Public Pension Funds Hedge Fund Rip Off

Here is another case of a publicly funded Canadian public sector pension fund being used to take over a U.S. company forced into bankruptcy by private hedge funds. The teachers in Ontario who are shareholders in the Ontario Teachers Pension Fund have no say in their pension investments.

In fact none of us have any say in our pension funds and how they are invested. I wonder if the shareholders in the Ontario Teachers Pension fund will sleep easy knowing that their money is being used to payout a corporate hedge fund shark that led this company into bankruptcy in order to satiate their greedy need for profits.

The irony of all this of course is that the use of the vast pool of pension capital that these private hedge funds need to use to back up their deals is of course social capital as I have pointed out here before. In fact you could call this socialism by any other name if you worked for the Fox network.

The Ontario Teachers’ Pension Plan has gotten in bed with Simmons Co., agreeing to buy the struggling company’s bedding unit in a $760-million cash-and-share deal.

Two of the world's largest mattress makers are jumping into bed together, with Simmons Co. and its iconic Beautyrest products joining Serta Mattresses in the Ontario Teachers' Pension Plan portfolio.

By taking the mattress maker out of bankruptcy protection, Teachers and its partner Ares Management LLC will become the largest player in a traditionally recession-proof industry, which has been ravaged by the credit crunch.In Simmons, the pension fund is buying a 139-year-old company that has now seen six private equity owners since being taken private 20 years ago.

The mattress maker began seeking a way to restructure its $1-billion (U.S.) debt earlier this year, as sales skidded 19 per cent. The prepackaged bankruptcy restructuring plan announced yesterday will cut debt to $450-million, with Teachers and its partner paying $760-million for Simmons Bedding Co., its U.S. subsidiaries and parent company Bedding Holdco Inc. Simmons Co.

Teachers' in bed with L.A. fund to buy Simmons unit

Deal worth $760M U.S. part of restructuring to create world's largest mattress company

By Caroline Humer, Reuters

Mattress makers Simmons and Serta are planning to dethrone competitor Sealy as the world's largest mattress company in a $760-million U.S. deal that includes Simmons filing for bankruptcy.

Simmons Co. said Friday that it has put together a restructuring plan to be sold to private-equity firm Ares Management LLC and a unit of the Ontario Teachers' Pension Plan, which owns competitor Serta.

Together, Serta and Simmons, which will continue to operate as separate companies and brands, will have a bigger share of the market than world leader Sealy Corp.

Simmons, which is owned by private equity firm Thomas H. Lee, has been negotiating with lenders and creditors since late 2008 as a heavy debt load and a decline in demand squeezed its profits and caused it to miss financial targets required by a loan associated with its 2003 buyout.

The company said the pre-packaged restructuring plan has more than the two-thirds support from its noteholders and lenders needed and will reduce its debt to about $450 million from $1 billion.

The deal includes about $310 million in new equity from Serta's owners.

The company will put the plan out to a vote soon and expects to file for bankruptcy in 30 to 60 days, a Simmons spokesman said. The bankruptcy could then take up to an additional two months, he said.

Under the plan, senior bank lenders, trade vendors, suppliers and employees will be repaid in full.

Holders of senior subordinated notes will receive 95 per cent on the principal amount due or $190 million and holders of discount notes in the holding company will receive a payout of $15 million on the $269 million in principal, a company spokesman said.

Investors in a $300-million loan that was taken out in 2007 will not be repaid as part of the financial restructuring plan.

The loan, like the discount notes, paid dividends to its owner.

The mattress industry has been attractive to private equity buyers because of the steady cash flow the businesses had provided before the recent broad decline in consumer spending.

Sealy is owned by buyout firm Kohlberg Kravis Roberts & Co. It also restructured its debt earlier this year. The downturn has reached out across the mattress sector.

Foamex International Inc., a maker of polyurethane foam used in mattresses; Consolidated Bedding Inc, which makes the Spring Air mattress brand; and retailers including 1-800-Mattress and Mattress Discounters Corp have all filed for bankruptcy.

As of June 27, the Simmons said it had $896 million in assets and $1.26 billion in liabilities, according to regulatory filings.

It said it had $67 million in cash.

© Copyright (c) The Ottawa Citizen

Profits for Buyout Firms as Company Debt Soared

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.

Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.

But the load weighed down an otherwise healthy company. Today, Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of “Flip This House.”

In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.

These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.

Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.

A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.

Investors who bought that debt are getting virtually nothing in the new deal.

“From my experience, none of the private equity firms were building a brand for the future,” said Robert Hellyer, Simmons’s former president, who worked for several of the private equity buyers before being asked to leave the company in 2005. “Plus, the mind-set was, since the money was practically free, why not leverage the company to the maximum?”

Just as with the housing market, the good times ended when the economy fell into recession and the credit markets froze. Simmons is now groaning under a huge amount of debt at a time when its sales are slowing. And this time there is no escaping by finding yet another buyer willing to shoulder its entire burden.

Simmons is one of hundreds of companies swept up by private equity firms in the early part of this decade, during the greatest burst of corporate takeovers the world has ever seen. Many of these deals, cut in good times, left little or no margin for error — let alone for the Great Recession.

A disproportionate number of the companies that were acquired during that frenzy are now struggling with the enormous debts. More than half the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms, according to analysts at Standard & Poor’s. Among them are household names like Harrah’s Entertainment and Six Flags, the theme park operator.

From its humble beginnings on the banks of Lake Michigan, Simmons grew to become one of the country’s largest manufacturers of mattresses. Along the way, it even sprinkled a little Hollywood pixie dust on the ho-hum mattress business, hiring Dorothy Lamour and Maureen O’Hara to plug its products.

Until the 1970s, Simmons largely prospered. Then the troubles started, and the company was soon buried deep inside two enormous conglomerates, Gulf & Western and the Wickes Corporation, for a number of years.

But in the mid-1980s, Simmons caught the attention of a new type of investor. The businesses that stormed corporate America in recent years under the banner of private equity were not always called private equity firms. In the 1980s, they were known as leveraged buyout shops. Their strategy is essentially unchanged, however: they try to buy undervalued companies, using mostly borrowed money, fix them up and sell them for a fast profit.

Because they pile debt onto the companies they buy, the firms free up their own cash, allowing them to make additional investments and increase their potential profits.

Simmons’s first trip through the revolving door of private equity came in 1986. Like the latest trip, it was not a pleasant one for employees, but the buyers did just fine.

William E. Simon, a private equity pioneer and a Treasury secretary under President Richard M. Nixon, was the man with the golden touch. In 1986, his investment firm, Wesray Capital, and a handful of Simmons’s top managers acquired the company for $120 million, the bulk of which was borrowed. After selling several businesses to pay back some of the money it had borrowed, Wesray cashed out in 1989. It sold Simmons to the company’s employee stock ownership plan for $241 million — twice what it paid just three years earlier.

The deal was a fiasco for the employees. As part of the buyout, Simmons stopped contributing to its pension plan, since the stock ownership plan shares were meant to pay for the employees’ retirements. But then the bottom fell out of the housing market and Simmons, with its large debt, stumbled. Its pensions crumbled as the value of the stock plan shares plunged.

A succession of private equity buyers came and went. Merrill Lynch Capital Partners bought Simmons in 1991 for $32 million for a 60 percent stake in the company and the assumption of its debt. Merrill sold it to Investcorp, an investment group based in Bahrain, for $265 million in 1996. Two years later, Investcorp sold the company to Fenway Partners for $513 million.

The fall of 2003 was little more than a blur of meetings and presentations for Robert Hellyer, the former Simmons president who is among the fourth generation of his family involved in the mattress industry. In eight weeks, the company was shown to 20 private equity suitors in the corporate version of speed dating.

The list of potential buyers was quickly whittled to three and finally to THL, whose $1.1 billion bid for the company consisted of $327 million in new equity from the firm and more than $745 million in bonds and bank loans that had to be raised from investors.

What THL wanted from the deal was a return of two to three times its initial investment.

From the get-go, the lofty price the firm paid for Simmons and the amount of debt raised red flags on Wall Street.

The “higher debt burden will limit the company’s ability to respond to unexpected negative business developments, including economic or competitive threats or internal missteps,” analysts at Moody’s Investors Service warned at the time.

But nobody, it seems, was listening. Six months after acquiring Simmons, THL set in motion plans to take the company public. And by December 2004, THL found a way to get part of its initial investment back. Simmons issued debt that required the company to pay a hefty 10 percent annual interest rate. The proceeds were used to pay THL a dividend of $137 million. With the company’s debt climbing, Simmons executives had to aim high with new products — and pray they were right.

By early 2007, at the very top of the credit market bubble, THL took a bit more out of Simmons. It created a holding company that it used to issue $300 million more in debt, which paid an additional $238 million dividend to the private equity firm. With that, THL had recouped its entire $327 million equity investment in Simmons and booked a profit of around $48 million. (It made an additional $28.5 million in various fees over the years.)

THL was hardly alone in undertaking this sort of financial engineering, known as a dividend recapitalization. From 2003 to 2007, 188 companies controlled by private equity firms issued more than $75 billion in debt that was used to pay dividends to the buyout firms.

The Impact on Employees

From the start, Noble Rogers loved working at Simmons.

“There were picnics, March of Dimes walks, Christmas parties, and we always had Halloween parties. It was a really family-oriented company,” Mr. Rogers, 50, recalled. “I told my wife that this was a great place for me to work. A great place for me to retire, to make a living at.”

For a long time, it was. For 22 years, Mr. Rogers worked at Simmons, the bulk of those years at a factory in Mableton, outside Atlanta. After operating the coiler machine for the company’s Beautyrest mattress, he moved into maintenance and kept all of the plant’s machinery humming.

Over the years, as Simmons passed from one private equity firm to another, and as Mr. Rogers became president of the local union at the plant, he saw little difference on the plant floor. Then, in the spring of 2008, when the slowing economy had begun to hurt sales, Simmons laid off the night shift at the Mableton plant. And on Sept. 18 that year, it gathered employees in the cafeteria to say that the plant was closing.

“So many people were hurt because they thought this was a great company to work for and they planned on spending the rest of their lives here. Their families were here. They bought houses and cars here,” Mr. Rogers recalled. “After this happened, people were really struggling.”

Between the closings and other cuts, Simmons let go of more than a quarter of its work force last year, said its chief financial officer, William S. Creekmuir.

Mr. Rogers, who received his union-negotiated severance package of two months’ pay, said he and other union representatives had tried to get a little more for workers, particularly those who would have been eligible for retirement. Simmons had a long history of giving retiring employees a bonus of $20 for each year worked and a free mattress set, Mr. Rogers said.

“They wouldn’t give us anything,” he said.

In the months after he lost his job, Mr. Rogers nearly lost his home to foreclosure and struggled to pay his family’s bills. Mr. Rogers, who eventually landed a job at an air filter company and picked up part-time work doing maintenance at an apartment complex, said Simmons bore little resemblance to the company he once loved.

“They stopped the picnics. They stopped the Christmas parties. They stopped the retirement parties,” he recalled. “That showed you the type of people I was working for. I just didn’t realize it until the hard times came like they did.”

For now, the Golden Age of private equity is over, the financiers say. In a speech to an industry gathering last spring. Mr. Schoen said that bankers and bondholders were reluctant to lend more money to the buyout kings.

“We’re in a brave new world,” he said. “We can’t go back to where we were, at least not in this investment cycle, and probably not in my career.”

But some private equity investors are searching for profits in the detritus of the buyout bust. Simmons hopes to emerge from bankruptcy in the hands of two new private equity firms. One is Ares Management, which owns the mattress giant Serta. Under the plan, Simmons’s debt would be more than halved, to $450 million, in part reflecting the losses suffered by its existing bondholders.

Simmons and its remaining employees face an uncertain future. Some in the industry predict Ares will eventually merge at least part of Simmons with Serta, jeopardizing more jobs.

“Simmons has been a cash cow. It’s made a lot of people a lot of money,” said David Perry, executive editor of Furniture/Today. “But there’s a growing question in the industry of how many more times can this be repeated. How much more juice can be squeezed out of the orange?”

Businesses as Commodities: The Nightmare at Beautyrest

By Kenneth Eisold
Fri, 09 Oct 2009 12:57:18 GMT

In our world almost anything can become a commodity. Still it came as something of a shock to read in last Sunday's New York Times how Simmons Bedding Co., a producer of some of our most comfortable commodities, was turned into a commodity itself and sliced, diced and mangled in the process.

The story in brief: Simmons, the manufacturer of Beautyrest mattresses, announced it will file for bankruptcy protection, "as part of an agreement by its current owners to sell the company -- the seventh time it has been sold in a little more than two decades." The Times goes on:

"But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company's fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years."

On the other hand, the Times points out, this is devastating news for Simmons' employees, bondholders and other investors ("Profits for Buyout Firms as Company Debt Soared").

As citizens of our society, we tend to think that companies are primarily in business to produce goods and services that are useful and fairly priced. At the same time, we are dimly aware that, for the financial industry, businesses are commodities themselves -- to be exploited as much as possible for the financial gains they offer to those who buy and sell them, break them up, recapitalize them, and sell off their assets.

Private equity firms can determine if the business is overpriced or underpriced, has disposable assets, significant liabilities, is a good candidate for a takeover, and so forth. And, indeed, huge sums of money can be made by leveraging the assets of such companies, as the Simmons case illustrates. Usually the rest of us do not grasp what is going on behind the scenes, though we read about the acquisitions and sales, the name changes and mergers. The owners reap windfall profits, often ending up placing the companies in extremely exposed and vulnerable positions.

It would be like a homeowner who uses his home to back an equity loan to buy another home, strips it, and then sells it to someone else. Or a tenant who renovates extensively and manages to charge the home itself for the cost. Homeowners, alas, can't do that -- as we have learned again and again. They are stuck with the expense and the loss.

In considering reforms to our financial industry, we might want to consider such forms of abuse, costly to employees, communities that accommodate businesses, as well as other investors who find themselves empty handed at the end of the process. But first we have to wake up to the fact that the producers of commodities become commodities themselves for an industry that often has little regard for their intrinsic value.

About Ares Management
Ares Management LLC (“Ares”) is an independent Los Angeles based investment firm with over 90 employees and over US$7 billion of committed capital under management. Founded in 1997, Ares specializes in originating and managing assets in both the private equity and leveraged finance markets. Ares’ private equity activities are conducted through the Ares Corporate Opportunities Fund, L.P. (“ACOF”). ACOF focuses on injecting flexible, long-term junior capital into undercapitalized middle market companies to position them for growth. Ares’ leveraged finance activities include the acquisition and management of bank loans, high yield bonds, mezzanine and special situation investments, which are held in a variety of investment vehicles.

About Teachers’ Private Capital
Teachers' Private Capital is the private investment arm of the C$85 billion Ontario Teachers' Pension Plan, which invests on behalf of 255,000 active and retired teachers in Ontario, Canada. With more than C$7 billion in assets, Teachers' Private Capital is one of Canada's largest private investors and is currently working with more than 100 companies and funds worldwide by providing long-term flexible financing.

Significant investments include Samsonite, Worldspan and the recently purchased Alliance Laundry Systems in the U.S., and Maple Leaf Sports and Entertainment, Parmalat Canada, Yellow Pages, and Shoppers Drug Mart in Canada. Teachers' Private Capital specializes in providing private equity and mezzanine debt capital for large and mid-cap companies, venture capital for developing industries, and financing for a growing portfolio of infrastructure and timberland assets.

Five reasons pension funds deserve top rating

Steve Ladurantaye

Canadian pension funds are in good shape to benefit from a recovery in the markets, according to rating agency DBRS, provided they don’t try to overcompensate for a brutal year by taking excessive risks under improving conditions.

“The downturn has reduced the financial flexibility of these [funds] and it will likely take several years to make up for the poor performance of 2008,” managing director of public finance Eric Beauchemin and senior financial analyst Ryan Domsy wrote in a report. “However, these [funds] do remain underpinned by several factors that provide considerable resilience and keep them solidly at the AAA level.”

Here’s a quick reminder of how some of the funds fared in their last fiscal year – Caisse de dépôt et placement du Québec was down 25 per cent, Canada Pension Plan Investment Board was down 18.6 per cent, Ontario Teachers’ Pension Plan Board was down 18 per cent, OMERS Administration Corp. was down 15.3 per cent and the Public Sector Pension Investment Board was down 22.7 per cent.

“The poor investment performance had the effect of significantly shrinking their asset base and eroding their funding position, suggesting that the risk level in certain portfolios may have been higher than originally measured,” they wrote.

They say there are five reasons the funds deserve their top ratings and are likely to prosper in the coming years.

Hugeness: The funds “continue to benefit from very large asset bases,” ranging from $33.8-billion to $120.1-billion. Meanwhile, “recourse debt remains very low... as such, these credits enjoy, at all times, access to unencumbered assets several times in excess of recourse debt, providing considerable flexibility in the face of adverse financial developments."

Mandatory members: Most funds are funded by employees and their employers, which means any shortfalls are likely to be backfilled by the government in the case of public funds. These workers also tend to keep their jobs, which keeps the coffers full as they keep contributing through economic downturns.

Liquidity: Most of the funds have large pools of liquid assets, which can be flipped if needed to cover losses. “Under DBRS’s liquidity policy, public pension funds and asset managers issuing commercial paper are required to maintain high-quality liquid assets (defined by DBRS as cash, debt securities of AAA-rated sovereigns, provincial governments and government-guaranteed entities, as well as R-1 (high) short-term Canadian bank notes) in an amount equivalent to at least 1.5 times the limit of the commercial paper program."

Long run: Cash flows are predictable because the funds carry liabilities that are long-term. This provides “ considerable time for sponsors and plans to initiate corrective measures in response to any potential funding challenges.”

Legislation: Public pension funds must increase member contributions or reduce benefits to address funding shortfalls. “In contrast to pension plans, asset managers have no direct responsibility for the liabilities of their plan depositors, or for the ensuing funding shortfalls.”

SEE:

There Is An Alternative To Capitalism

Business Unionism Offers No Solution To Capitalist Crisis

Auto Solution II

Super Bubble Burst

Your Pension Plan At Work

Gambling On Your Future

The End Of The Leisure Society

P3

Your Pension Dollars At Work

P3= Public Pension Partnerships

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Neo-Cons Have No New Ideas

The neo-con federal government of Harper and Flaherty have no new ideas, just the same old ideology. After lambasing Harper for his flip flop on the deficit, and his denial that Canada is in a recession, Don Martin in his column today says;

"Be it campaign deception or denial, having tens of thousands suddenly face the loss of jobs, savings and perhaps their homes has twisted Harper's old beliefs into policy pretzels. For this Conservative government, the age of ideology is over -- technically and realistically."

Unfortunately Don the Conservative Government has not given up on its neo-con ideology as we witness in this announcement by Jim Flaherty.

Flaherty aims to boost economy with P3 projects
Ottawa wants to build billions of dollars of bridges, hospitals and other infrastructure as a way to lessen the blow from the financial crisis, finance minister Jim Flaherty said Monday.
Speaking at a conference in Toronto, Mr. Flaherty said investments in infrastructure will be "a key part" of the government's strategy to stimulate the economy.
But some observers say there's a problem with the plan. The government wants to deliver the projects through so-called public private partnerships (P3) where projects are built and financed by the private sector but according the government's requirements. But while the P3 model has gained acceptance in much of the world, there is rising concern that the credit crunch has made it almost impossible to finance new P3s.
Because of the financial crisis, finding willing lenders has become a lot more difficult and when they can be found the cost of capital for even triple-A borrowers is much higher than even a few months ago, said Alban de La Selle, a senior executive at Dexia Credit Local SA, a leading European bank.
"Lenders [on infrastructure projects] have become significantly more cautious," according to a recent report by PricewaterhouseCoopers. "... infrastructure finance raising is likely to be challenging for some time to come and the business risk of these transactions is certainly higher."
But the financial turmoil may have thrown a monkey wrench into the mechanics of P3s by making the financing so much more difficult.
Mr. de La Selle said one way to overcome the problem would be for the government to provide the financing itself. Since governments are among the few players that can get the benefit of lower borrowing costs, that advantage could be brought into play in doing P3s, he said. For their part, the private sector partners would guarantee to repay the debt.

So instead of the government funding infrastructure projects, the Harpocrites want to fund the private sector to do it for them. Ironically currently P3's in Canada are funded by public pension money, there are very few private P3's.

The Harpocrites had an opportunity to build a P3 project; the National Porttrait Gallery but they canceled it last week.

Earth to Flaherty,hello we are in a recession if not a depression and companies are hoarding capital not spending it. So instead of expanding the public sector the government will be choosing winners and losers in the private sector to build infrastructure. And these companies will promise to repay the debt, which will only happen if they survive this depression. Throwing good money after bad.

And he made his announcement at a conference on P3's sponsored by the right wing business lobby the Fraser Institiute.

So much for the Harpocrites abandoning their neo-con ideology, even in this recession they scramble to keep faith with the right wing ideology that got us in this mess in the first place.

Speaking to a Fraser Institute dinner, the finance minister committed to increased spending by Ottawa, if it is needed. Flaherty stressed at the luncheon the importance of infrastructure spending by the federal government, notably in partnership with the private sector. He announced $1.25 billion in startup funding for P3 Canada Inc., an entity that will work on public-private projects.
Thank goodness for this opportune recession, even if it is still "technical," as Finance Minister Jim Flaherty insisted at a downtown conference yesterday. If it weren't for whatever it is, nothing would get done.
The legacy of good times lasting more than a decade is a mountain of unfunded priorities for public spending. It took recession, or perhaps only the vivid perception of it, to focus government attention on what it should have undertaken years ago.
Focus is too soft a word to describe the sudden conversion of our former fiscal conservatives to counter-cyclical spending. Yesterday, a previously dismissive Mr. Flaherty let the world know he was jumping into the pothole business with both feet.
Infrastructure spending "will be a key component of our future success," he told a conference on public-private partnerships, and a "key component" of his government's planned economic stimulus. Although ideological conservatives may worry about burdening future generations with unsustainable debt, real Conservatives are now committed to spending their way out of recession.
And nobody is cheering louder than the crowd that brought us collateralized debt obligations and credit default swaps. With the market for such innovative products seized up worse than a rusty Ford, government has become the only source of cheap credit for anything. Ergo, everybody loves infrastructure. Well-dressed converts flocked to Mr. Flaherty's speech yesterday like contrite sinners to a revival meeting.
Instead, governments should activate construction projects that are already on the drawing-boards, and have been waiting for funding. Canada's infrastructure suffered much depreciation during the fiscal restraint of the 1990s, and did not catch up in the balanced-budget period. The wear and tear are showing.

SEE:
Your Pension Plan At Work
A Critique of P3's From The Right

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And Then There Was One

The collapse of the North American Big Three Automakers means that by the end of this collapse of capitalism there will be one left standing. And it won't be Ford, GM or Chrysler. It will be Toyota. Which means its time for a made in Canada auto industry, nationalized under workers control and producing green cars.

After all the automobile industry in North America is actually an integrated oligopoly, its devolution to monopoly will threaten jobs and workers investments; such as their retirement pensions. The current crisis in production is based on the industry focusing on trucks and SUV's. Even Toyota has been affected.

What we see is the falling rate of profit, which was artificially kept up by consumer spending through credit. You now have finance capital dominating productive captial, and the result is that when the financial markets crashed so did the captial base for production. Its not like there is not real capital; workers and production facilities, availble for use production but rather they have been sold off to casino capitalists; hedge funds and private equity firms who are interested in making money off them by cutting them up and selling them. Those firms are directly linked to the ruling class in America, in particular the Republican Party, as Cerbeus management shows.

The fact that Cerbeus, a private investment firm, owns both Chrysler and GMAC, and wants to divest itself of both, with not a care about the impact on the real economy; workers lives, shows that capitalism is still as rapacious as ever, even as it approaches its state for hand outs.

The fact is that workers have invested capital and labour into these businesses, through concession bargaining, with their pension funds and with investment funds tied into their employers companies. Idle factories and laid off workers means a disaster for the real economy in Canada. Instead the government along with the unions should nationalize all car production in Canada, under control of the workers and through the investment of their pension funds, and the unpaid pension liabilities they are owed.

Workers control would mean direct worker management and control of the board of the corporation, and would mean a more flexible manufacturing regime that responded to consumer market choices. Canadians are buying smaller more efficient cars, and the market failed to respond in time to that fact. Under workers control factories would be more efficient and more productive as Alcan workers proved in Quebec when they took over control of their factory which was about to be closed and for several months made a profit and retrofitted the factory to be more environmentally sound, something Alcan had failed to do.

The elephant in the room is that capitalism will continue to face these economic meltdowns until it becomes socialized. While private capital asks the state to fund its failures it offers nothing to the workers that make their profits. The reality is that in order to really affect economic change, capitalism must evolve into socialism; that is worker control of production, and the socialization of investment and profit.

After all private capital is already reliant on workers benefit plans, pension plans, mutual fund investments, securities investments for retirement and in the U.S.; health care plans. As corporations bail out of these plans they look to the state to bail them out. But the state has failed to protect the investors; the workers. Rather than bail outs of capitalist finaciers it would be better that capital be socialized and invested in local production and national/international distribution under workers control.

The auto industry is being pummeled from all sides — by high gas prices that have soured consumers on profitable S.U.V.’s, by a softening economy that has scared shoppers away from showrooms, and by tight credit that is making it difficult for willing buyers to obtain loans. Both G.M. and Chrysler have been struggling with product lineups that are out of sync with consumer demand for smaller, more fuel-efficient cars.
If G.M., the nation’s largest automaker, combined operations with Chrysler, the smallest of Detroit’s Big Three, they would create an auto giant that would surpass Japan’s Toyota Motor Company, which recently has been battling G.M. for bragging rights as the world’s largest automaker.


GM, Ford losses worse than expected, burning cash


Losses force GM to slash 3600 jobs in Canada, US


Warning of cash crunch, GM cuts jobs and halts Chrysler talks

GM dealers feel squeeze from GMAC
With credit tight, GM's 'captive finance arm' is tightening terms on dealers and customers.

Auto major General Motors's already distressed sales are being hurt even more due to the conservative lending regime at its former captive financing arm GMAC Financial Services, according to Dow Jones.

GMAC Leaves Individuals Holding Car Lender's Junk (Update2)

GMAC LLC may leave thousands of individuals on the hook for about $15 billion of junk-rated debt unless the auto and home lender finds a way to pay its bills.
GMAC, the largest lender to car dealers of General Motors Corp., issued more than $25 billion of debt called SmartNotes over the past decade to retail investors. While GMAC has paid off the debts as they matured, five straight unprofitable quarters raised doubt about GMAC's survival, and SmartNotes due in July 2020 have lost about three-quarters of their value.
``An investment like this is totally unsuitable for the retail investor,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, who rates GMAC bonds junk, or below investment grade. ``You're selling it to the widows and orphans who think of GMAC as being this strong, long- standing corporation when the reality is far from that.''
GMAC's losses since mid-2007 total $7.9 billion, driven by record home foreclosures and auto sales that GM has called the worst since 1945. Stomaching some of Detroit-based GMAC's deficit are individuals who purchased SmartNotes through brokers at firms including Merrill Lynch & Co., Fidelity Investments and Citigroup Inc.'s Smith Barney unit.
Chuck Woodall, 66, who lives with his wife in Columbus, Ohio, amassed $200,000 of SmartNotes starting eight years ago, and they now equal about 25 percent of his investments. At the time, the securities were rated investment-grade and they paid more interest than government bonds or certificates of deposit. They also were backed by Detroit-based GM, the biggest U.S. automaker.
Safe Ride
Woodall, a former owner of apparel stores and a pet-supply business, holds SmartNotes due in 2018 that he says have lost about 80 percent of their value. He said his Merrill broker told him that in more than 20 years, no client had lost money on bonds.
``He assured me they were safe,'' Woodall said. ``I just wasn't aware enough and didn't have my hand on the pulse.''
GMAC said Nov. 5 its mortgage unit may fail and analysts have questioned the viability of the entire company, which is now 51 percent-owned by New York-based Cerberus Capital Management LP. GM controls the rest.
Of GMAC's $64 billion in debt outstanding at the end of June, about $15 billion was in SmartNotes. They rank equal to senior unsecured debt, which recovers an average of about 40 cents on the dollar in bankruptcy cases, according to Mariarosa Verde, an analyst at Fitch Ratings in New York.
GMAC spokeswoman Gina Proia said the company ``has honored its commitments and intends to continue honoring its commitments to investors.'' She declined to elaborate.
Bonds Drop
SmartNotes maturing in July 2020 fell 6.5 cents on the dollar, or 20 percent, to 26.7 cents at 4 p.m. New York time, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 35.8 percent, or 32 percentage points more than similar-maturity Treasuries, Trace data show.
Brokers traditionally handle the task of determining whether an investment is suitable for a particular investor, depending on factors such as assets, sophistication and tolerance for losses. Merrill spokesman Mark Herr, Steve Austin from Fidelity and Citigroup's Alex Samuelson declined to comment.
SmartNotes were introduced in 1996 by ABN Amro Holding NV's Chicago-based LaSalle Bank, which is now part of Bank of America Corp. in Charlotte, North Carolina. The notes include features designed to appeal to investors seeking interest income -- a concern for older people and retirees.
Prosperous Times
The notes were sold in denominations of $1,000 and offered a ``survivor's option,'' allowing spouses to sell the bonds back to the issuer if the owner dies. The SmartNotes program opened to European investors in 2004.
GMAC and LaSalle said in statements from 1998 through 2003 that the notes were intended for individual investors. Patrick Kelly, a LaSalle managing director, described the buyers in a 2003 interview as ``mom-and-pop investors.''
``If Wal-Mart sold bonds, these would be the bonds they would sell,'' Kelly said.
Back then, SmartNotes may have been safer bets. GMAC debt was rated BBB by Standard & Poor's, GM and GMAC were profitable, and the lender was still a wholly owned unit of the automaker. Sales of GMAC SmartNotes reached $1 billion in 1998, doubled the following year and exceeded $25 billion in 2003, when GMAC was on its way to earning $2.8 billion for the year.
`Gold-Plated'
``GM was considered a can't-miss company,'' said Thomas Smicklas, a retired high school principal and now a homebuilder in Wadsworth, Ohio, who started buying SmartNotes in 2003. Smicklas said he owns about $75,000 of short-term SmartNotes and hasn't lost any money. ``When the GM name is on something, many investors assumed it's gold-plated.''
By 2005, GMAC's debt was reduced to junk -- Moody's Investors Service now rates the firm seven levels below investment grade -- and GMAC continued offering SmartNotes as late as 2007. Today, S&P downgraded GMAC to CCC from B-, citing the lender's ``dire situation.'' Analysts have also raised concerns about the survival of GM, which today reported a $4.2 billion third-quarter operating loss and said it may not have enough cash to make it through the year.
Tom Ricketts helped create SmartNotes at ABN Amro before leaving in 1999 to start Chicago-based Incapital LLC, which earlier this year bought LaSalle's retail bond unit. Ricketts said his firm doesn't issue GMAC notes and sticks with investment-grade bonds. He recommends that individuals who buy them own a wide variety of assets.
Circumstances Change
``When you don't diversify in any portfolio, you expose yourself to risk that you're not getting paid for,'' Ricketts, 43, said in an interview. ``Typically, investment-grade corporate bonds are very good investments.''
GMAC and underwriters of its debt were sued in a 2005 class action that claimed the lender misrepresented SmartNotes in financial statements. A federal judge in eastern Michigan dismissed the case in February 2007, and the plaintiffs are appealing.
``In corporate bonds, time has shown that volatility, credit ratings and potential deterioration in credit means you may own something very different than what you thought you owned,'' said Michael W. Boone, founder of MWBoone & Associates, an investment advisory and money management firm in Bellevue, Washington. Boone said individuals should hold corporate debt only in mutual funds, ``where they have instant diversification and management.''





GM Workers' Risky Savings PlanForbes, NY - 6 Nov 2008It's bad enough that General Motors employees and retirees risk losing their jobs and their retirement benefits if the automaker runs out of cash and can't and can't scare up more bailout money in Washington. But many insiders also are in danger of losing $3.9 billion in savings through an investment once deemed as good as cash.
These investments, called GMAC Demand Notes, have been marketed over the years as a safe place for GM employees, retirees and others to park their money. For as little as $1,000, investors could buy a note paying well above most money-market accounts. (The current rate is 5.25%.) Many GM insiders have squirreled away their college and retirement funds in these notes.


Without a bailout, some industry analysts say GM--and perhaps Ford and Chrysler as well--could be forced to file for bankruptcy. If all three collapsed, the fallout would spread quickly to suppliers and would even temporarily shut down the U.S. factories of healthier foreign automakers. The Center for Automotive Research in Ann Arbor, Mich., says 3 million Americans would lose their jobs in one year, costing the government $60 billion in lost tax revenue.





Cerberus may give up GMAC control to get bank status: Bloomberg
NEW YORK (Reuters) - Cerberus Capital Management may pass its control of GMAC LLC to its investors so the financing unit can convert to a bank and get access to government funds, Bloomberg reported on Thursday, citing three people familiar with the matter.
A source familiar with private equity firm Cerberus said no determination had been made about the structure of GMAC.
Bloomberg reported that Cerberus is mulling a plan to distribute its 51 percent stake in embattled GMAC among investors in its funds.
By forfeiting its control of the company, Cerberus may help GMAC become a bank and get funding from the U.S. Treasury and Federal Reserve without requiring Cerberus to submit to banking regulations, Bloomberg said.
Cerberus led a group in 2006 that paid General Motors Corp $7.4 billion in cash for 51 percent of Detroit-based GMAC. GM owns the other 49 percent.





Dan Quayle offers hints about possible Chrysler-GM merger


Dan Quayle told a group of Phoenix businessmen that consolidation in the beleaguered auto industry is unavoidable, but provided few details on a possible merger of Chrysler Corp. and General Motors Corp.
“The analysts are looking at it,” the former U.S. vice president and current chairman of New York private equity firm Cerberus Capital LLC told attendees at an Enterprise Network breakfast Thursday morning. Cerberus owns Chrysler. “We’re not going to do the deal unless it’s a positive for our investors,” he said.


Quayle in 1999 unceremoniously dropped out of politics after George H.W. Bush, the man he served under, backed his son’s run for presidency.
But the international ties Quayle made during those four years in the White House proved invaluable when he returned to the private sector. Since his tenure at Cerberus began in 2000, Quayle has been instrumental in setting up offices in Japan –– a country he visits at least seven times a year –– and across Europe.
“You’ve got to know the people you’re doing business with,” he said.





Lobbying Washington


Chrysler Chief Executive Bob Nardelli joined GM CEO Rick Wagoner and Ford CEO Alan Mulally on Thursday in meetings with US House Speaker Nancy Pelosi and Senate Majority Leader Harry Reed. The three automakers lobbied the Democratic lawmakers, who increased their power in Tuesday's election that also saw Barack Obama elected president, for up to $50 billion in federal aid, sources said. The push for aid has been accompanied by increasingly dire warnings from industry executives and their political allies about the cost of inaction and the risk of a failure that would cost tens of thousands of manufacturing jobs. Chrysler does not release financial information. While executives, including Vice Chairman and President Tom LaSorda, once touted that lack of disclosure as a strength, the same lack of transparency could now complicate the automaker's efforts to seek aid under a federal rescue package. In addition, analysts have said Chrysler's ownership by Cerberus poses a political problem as a federal rescue could be criticized as a bailout for a secretive Wall Street firm known for its political contacts. Cerberus is chaired by former Bush administration Treasury Secretary John Snow and its board includes Dan Quayle, who was vice president under former president George H W Bush.





Quayle calls bailout necessary


Dan Quayle says he would never have believed that the Bush administration would bail out the nation's financial institutions, but that it was a necessary move for a precarious global situation.
"The whole international financial situation is one that was extraordinarily precarious," Quayle said Thursday. "That is why (Treasury Secretary Henry) Paulson did what he had to. We'll be reading books in a year or so about really how close I think we were to significant financial instability, much worse than what we're experiencing right now."
But Quayle said he expected things to turn around as the financial world figures out its comeback.
The former U.S. vice president is now chairman of Cerberus Capital Management, a New York private-equity firm that owns interests in Chrysler, GMAC Financial Services and about 50 other firms worldwide.
"We're in the great spots to be - automobiles, finance, real estate," Quayle joked.








The Case Against Giving GM and Chrysler a Hand


Here's a hot potato for the new commander in chief: Having just scored $25 billion in low-cost federal loans to develop fuel-efficient vehicles, General Motors and Chrysler are back, hat in hand, looking for more billions to assist their proposed merger. George W. Bush decided to pass on this one, leaving it to you. Can you blame him?
The biggest potential political problem here has nothing to do with Detroit and everything to do with Wall Street -- specifically Cerberus, a private-equity firm based in New York. Mr. Bush's former Treasury secretary, John Snow, is chairman; ex-vice president Dan Quayle has been a prominent spokesman; and the firm's chief executive, Stephen Feinberg, gives generously to Republican causes. Cerberus bought Chrysler from Germany's Daimler and owns 51% of General Motors' GMAC finance unit. It's hard to imagine a much riper target for Democrats and maverick Republicans looking for a scapegoat for the excesses that brought on the financial meltdown.


Now let's imagine some kind of GM/Chrysler bailout, which would inevitably be a Cerberus bailout. Our tax money would be going to help Messrs. Feinberg, Snow and Quayle out of a tight fix of their own making, Cerberus having shown spectacularly bad timing in plunging into a U.S. auto industry that's only getting worse by the month. Hmmm. I can just imagine what Lou Dobbs would do with that one. No doubt Cerberus will trot out a list of investors that includes pension funds, hospitals, universities and other worthy causes, all of whom stand to benefit, too. Good luck to them. Most people will see only private equity, the secretive, high-return, high-leverage, exorbitantly compensated vehicles that are off-limits to ordinary mortals.


Now let's imagine some kind of GM/Chrysler bailout, which would inevitably be a Cerberus bailout. Our tax money would be going to help Messrs. Feinberg, Snow and Quayle out of a tight fix of their own making, Cerberus having shown spectacularly bad timing in plunging into a U.S. auto industry that's only getting worse by the month. Hmmm. I can just imagine what Lou Dobbs would do with that one. No doubt Cerberus will trot out a list of investors that includes pension funds, hospitals, universities and other worthy causes, all of whom stand to benefit, too. Good luck to them. Most people will see only private equity, the secretive, high-return, high-leverage, exorbitantly compensated vehicles that are off-limits to ordinary mortals.
This is even before a new president gets to the merits of the proposed merger, which strikes me as even more wrong-headed than the Sears-Kmart combination, which I derided at the time. The idea that the combined company would get government assistance and still be headed by GM's Rick Wagoner, the man who bet the store on SUVs, is an affront to common sense. Better to keep Chrysler's Robert Nardelli, the blunt ex-Home Depot chief executive, who at least brings fresh ideas to the table. As for auto workers, the only way something like this could possibly work would be to slash car models -- and that means slashing jobs.








merger would limit the bleeding


Let's look at damage-control scenarios for the key actors in this drama one by one:
• Cerberus Capital Management. The sharpies at the New York-based private equity firm are trying to salvage whatever they can from their ill-timed purchases of 80% of Chrysler and 51% of GMAC. Initially, Chrysler looked like a cheap fixer-upper that Cerberus could flip at a nice profit in five years. But the global financial meltdown has turned Detroit's No. 3 automaker into a money pit with little chance of survival on its own. That means what was once the Big Three must now become the Detroit Two.
• GM has Chrysler's problems on a grander scale: too many brands, too many dealers, too much reliance on trucks and SUVs, and dwindling cash reserves that could dry up next year. GM also has strong sales in Asia and South America, solid technology and promising products if it can survive until 2010. For GM, a Chrysler merger is all about snaring extra cash -- from Cerberus and possibly Uncle Sam -- and cementing its position as an industrial icon the government cannot allow to fail.
• The UAW. President Ron Gettelfinger has been in damage-control mode for some time, bargaining soft landings for legions of UAW members jettisoned in recent years. Now he's hired Steve Girsky, an ex-adviser to GM and recent partner with the UAW in resurrecting parts supplier Dana Corp. from Chapter 11 bankruptcy, to help steer the union through the current storm.
• The next president of the United States. Neither Barack Obama nor John McCain wants to preside over the collapse of GM, Ford, Chrysler -- or all three -- during his first months in office. So you can count on the talks among GM, Cerberus, Ford, the White House, Treasury, Commerce, the Federal Reserve, congressional leaders, the UAW and Wall Street to be on again as of Wednesday.
What is happening, during this confluence of global financial crisis and a U.S. presidential election, is the climactic chapter in the consolidation of the domestic auto industry from three companies to two.
"Chrysler, as we know it, will cease to exist very soon," auto industry consultant Kimberly Rodriguez of Grant Thornton said last week.





PE exec to help UAW on potential GM/Chrysler deal: source


NEW YORK (Reuters) - Stephen Girsky, a veteran auto-industry analyst and private equity executive, is working with the United Auto Workers union with regards to any potential General Motors Corp and Chrysler LLC deal, a source familiar with the situation said on Sunday.
Girsky is president of Centerbridge Industrial Partners, LLC., the industrial unit of private equity firm Centerbridge Partners.
The Wall Street Journal reported earlier on Sunday that the union recently retained Girsky to help "level the playing field" in any discussions about changes in its current contract that could be needed in a tie-up of the two auto makers.
Girsky is expected to help UAW President Ron Gettelfinger evaluate the deal and shape the union's strategy, the WSJ said, citing sources.
Sources told Reuters last week that a deal to merge General Motors and Chrysler LLC hit an impasse after the Bush administration ruled out funding for it.
Advisers on Cerberus' side are JP Morgan and Citi and on the GM side are Morgan Stanley and Evercore, a person familiar with the talks previously told Reuters.



The UAW may be troubled by the fact that some estimates put the job loss of the merger at 60,000. Since the union seems to have fewer members every year, that is a lot of people to have leave. At some point, the UAW's bargaining power is going to move toward zero.
The UAW does not only have to help its current workers, it has to protect funds that are to be supplied by the car companies for benefits and retirement payments. It is not clear whether that capital could be threatened in a marriage of two car companies or not.
GM may not be able to get $10 billion to close the Chrysler deal, and a lot of that money would go to severance. But if a deal goes down, workers might rather keep their jobs than get a buyout which will only carry them for a few months in a recession.





GM-Chrysler merger: United Auto Workers union prepares another betrayal


Recent reports reveal that the United Auto Workers bureaucracy is preparing to further integrate itself within the business framework of the US auto industry at the expense of the livelihoods of the tens of thousands of autoworkers it nominally represents.
Industrial analysts believe that the Big Three US auto companies—General Motors, Ford Motor Co., and Chrysler Corp.—may all face bankruptcy within the next year. The financial crisis has been most acute for GM and Chrysler, and the largest and third-largest US automakers are now carrying on urgent merger negotiations that, if carried through, would lead to the rapid purging of 50,000 jobs.
According to insiders, the deal being pushed forward by GM and Cerberus Capital Management, the giant private equity firm that controls Chrysler, would result in the transfer to GM of Chrysler in exchange for turning over to Cerberus a larger share of GMAC, the financial wing of GM. Cerberus already owns 51 percent of GMAC. Chrysler has reportedly backed out of merger talks with the Franco-Japanese combination Renault-Nissan.
The Big Three, who have suffered through decades of declining market share, are now beset by a shortage of cash that may soon impinge upon day-to-day operations. Due to low incomes and layoffs, large numbers of Americans have stopped buying new cars, especially big and inefficient Sport Utility Vehicles (SUV) and trucks that have in recent years provided the main source of profit for the Big Three.
In October, auto sales plunged by 31 percent from a year ago, reaching their lowest level in 15 years. Michael DiGiovanni, sale analyst for GM, said that relative to the size of the US population, October was “the worst month in the post-World War II era. This is clearly a severe, severe recession.”
A GM-Chrysler merger will require the UAW to suppress rank-and-file opposition and to inflict a new round of concessions on autoworkers. An article published in Monday’s Wall Street Journal, “UAW Vies to be Central Player in GM-Chrysler Deal,” reveals that UAW President Ron Gettelfinger has been holding meetings with GM Chief Operating Officer Fritz Henderson on a potential merger. “Mr. Gettelfinger’s approval,” the article states, “could sway banks and lawmakers considering pitching into the deal.”
In a related development, the New York Times reported Monday that the Treasury Department has turned down GM’s request for an additional $10 billion to assist the merger with Chrysler. The money would have come from the $700 billion Wall Street bailout pushed through in October. Treasury officials were said to fear being directly identified with mass layoffs in the auto industry as a result of the merger, and they opposed extending to industrial firms money from the vast allocation intended for financial concerns.
The $10 billion is needed “to cover the cost of jobs cuts and plant closures that would result from a merger,” according to the Journal. If the federal government does not come through with the funds, the UAW may be asked to allow GM and Chrysler to get out of as much as $14 billion in promised payments into the union-managed “Voluntary Employee Beneficiary Association” (VEBA), the retiree health care system now run by the UAW. Without cash, the two corporations could rapidly wind up in bankruptcy.
This threat to the business interests of the UAW will likely propel Gettelfinger and the UAW bureaucracy to pressure the next administration to give handouts to the auto industry as part of a merger agreement. Democratic Party presidential candidate Barack Obama has indicated he is favorably disposed toward handouts, although such utterances must be taken in the context of the current election cycle, where both candidates have sought advantage in Midwest “battleground” states such as Michigan, Ohio, Missouri, Indiana, and Wisconsin, where much of the US auto industry is located.
The UAW no doubt will publicly lament the mass layoffs that will inevitably result from the merger. Behind the scenes, however, they will work energetically to see that the merger goes through and that the federal government foots the bill, so as to protect the multibillion-dollar VEBA fund the union oversees.
The setting up of the VEBA was the latest stage in the decades-long transformation of the UAW from a union into an out-and-out business. In exchange for tens of thousands of jobs cuts, billions of dollars in benefits reductions, and the suppression of rank-and-file resistance, the Big Three handed over to the UAW control of the auto industry’s retiree health care system.
The VEBA fund was dependent for its survival on the continued profitability of the American auto industry, which put the UAW into an openly adversarial relationship with its own workers. But now that the very survival of the US auto industry has been thrown into doubt, so too has the UAW’s VEBA scheme.
In an indication of its enthusiasm for the consolidation of the auto industry, the UAW has recently hired, as a personal adviser to Gettelfinger, business executive and industry analyst Stephen Girsky. Girsky was a former managing partner at the now defunct Wall Street investment bank Morgan Stanley. In 2006, GM head Richard Wagoner brought on Girsky where, according to the Wall Street Journal, he played a “pivotal” role in launching GM’s buyout program, whereby experienced workers were encouraged to retire and were replaced by low-wage workers. The Journal concluded that Girsky “is expected to help … Gettelfinger evaluate the deal and shape the union’s strategy.”
That the UAW feels no shame in bringing such an open opponent of the interests of its workers into a position of power within the union suggests not only that it is preparing to support the merger of GM and Chrysler. It also shows just how openly the UAW now presents itself as a business hostile to the workers it purports to represent.





A case for workers’ control: Can workers stop the illegal sale of Chrysler?


By Martha Grevatt, UAW Chrysler worker for 21 yearsNov 1, 2008, 09:19


While rumors continue to swirl, workers at General Motors and Chrysler hunger for concrete information concerning the possible sale of Chrysler, the number three U.S. automaker, to GM or some other entity.
Chrysler: "...more than 25 percent of salaried positions—that’s 5,000 jobs—are being terminated"They’ve heard not a peep at GM, but [workers] at Chrysler have received two “messages from our leader,” CEO Bob Nardelli. In the latest, workers were informed that they were in “truly unimaginable times” but that “working as a team, we have been right-sizing our organization to become as competitive as possible.” Therefore, more than 25 percent of salaried positions—that’s 5,000 jobs—are being terminated “in a socially responsible way, with respect and gratitude to those who have contributed so much to our company over the years.” What bull!
The salaried cuts were announced just days after workers in Newark, Del., learned that their plant would be closed at the end of this year, a year ahead of schedule. Whole shifts are being cut at assembly plants in Toledo and Windsor, Ontario, Canada. Are these aggressive moves to make the company leaner and more attractive to a prospective buyer?
Eager for some definitive word, the Phoenix Business Journal pressed former Vice President Dan Quayle, now chair of global operations for Chrysler LLC’s parent company, Cerberus. All Quayle would spell out was that “we’re not going to do the deal unless it’s a positive for our investors.” (Oct. 23)


The United Auto Workers union has been left out of the discussions, while financiers, including JP Morgan Chase, have had a seat at the table for at least a week. It’s their call whether any deal goes forward. (That’s nothing new. During the 1937 sit-down strikes the UAW rightly called GM “a Morgan-DuPont dictatorship.”) The big banks favor a merger that would increase GM’s market share while drastically reducing labor costs. Yet the banks and GM appear unwilling to finance any acquisition without government aid. According to the Detroit News, “General Motors Corp. is in talks with government officials about obtaining about $5 billion to help fund a possible merger with Chrysler LLC. GM Chairman and CEO Rick Wagoner was in Washington last week to meet with U.S. Treasury Department officials and make a case for a quick release of funds.” (Oct. 28) This would be on top of the $25 billion the Energy Department plans to loan the Big Three, who are lobbying to get that amount doubled.


Now is the time to raise the slogan of workers' control. The taxpayers should not give the bosses a penny. The funds set aside to help the industry should go to the workers to run the plants themselves. The first step to restore employment levels could be a shorter work week with no cut in pay.
Workers’ control is not as abstract as it sounds. In the period shortly before and after the Russian Revolution, workers kicked the bosses out and then ran the factories, with the support of the Soviet government. In Italy in the 1920s the workers took over the plants of Fiat and Alfa Romeo and made vehicles without supervision. In Venezuela today the Bolivarian government grants workers funds to run the plants after they occupy them.
It should not be assumed that a workers’ takeover would be illegal, even here. In 1912 the federal government established a Commission on Industrial Relations to investigate the causes of strike violence. The commission unanimously blamed John D. Rockefeller for the deaths of more than 60 miners, their wives and children during the 1913 strike in Ludlow, Colo. Remarkably, four of the nine commissioners, including Commission Chair Francis P. Walsh, recommended “that private ownership of coal mines be abolished; and that the National and State Governments take over the same, under just terms and conditions, and that all coal lands shall thereafter be leased upon such terms that the mines may be cooperatively conducted by the actual workers therein.”
Furthermore, in 1937 both Michigan Governor Frank Murphy and U.S. Secretary of Labor Frances Perkins challenged GM’s insistence that the 44-day occupation of its plants was illegal.
The class struggle here is not at the stage where workers establish control and demands for workers’ control arise organically. Nevertheless, the slogan can be raised now, in advance of battles sure to come.





Pillars of Japan showing some cracks


TOKYO -- They are the champions of Japanese business, giant companies with famous names like Toyota, Nissan, Canon and Sony. For years, their exports of cars, cameras, video cameras and other high-end products kept Japan's economy alive when domestic industries were languishing.
Now, hit by the global economic crisis, Japan's big exporters are beginning to show signs of weakness, undermining one of the last pillars of the shaky Japanese economy. The announcement yesterday that Toyota was cutting its profit forecast in half was only the latest bit of bad news for Japan's major-league export firms.
Toyota, the country's biggest company, said its annual net earnings would fall to a nine-year low. It also announced a 69-per-cent drop in profit for the most recent quarter, a big setback for a renowned company - sometimes called the world's best - that has seen profit rise year after year for a decade and is vying with General Motors for the title of world's biggest car maker. Its stock promptly dropped 10 per cent, pushing the Nikkei stock index to a 6.5-per-cent loss.


In the past few weeks, Nissan, Honda, Sony and Canon have all reported poor results, the consequence of a double whammy of falling consumer demand in the United States and a sharp rise in the yen. The yen's rise against the dollar makes Japanese exports less affordable for Americans while, at the same time, reducing the yen value of the profits exporters earn overseas. Toyota says its U.S. sales in October dropped a dramatic 23 per cent.
"It's an overused phrase, but it really is a kind of perfect storm at the moment," said Nissan spokesman Simon Sproule. In the United States, "people have just stopped buying cars. It's incredible."
Until recently, Japan seemed likely to come through the global credit crunch better than many countries because its banks were less exposed to the subprime mortgage market in the United States. But there are more and more signs that Japan may in fact be hit hard.
The stock market hit a 26-year low last week. A Reuters poll of economists found that most thought Japan had already joined much of the industrialized world in recession, with the economy unexpectedly contracting for a second consecutive quarter. Acknowledging the spreading pain, the government has announced a $248-billion (U.S.) package to help small businesses and hand out cash to households. Meanwhile, the central bank has cut interest rates for the first time in seven years - to a rock-bottom 0.3 per cent.
The spreading impact of the downturn on export-oriented Japanese countries has helped put paid to the notion that Asian economies had become "decoupled" from the U.S. market. Nissan, for example, which is Japan's third-biggest car maker, still relies on North American car buyers for 35 per cent of its sales, even though it builds cars all over the world. Nissan has cut its profit forecast for the fiscal year in half. It is eliminating 2,500 jobs in the United States and in Europe and laying off 1,000 temporary workers in Japan


Any country would be troubled by faltering results in its biggest, most successful companies, but the bad news is especially upsetting for Japan because its depends so heavily on its major exporters.
Domestic industries have never fully recovered from the bursting of Japan's asset bubble in the early 1990s. Consumers have never regained their confidence, either. The health of the big-name exporters was one of the few things Japan's economy still had going for it. Exports produce 18 per cent of Japan's gross domestic product.
"If the global economy keeps slowing down, Japan is very vulnerable," said Kristine Li, an analyst at KBC Securities.
The shaky results being announced by exporters come as a special shock because they seem to have so many things in their favour. Most have cleaned up their balance sheets over the past decade, reducing debt and building up big cash reserves.





Toyota's magic slips a gear


Toyota Motor Corp. shares plunged nearly 20% in New York trading yesterday after the Japanese automaker said it set up an emergency committee to boost profits and warned it would make almost no money in the second half of its fiscal year.


The development underscores just how bleak market conditions are becoming for automakers worldwide, ravaging even a manufacturer with a strong product lineup and a history of delivering steady returns to investors.


In September, Toyota announced it would delay indefinitely plans to ramp up a new Canadian assembly plant, in Woodstock, Ont., to full capacity because of the slowdown in U. S. sales. The factory is scheduled to open this year with one shift of workers building 75,000 RAV4 sport-utility vehicles to start.
Developments at Toyota yesterday were much worse than some analysts had expected. The automaker reported operating losses in both North America and Europe and said it will cut the number of its temporary contract workers in Japan by half, to 3,000 by next March.
Unlike Japanese rival NissanMotorCo.,Toyota has not offered employee buyouts or issued layoffs in North America, preferring to keep 4,500 factory workers at two idled truck plants in San Antonio and Princeton, Ind., active even if the assembly lines are not.


Toyota Slashes Annual Profit Forecast


The lowered forecast was the latest sign that the recession that began in the United States was spreading, threatening even fast-growing markets like India and China, once seen as immune to an American downturn.
While Toyota recorded growth in Asia and other developing areas, it was not enough to overcome steep declines in the developed markets of North America, Japan and Europe.
“This is another sign of the collapse of the decoupling theory,” said Yasuaki Iwamoto, an auto analyst at Okasan Securities in Tokyo. “The whole world is down because of the North America troubles. That hurts even a company with a more global revenue base, like Toyota.”


The global slowdown has struck Toyota just as it finishes introducing a full lineup of vehicles, including larger eight-cylinder models like its Tundra pickup truck, in a bid to overtake G.M. as the world’s largest automaker. Thursday’s results suggested the slowdown was hurting sales of Toyota’s entire lineup, including popular, fuel-efficient models like its hybrid Prius and Camry sedan.
Analysts expect Toyota to cut costs and shift more production and parts sourcing to local markets. Toyota has already delayed new factories, laid off workers and offered ever-sweeter incentives to entice buyers back into showrooms.


Toyota vulnerable after chasing fast growth


TOKYO, Nov 7 (Reuters) - Toyota Motor Corp's shock profit warning shows its strategy of breakneck expansion has left it especially exposed to an industry crunch brought on by the global financial crisis.
As recently as last year, Toyota was riding high after eight years of earnings growth, during which time profits more than tripled and sales mushroomed to make it the world's biggest carmaker ahead of General Motors Corp.
But Thursday's grim warning that profits would shrink by three-quarters this year was proof that even the mightiest are at risk from the current turmoil, raising the need for increased flexibility and, some say, more prudent investment from the Japanese giant.
"Toyota has become used to carrying excessive investment, and this has left it vulnerable in a downswing," said JPMorgan Securities analyst Takaki Nakanishi, who has a neutral rating on the company.
"It's important to recognise that the current steep decline in Toyota's earnings is not only a cyclical problem -- the downturn has been exacerbated by its own structural problems."


Toyota's troubles surfaced last year when its entry into the full-sized pickup truck segment in the United States coincided with a climb in gasoline prices to record levels.
At the time, Toyota's Tundra model was welcomed as an overdue addition to a segment that had grown to around 15 percent of the U.S. market. Similarly, some chided Honda for not venturing into the market dominated by GM, Ford Motor Co and Chrysler.
But demand for gas-guzzling vehicles evaporated, and Toyota is now trying to repair the damage, deciding this year to build the popular Prius hybrid instead of the Highlander SUV at a planned new factory in Mississippi. It is also trying to find ways to build fuel-efficient compact cars more profitably, while speeding up the rollout of hybrid vehicles, starting with four fresh models next year.


But despite its problems, with $18.5 billion in cash or near cash and little debt, Toyota faces none of the imminent threats to survival that some of its rivals do.
Toyota sees little benefit from buying one of those troubled rivals, preferring to focus on growing its owns brands and maintaining the status quo it dominates -- thanks in a large part to its strategy of chasing fast growth during the past decade.
Without its aggressive investments, Toyota would not have raked in more than 1 trillion yen ($10 billion) in net annual profit in the past five years. Honda's investments have been cautious in comparison, but so have its rewards.
"For companies like Honda or Mazda that haven't been stepping on the gas as much, the (negative) impact is limited now," said UBS Securities analyst Tatsuo Yoshida.
"Toyota can withstand a 3-metre wave while GM and Ford drown in a 1.5-metre wave, but what we have now is a once-in-a-century tsunami," said Yoshida, who cut his rating on Toyota to neutral from buy after the profit warning.
While most analysts are confident of Toyota's medium-term growth prospects with its big lead in clean-vehicle technology, few are upbeat about a quick recovery in its shares.

Regional economies feel impact
Toyota's slump has started to affect the entire auto industry as job cuts take place at parts makers, subsidiaries and affiliates. The negative effects on regional economies cannot be avoided.
Toyota Motor Kyushu Inc., a subsidiary that produces the Lexus and Harrier brands, withdrew its initial plan to rehire 500 of 800 temporary workers whose contracts were terminated between June and August.
Toyota affiliate Denso Corp. slashed 800 term employees in the six months through September, while Toyota Industries Corp. cut 500 jobs.
In Aichi Prefecture, where parts makers that have contracts with Toyota are concentrated, the ratio of job offers to job seekers declined 0.1 percentage point in September from the previous month--the biggest drop among all prefectures. This is apparently because Toyota-related companies were forced to trim production in step with Toyota's plans to cut production, leading to cutbacks in capital investment and the slashing of nonregular jobs.


NUMMI employees may face layoffs

Workers at the New United Motor Manufacturing Inc. plant in Fremont are understandably worried.
It could mean that by early next year about a 1,000 workers won't be reporting for swing shift to make Tacoma pickups.
In a memo to workers on Friday, union officials said: "We're also informed that, due to recent cuts in sales and orders NUMMI has been forced to cut back production until further notice."
And while GM is gasping for air, its NUMMI joint venture partner, Toyota, has seen its quarterly profits drop 69 percent.
NUMMI has been jointly owned and operated for 20 years by GM and Toyota, making the Pontiac Vibe, Toyota Corolla and the Toyota Tacoma.


Servco to lay off more than 100 workers

Servco Pacific Inc. will lay off 118 employees, about 10 percent of its workforce, effective Nov. 17.
The cuts mostly affect Servco's automotive division, reflecting slumping sales.
In Hawaii, Servco sells Chevrolet, Suzuki and Subaru vehicles and is the distributor for and retailer of Toyota, Lexus and Scion vehicles.
In a memo to employees, Chairman and Chief Executive Officer Mark Fukunaga wrote, "I hope you know that we tried to do everything possible to avoid this action."
With lower sales and less work, the layoff decision was made "with heavy hearts but also with the long-term needs of the business in our minds."
Employees to be laid off include 40 unionized workers, who will receive severance in accordance with their contracts, as well as 78 nonunion employees. They will receive 8 days of pay for each year worked, up to 10 years of service, and three weeks' pay for every year beyond 10 years.
The Hawaii Automobile Dealers Association's Auto Outlook recently projected that new car sales statewide could drop to 42,000 this year from a high of 66,000 three years ago.
The auto industry this week posted its worst monthly U.S. sales figures in 25 years. General Motors had a 45 percent drop; Chrysler LLC 35 percent; Ford Motor Co. 30 percent; and Toyota Motor Corp. and Honda Motor Co. were each down more than 20 percent, according the news service reports.











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