ownership by the Government?
The taxpayer-funded bailout was controversial from the outset. Name-calling started almost immediately. Over the last couple of quarters, both with profit’s of billions of dollars, the name-calling has subsided some, but the reality is the Government still owns General Motors.
It will be good for GM to tell the Department of Treasury Auto task force (DOTATF) to stop breathing down their neck and looking over their shoulders. But more importantly, the billions that General Motors won’t have to use all that money they’re making to pay down debt.
It’s important to be able to hire people without a salary cap. And if General Motors continues to show a consistent business plan with an ongoing concern for the longterm product they could consider paying a dividend on their stock.
If you could buy Ford or GM stock, which should you buy?
Both companies have pros and cons.
Ford has done it right. Alan Mulally is the President and Chief Executive Officer of Ford Motor Corp. Bill Ford is the Executive Chairman of the Board of Directors of Ford Motor Company.
I also applaud Alan Mulally for NOT being on any other Board.
A value that isn’t written about often is that Alan Mulally is on Ford’s Board, but not on any other Board. All of Mulally’s time, due diligence and fiduciary duty is spent with Ford Motor Co.
Ford is a family-controlled, not owned, but controlled, company. Wall Street is not as smitten with family-controlled businesses. They’re not as easy to sway. On one side that is good for the long-term vision of a company, on the other, Wall Street wants to make money.
Ford also has big debt and their contract with the UAW isn’t as good as General Motors.
General Motors Achilles heel lies in GM Europe and the VEBA pension. The VEBA pension problem could be reeled in next year when the contract with the UAW comes up for renewal.
Getting GM Europe and the Koreans to work together could be touchy, but that has to happen in order for Opel to get on solid ground, and for GM Europe to become solid.
A bigger issue, though, is will history repeat itself? The last time GM had financial problems the stockholders weren’t treated fairly. If GM has financial problems again, will the stockholders be told to pound sand?
Paying talent for what they’re worth
Dan Akerson is slated to take over as CEO and Chairman of General Motors once Ed Whitaker steps down. Akerson is being brought in for the express purpose of bringing out the IPO and showing consistency in top management. That in itself is not an easy task. GM has already had four CEOs in the last sixteen months. Will Akerson stay longer than three to four years?
Once General Motors brings out the IPO the Government should own a minority share in General Motors. That would allow General Motors to pay its executives to commiserate to the level of competition. It would also allow them to make demands on their executives that other companies are starting to do.
It’s a pet peeve of mine, but I believe that when someone is a CEO of a major company they should hold that job and only that job. If Akerson follows in Whitacre’s steps he is going to be CEO, Chairman of the Board and a Board member. That is three jobs for which he will get three different paychecks.
He is also a member of the Board of American Express. American Express paid him $271,000 last year to not only be on the board, to not only be a member of the audit and risk division, but Akerson is the Chairman of the audit and risk for American Express.
There are salaried workers in General Motors that have not had a raise for years now. They are working 50-60 hours a week, missing their children’s games and part of their life to make sure that General Motors stays alive. To make sure that they have a job.
I think it sends the wrong message when Mr. Akerson is a member of a board of another company.
I know Akerson (see below*) makes pittance compared to Ford’s Mulally (total compensation for 2009 was almost $18 million). I would rather Akerson only have one job, like Mulally, and be paid comparably.
I believe the Board and the Department of Treasurer automotive task force should reconsider its determination to have a single individual act both as Chairman and CEO.
*Daniel F. Akerson. Our (General Motors) employment arrangement with Mr. Akerson provides that Mr. Akerson’s annual cash base salary is $1,700,000, and he participates in the benefit plans currently available to executive officers. He also receives a portion of his total annual compensation in the form of salary stock, awarded pursuant to the provisions of the Salary Stock Plan, in the amount of $5,300,000, which will be delivered over three years beginning September 30, 2011, and TARP compliant restricted stock unit’s valued at $2,000,000, under the Companys Long-Term Incentive Plan. This arrangement does not provide for any special post-employment compensation.