December 6, 2012

Did GM Conduct a Pre-election Production Charade?

Filed under: Economy,Taxes & Government — Tom @ 2:59 pm

GovernmentMotors0609It had the motive, and the means.

This post went up at earlier this afternoon.

Did General Motors keep its production lines humming at full throttle in the final months before November’s elections to help Barack Obama and Democrats?

On Monday, GM, which was bailed out in 2009 at an ultimate cost estimated at $25 billion, announced that its November dealer deliveries to customers exceeded November 2011 by only 3.4 percent. Its competitors’ dealers saw sales jump by 17.5 percent. GM’s November’s performance followed mediocre year-over-year increases of 1.5 percent and 5 percent in September and October, respectively.

The next day, the Wall Street Journal reported that the company “is taking steps to cut excess production and signaled there may be more to come.” The production cutbacks include the company’s Lordstown, Ohio, plant, where workers “will be off the job for three weeks instead of a planned two-week Christmas shutdown as the Detroit auto maker curtails Chevrolet Cruze output.”

The financial results and the news that followed beg the question: Why did GM produce and ship almost 100,000 more vehicles than its dealers sold during the past two months, especially as dealer inventories, now at 106 days of sales overall, including a shocking 139 days for full-sized pickups, were already seriously bloated?

Absent state control, the only people with a stake in the answer to would be the company’s shareholders, lenders, employees, suppliers and plant-located communities. If the answer pointed to a pattern of poor decisions or management incompetence, shareholders would act to change course, and if necessary, change management.

But with state control, management often has non-business motivations. In this case, one cannot rule out the possibility that the company engaged in pre-election window-dressing, keeping its plants humming at levels not justified by market conditions to support Obama’s re-election effort and to assist other Democratic Party candidates, particularly incumbent Ohio U.S. Sen.Sherrod Brown.

Obama and his party made “GM is alive, Osama is dead” a centerpiece of their fall campaigns. Brown especially touted his support for the 2009 bailouts of GM and Chrysler, claiming they “saved” the U.S. auto industry. He emphasized the point by saying his Republican opponent, Josh Mandel, would have simply let them die.

GM’s public reports show that the Lordstown plant, located in what was considered the election’s most important swing state, produced 28,572 Cruzes in October, while dealers only sold 19,121. Unit Cruze sales for the first 10  months of 2012 were less than 200,000, even as the company produced almost 245,000. Now, with Obama safely re-elected, and allowing for a little extra time to avoid the appearance of an obvious connection, the company has decided to cut back production. How convenient.

Skeptics will inevitably retort that GM’s overproduction and channel-stuffing could not have been a case of Potemkin-like pre-election pretension because the company made a point of barring both parties’ presidential candidates from visiting its plants during the campaign’s final two months. My response is twofold. First, the “GM-Osama” narrative was already in place by the time GM ended candidate visits. Second, the company and its government overseers didn’t want astute business reporters and other observers capable of detecting telltale signs of overproduction sniffing around inside their buildings, and especially wished to avoid having employees accidentally or deliberately spill the beans.

GM’s dealers were sitting on 788,000 unsold vehicles at the end of November, making them particularly vulnerable to getting forced into fire-sale pricing if the economy slows down, as many expect. GM may have to put the brakes on production far more than it is currently letting on, which will only worsen the downturn. But at least the guy they wanted to see in the White House will still be there.


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