• Latest News
  • Pitch a Story
  • Work with a Journalist
  • Join the Blog Squad
  • Afghanistan
  • Africa
  • Asia
  • Baltimore
  • Canada
  • Egypt
  • Europe
  • Latin America
  • Middle East
  • Russia
  • Economy
  • Environment
  • Health Care
  • Military
  • Occupy
  • Organize This
  • Reality Asserts Itself
  • US Politics
  • Obama GM Strategy a Lost Opportunity

    Stephen Diamond: What's needed is a new transportation strategy; GM still in precarious position -   November 24, 2010
    Members don't see ads. If you are a member, and you're seeing this appeal, click here


    Share to Facebook Share to Twitter

    I support the Real News because without The Real News we would have no real news at all. - WWH
    Log in and tell us why you support TRNN


    Obama GM Strategy a Lost OpportunityPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. On Thursday, November 18, General Motors issued an IPO, started selling its stock. The newly revived company, we are told, is now a success story of sorts. It gave the federal Treasury a chance to unload some of its shares. And Barack Obama said this:


    BARACK OBAMA, US PRESIDENT: Today, one of the toughest tales of the recession took another big step towards becoming a success story. General Motors relaunched itself as a public company, cutting the government's stake in the company by nearly half. What's more, American taxpayers are now positioned to recover more than my administration invested in GM.


    JAY: So the federal government thinks it's going to be out of GM in two years. They've been able to save the company, hand it back to the private sector, and this is a win-win. So now joining us to see if he thinks it's a win-win is Stephen Diamond. Stephen's an associate professor of law at Santa Clara University in Silicon Valley in California. He specializes in corporate finance, securities law, labor law, international economic issues. He's an advisor sometimes to the AFL-CIO. He's also the author of the book From "Che" to China: Labor and Authoritarianism in the New Global Economy. Thanks for joining us, Stephen.


    JAY: So, Stephen, tell me, is this a win-win?

    DIAMOND: No. I think some people are winning. The bankers walked away with somewhere between $120 million and $200 million in fees, along with the outside lawyers, accountants, etc. The US Treasury ended up having to sell some of its shares at somewhat of a discount to their original value. I think the original goal was that the company would be valued at $70 billion, and in fact it's being valued at around $50 billion. Of course, that's a guess, because it turns out that one of the risk factors in the prospectus says that senior management does not have a good idea about what's going on inside the company. They admit to having defective controls over internal information. So we don't even really know whether the prospectus accurately describes the financial health of General Motors. So that puts the company in a fairly precarious position going forward. My particular concern has been over the health of the VEBA, the voluntary employees' beneficiary association that was set up by the UAW (United Auto Workers Union) and General Motors to manage the health-care plans for retirees. And, unfortunately, their future health, so to speak, is tied to the health of General Motors.

    JAY: Now, if I understand it correctly, what happened is the unions took the onus off the companies for managing and being responsible for enough funds to cover the health-care agreements, and the risk was shifted to the unions and their pension fund. Do I have it correctly? And why do you think it might be in jeopardy?

    DIAMOND: Right. Broadly that's correct. That started about three or four [years ago, when] there was pressure by the companies, the big three auto companies, Chrysler, Ford, GM, to shift all of their health-care liabilities to the union, so that the union would have to manage those and make sure that retirees' health-care needs are met. And in theory the big three were going to provide sufficient assets, close to $60 billion, to provide for the health care of retirees. And over time what they've done is basically shave that amount down fairly significantly, restructure it. And rather than providing a structure that's genuinely independent of the future of the automobile companies themselves, the assets held by the VEBA are linked directly to the health of the big three auto companies.

    JAY: Directly to the share price, is it not?

    DIAMOND: That's right, because General Motors--for example, the VEBA now holds warrants on GM stock, preferred stock in General Motors, common stock in General Motors. And even their current assets which are not linked to General Motors have to be managed much more conservatively because of the risks associated with the investment in General Motors.

    JAY: And was the union selling off some of its shares at this time as well? Or is it just the governments? I know the US Treasury, the Government of Ontario sold some of--in Canada sold some of its shares. Did the union also sell, or are they holding on to theirs?

    DIAMOND: Well, there were four shareholders at the outset in the new General Motors, as you outlined: the United States Treasury; one of Canada's large government pension funds; the old General Motors; and then the health-care retirement trust, the VEBA that's managed by the UAW. All those--three of those four entities sold off shares in this offering. The only group that didn't was the old General Motors, so-called Motors Liquidation Company, MLC. They've held on to their shares.

    JAY: Okay. So the Obama administration would say, okay, but this is better than bankruptcy, 'cause that's what the alternative was. What was another alternative that you might have proposed?

    DIAMOND: Well, of course, this was bankruptcy. So General Motors went through the bankruptcy structure. And the bankruptcy system in this country was set up--the modern bankruptcy structure was set up in the 1930s as a way to kind of preserve, in theory, the value of a business going forward instead of tearing it apart--and that's what used to happen prior to the installation of our modern bankruptcy system, more or less, in the 1930s. But the central principle, I think, that should have been applied here was to view the big three automobile companies as a whole, as one major entity, and to think about our overall transportation needs. And what I had proposed was the formation of a public trust company that would manage those assets and transition them to a new transportation system in the United States, and potentially globally.

    JAY: Before we explore that further, and I really do want to, let's just back up one step. So the Obama administration seems to be very proud that they're going to get out of this in two years and sell off all their shares. But the way things look, even if that's successful, what do they leave in two years except a company that looks, like, so precariously perched, this could all happen again?

    DIAMOND: Right. Well, first of all, there's no guarantee that they'll be able to sell their shares and recoup their original investment. They've put billions and billions of dollars into this entity, and we have no idea whether they'll be successful in selling off the rest of their shares. But yes, they're--will leave behind, still, a company that is in a fairly precarious position. It could reenter bankruptcy; it could be broken up again. It's already been broken, in a sense, in half, with many of the older assets left behind. The other side of this, of course, is the goal here of management is to globalize General Motors. A substantial part of its production is already overseas. They want to shift more of that to China and Brazil. This is really becoming, in a sense, the US government creating a company for other countries, where there are much lower wages and new growth for automobiles [inaudible]

    JAY: Of course, they've also driven down the wages here. If I understand it correctly, the starting salary's gone from $26 an hour to $14 an hour, as some autoworkers say for the first time in the history of the automobile business, workers that work there can't buy new cars.

    DIAMOND: Well, General Motors makes very clear in the prospectus that their current profitability, such as it is, is linked to those types of concessions by the United Auto Workers, and by layoffs of thousands of other employees, and by convincing UAW members to take over control of retiree health-care, even though they did not provide full disclosure to those members about the risks that the UAW was absorbing when it set up the VEBA.

    JAY: The other part of this plan, I think, must have been that they thought the current economic crisis is sort of normal business cycle and there'll be kind of a normal recovery. And if there is, then eventually GM will be worth something, but there's lots of evidence this is not some normal business cycle. So if the recession continues and/or deepens, what happens to this whole GM strategy of the government?

    DIAMOND: Well, I think that's a very important point, and I think that should make us think of General Motors in a way that we're also thinking about the financial industry, because essentially I think the government has been far too timid in the way in which it's dealing with these problems. And just as Obama has been unwilling to do anything more than put in money to the banks, and the banks take the money and then don't lend it and we don't have recovery, similarly with General Motors, you know, they were so anxious to get out that they're not really paying attention to the long-term health of the transportation industry. And that really, I think, has to be the focus.

    JAY: So let's get into what the alternative could have been. So if they'd asked you what to do back when it looked like GM and Chrysler were looking into the abyss--and I guess a lot of people thought Ford was then, as well--what would you have said? What's the alternative to all this?

    DIAMOND: Well, I would've taken over all three of the big three automobile companies [inaudible]

    JAY: But how could you take over Ford when they weren't begging for money?

    DIAMOND: Well, you could use the pension funds, you could use institutional investors, and you could appropriate private assets that are not contributing to the overall general welfare of the United States. And I think these are constitutional powers that can be exercised by the president or by Congress.

    JAY: But the strategy you're suggesting could have been done without taking on Ford, couldn't it?

    DIAMOND: Well, I'm reluctant to think that there is a solution here with any one company. If we allow these automobile companies to continue to function the way they function, I think we are not going to solve the infrastructure problems that we have. This is a general question about whether or not we've got an adequate transportation system, adequate infrastructure. There are energy and environmental issues, of course, international security issues. And when you look at all those aspects of the problem, it suggests that we need a new transportation industry.

    JAY: Okay. In the next segment of our interview, let's talk about what this new transportation system would look like and what a new Detroit and automobile industry might look like. So please join us for the next segment of our interview with Stephen Diamond on The Real News Network.

    End of Transcript

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


    Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at


    Latest Stories

    The Resegregation of American Schools
    What Role Has Russia Played in Eastern Ukraine?
    Can Johns Hopkins Afford to Pay A Living Wage? (2/2)
    University Sit-In Targets World's Largest Private Coal Company
    The Modern History of Venezuela and the Need for a Post-Oil Economy - Edgardo Lander on RAI (6/9)
    Can Johns Hopkins Afford to Pay A Living Wage? (1/2)
    One Percent of Environmentalists Killings Lead to Convictions
    Investigation Finds Former Ukraine President Not Responsible For Sniper Attack on Protestors
    The Modern History of Venezuela from 1973 to the Caracazo Massacre - Edgardo Lander on Reality Asserts Itself (3/9)
    Ukraine Transitional Gov't Moves Militarily To Reclaim Seized Buildings
    IPCC Report Flawed By Narrow Focus on Carbon Emissions
    The Modern History of Venezuela: The Bolivarian Revolution - Edgardo Lander on Reality Asserts Itself (5/9)
    Obama Signs Directives to Reduce the Gender Wage Gap
    Eastern Ukraine Lacks Political Representation in Kiev
    Demystifying the Role of Mitigation in the Most Recent IPCC Report
    Hypersurveillance State Won't Prevent Another Boston Marathon Bombing
    The Modern History of Venezuela from 1973 to the Caracazo Massacre - Edgardo Lander on Reality Asserts Itself (3/9)
    Univ. of Maine Faculty Reinstated After Students Protest Against Cuts
    The Modern History of Venezuela from 1908 to 1973 - Edgardo Lander on Reality Asserts Itself (2/9)
    IMF Will Address Global Inequality, Says Managing Director Christine Lagarde
    Raising Big Banks' Leverage Ratio Good, But Not Nearly Enough
    TRNN Replay: Austerity Road to 19th Century
    Has Palestinian Maneuvering Revived Peace Talks?
    Late Jackson Mayor Lumumba's Son Wins Primary to Replace His Father, Runoff Election Ahead
    Quebecers Reject PQ and Elect a Liberal Government Representing Big Business
    TRNN Debate: Decriminalization vs. Legalization
    The Beginning of the Chavez Era - Edgardo Lander on Reality Asserts Itself (4/9)
    "Off With His Head": Court Upholds Obama's Power to Kill
    Workers at Nation's Top Hospital Strike For Fair Wages
    From Exile to Radicalization in Venezuela - Edgardo Lander on Reality Asserts Itself (1/9)
    Rwanda 20 Years Later: Genocide, Western Plunder of Congo, and President Kagame
    Ukrainian Protesters in the East Demand More Autonomy From Kiev Government
    Hunger Strikers Demand President Obama Halt His Record 2 Million Deportations
    Indian Parliamentary Elections - A Primer With Vijay Prashad
    West Looks to Carve Up Ukraine & Privatize Industries Held by Kleptocrats
    Where Are Israeli-Palestinian Peace Negotiations Headed?
    The Multiple Kingdoms of Saudi Arabia (5/5)
    Do the Afghan Presidential Elections Signify Progress?
    Republican Presidential Hopefuls Pay Homage to Billionaire Casino Tycoon Sheldon Adelson
    Will Extremist Lieberman Become Israel's Next Prime Minister?
    Why do the Saudis Want the US to Attack Iran? (4/5)
    Immigrant Advocates and Families Tell President Obama 'Not One More'
    Elections, Pipelines, and Protests - The Canada Panel
    Chris Hedges on "Israel's War on American Universities"
    Baltimore Residents Decry Lack of Affordable Housing
    Yellen Talks the Talk But Will She Walk the Walk?
    Hopkins Hospital Workers Speak Out against "Poverty Wages"
    Will Venezuela's New Floating Exchange Rate Curb Inflation?
    The European Central Bank's War on Wages is Pushing Europe's Economy to the Brink
    Supreme Court Decision Opens Floodgates for More Campaign Cash
    Charles Keating, the Financier Behind the Savings and Loan Scandal, Dies at 90
    Saudi Arabia and the al-Qaeda Monster (3/5)
    Maryland Residents Voice Opposition to Natural Gas Fracking Export Facility
    Supreme Court Ruling Gives Wealthy Individuals More Influence Over Elections
    What are the Saudis Afraid Of? - Madawi Al-Rasheed (2/5)
    Baltimore's MICA Adjunct Professors Set to Vote on Unionization
    Boycott of Israel Moving to Next Level?
    Hypocrisy Dressed Up as "Realism" Justifies American Alliance with Saudi Dictatorship
    Immigration Reform in the Shadows of Cesar Chavez's Legacy
    Leaked Senate Report Shows Use of Torture As "Ineffective"
    UN Report Says Climate Change Will Threaten Food Production Worldwide
    The Hypocrisy of US Calling for Enforcement of International Law
    How the Ecuadorian Economy Grew in a Global Recession
    'Shadows of Liberty' Trailer
    Kristina Borjesson on Why CBS Shut Down Her investigation into Flight 800 (2/8)
    Glen Ford on Racism in the American Media (3/8)
    Paul Jay on What Drives Corporate Media and What Drive The Real News (4/8)
    Creating a New Media Paradigm After Citizens United (5/8)
    Should The Left Engage with the Mainstream Media? (6/8)
    What Is the Financial Backing For The Real News? (7/8)
    Standing up to Character Assassination (8/8)
    Oligarchs, Fascists and the People's Protest in Ukraine
    TRNN Debate: Is Obamacare In the Interest of Workers?
    Too-Big-To-Fail Advantage Remains Intact For Big Banks
    Obama and the Saudi Agenda
    TRNN Replay: Investigating the Saudi Government's 9/11 Connection and the Path to Disilliusionment - Sen. Graham on Reality Asserts Itself pt 1
    The Iraq War's Real Legacy
    Petitions with 100,000+ Signatures Call for Snowden's Passport to be Reinstated
    We Need to Harness People Power - Andy Shallal on Reality Asserts Itself (4/4)
    BC Pipeline Fight and Quebec Elections - The Canada Panel
    Jonathan Schell - 1943-2014: Board Member of TRNN on Why We Need The Real News
    Teachers on Strike from the UK to Argentina
    Connecticut Poised to Become First State with $10.10 Minimum Wage
    Oil Spill Threatens Wildlife and Local Economy
    DC School Test Scores Up, But Poor Black Kids Are Doing Worse - Andy Shallal on RAI (3/4)
    Obama's Proposal To End NSA Bulk Data Collection Won't Protect Privacy
    How Google, Apple & The Biggest Tech Companies Colluded to Fix Workers' Wages
    An American Should be One that Questions Their Government - Andy Shallal on RAI (2/4)
    What's Driving Putin & Obama's Posturing on Ukraine?
    Hundreds of Students & Faculty Occupy College Campus to Fight Cuts to Public Higher Ed
    Due Process 'Impossible' In Harsh Death Sentencing Of Over 500 Muslim Brotherhood Members
    Has Anglo-American Capitalism Run Out of Steam?
    Being the "Other" in America - Andy Shallal on Reality Asserts Itself (1/4)
    TRNN Debate: Should Baltimore 'Ban The Box'?
    How Fallujah Became the Iraqi Government's New Battleground
    Why I Decided to Blow the Whistle on the NSA
    NASA Climate Predictions Show Serious Threat To Humanity
    Professor Who Teaches Israel-Palestine Conflict Accuses College of Violating His Academic Freedom
    CIA and NSA Wrongdoing Requires Independent Investigation, Says Former Church Committee Staff
    Are Tuition Breaks Enough To Combat High Student Debt And Low Graduation Rates?
    Industries Across the U.S. Are Stealing Wages From Their Lowest Paid Workers
    Who In Ukraine Will Benefit From An IMF Bailout?
    NSA Recording All International Calls From U.S.
    Israel "Making Lives Miserable" for Africans, Hoping They 'Self-Deport' (2/2)
    BP Gets Green Light to Drill in Gulf, But Has Safety Improved?
    Residents Still Not Drinking Tap Water Two Months After West Virginia Spill (1/2)
    Libya's Descent Into Turmoil Three Years After NATO Intervention
    From Pipelines to Peladeau - Canadian Report
    Israel "Making Lives Miserable" for Africans, Hoping They 'Self-Deport' (1/2)
    Congressional Progressive Caucus Budget Strikes Back Against Austerity
    Libya Three Years Later - Chaos and Partition
    Why Was Gaddafi Overthrown?
    Should Ukraine and West Accept De Facto Crimea Joining Russia? (2/2)
    Tony Benn Saw Socialism as the Culmination of Democratization
    Why Didn't Bush/Cheney Attack Iran and Can Obama Make and Sell a Deal? - Gareth Porter on Reality Asserts Itself (3/3)
    After Late Mayor Lumumba is Laid to Rest, What's Next for Jackson, Mississippi? (2/2)
    Crimea Referendum: Self Determination or Big Power Manipulation? (1/2)
    Sen. Graham: President Must Side with Openness About CIA and 9/11
    Manufacturing a Narrative for War - Gareth Porter on Reality Asserts Itself (2/3)
    Protesters Hit the Streets of Brooklyn to Demand $15 Minimum Wage
    Hammer: 'Moral Bankruptcy' Behind Massive GM Recall
    White House Withholds Thousands of Documents from Senate CIA Probe
    I Grew Up Believing in Time Magazine's Version of America - Gareth Porter on RAI (1/3)
    Western European Banks Vulnerable to Ukrainian Sovereign Debt Crisis
    TRNN Debate: What's Driving Inflation in Venezuela? (2/2)
    CIA vs. Senate: Who Is Obama Protecting?
    Will Tipped Workers Get Excluded Again From Minimum Wage Hike?
    TRNN Debate: What's Driving Inflation in Venezuela? (1/2)
    After Late Mayor Lumumba is Laid to Rest, What's Next for Jackson, Mississippi?(1/2)
    TRNN Replay: A Look at Who's Poised to Become No.2 at the Fed
    How Right-Wing Nationalism Rose to Influence in Ukraine (2/2)
    Netanyahu Attacks Boycott As Campaign Enters New Phase
    Moving Towards a Police State - Michael Ratner on Reality Asserts Itself (7/7)
    Fighting Reagan's Secret, Illegal Wars - Michael Ratner on Reality Asserts Itself (6/7)
    Puerto Rican Independence Movement and Cuba Further Radicalized Me - Michael Ratner on RAI (5/7)
    The Butcher of Attica - Michael Ratner on Reality Asserts Itself (4/7)
    MLK and a Radicalizing Moment in American History - Michael Ratner on Reality Asserts Itself (3/7), Real News Network, Real News, Real News For Real People, IWT are trademarks and service marks of IWT.TV inc. "The Real News" is the flagship show of IWT and Real News Network.

    All original content on this site is copyright of The Real News Network.  Click here for more

    Problems with this site? Please let us know

    Linux VPS Hosting by Star Dot Hosting