Slight Change in Plans

The Baffled Blog has migrated (just a bit). This site will likely remain static. The current and ever-expanding Baffled Blog can be seen at www.quitebaffled.org/baffledblog. Please, head on over…

Footnote to Chinese Democracy

Beijing – (BP) There have been reports recently of a growing number of executions in China, and advocacy groups worry about the fairness of the Chinese judicial system.

Earlier this month, concerns were raised over the trial of Wo Weihan, a medical researcher who was arrested in 2005 and admitted to spying for Taiwan only after being tortured.

Wo was convicted and sentenced to death. Amnesty International has said that “available information suggests that Wo Weihan did not receive a fair trial according to international standards.”

Although all death sentences in China are subject to review by the Supreme People’s Court before the sentence is carried out, that review is aimed more at ensuring that procedures have been followed correctly rather than determining  the facts of the case. Wo’s case was submitted for review, and the sentence was upheld.

Wo was executed by a gunshot to the back of the head on 28 November 2008, the very day talks were being held between China and the EU on human rights.

How to Reinvent GM on $1 a Year

Detroit – (BP) In a recent pitch to Congress, top executives at GM, Ford and Chrysler said they were willing to take only $1 in salary in 2009 if they ended up tapping into a much hoped-for infusion of federal monies. That idea, along with other job and cost cutting aimed at reinventing the “Big 3”, should convince lawmakers to kick in some $40 billion overall to the beleaguered auto industry.Big 3

While taking a salary of only $1 a year sounds like a huge sacrifice on the part of auto executives, none of them will be hurting too much. A brief survey of recent compensation for auto executives reveals:

  • GM CEO Rick Wagoner earned $9.3 million in salary and bonus in 2006, nearly double what he earned in 2005;. His salary for 2008 is expected to be $2.2 million;
  • Chrysler’s new CEO, Bob Nardelli, became a symbol of corporate excess when he left Home Depot early this year with a $210 million severance package. Nardelli earned $1.68 million from Chrysler in 2007, a year in which the company reported a loss of $38.7 billion;
  • Ford’s new CEO, Alan Mulally, got $27.8 million in salary and bonus in his first few months on the job, including an $18.5 million signing bonus. He has earned nearly $50 million since taking charge of Ford;
  • In contrast, Toyota’s top executive, Hiroshi Okuda, earned $903,000 in 2006.

If the Big 3 can get government funding and pull off a massive turn-around for the U.S. auto industry, they will be perceived as the cleverest men in all the land. The real tragedy, of course, would be allowing these three executives to remain in any position of authority after collectively bringing the entire American auto industry to the brink of collapse.

General Motors Corp. President and Chief Operating Officer Fritz Henderson said Wednesday that bankruptcy isn’t a viable option because it would further erode consumer confidence in the automaker: “…we do not want to give consumers a reason not to buy our cars and trucks.” Henderson later added that he hoped his remarks would be taken out of context, because the context in which GM now finds itself has already completely eroded consumer confidence.

This $3 combined salary for the Big 3 executives might be the most important $3 the federal government has ever contemplated spending.

Auto Industry Appeal

December 3, 2008

Dear Secretary Paulson,

I am writing to you in my capacity as CEO of Joe’s Auto here in Baltimore. Our company may not be as big as Ford or GM, but times are tough for us too, and as part of the American auto industry, we could use your help.

Our operations are relatively small: we rebuild cars every weekend in my garage. There are expenses, though, and the resale figures haven’t been what we had hoped for. Much like our bigger cousins in Detroit, we feel that without an immediate injection of cash, our operations could falter by the end of the year.

We appeal to you to make use of the TARP program,  or other federal programs to provide Joe’s Auto with guaranteed federal loans or access to revolving lines of credit immediately. We will follow the lead of GM and sell our corporate pickup truck, lay off our employee and make other cuts in exchange for these federal monies. We believe that with the cash injection and our new business plan, operations should begin to break even by 2012.

I would be happy to ride my bike to Washington to meet with you, at your convenience, but we should probably get this going as soon as possible. If we could get the same amount as GM, that would be great.

Yours truly,

Adams

Joe Adams

In re: General Motors Corp.

Washington – (BP) This week, top executives from the “Big 3” U.S. automakers are appearing before Congress once again, trying to make a case for a quick injection of billions of dollars in federal aid. Guys, how much is enough?

General Motors Corp. (GM) says that without an immediate bailout from  Washington of at least $4 billion, it may not survive to the end of the year, and may drag the entire industry down with it if it fails.

When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11 of the Bankruptcy Code. The court can grant complete or partial relief from most of the company’s debts and its contracts.

In enacting Chapter 11 of the Bankruptcy Code, Congress concluded that it is sometimes the case that the value of a business is greater if sold or reorganized as a going concern than the value of the sum of its parts if the business’s assets were to be sold off individually. One of the central pillars of Chapter 11 is the debtor’s plan for reorganization 11 U.S.C. §1123.

For its part, GM is pitching a plan to Congress that would involve over the next three years cutting some 20,000 jobs, reducing the number of dealer locations by 1,750, closing 9 plants and extracting major concessions from the United Auto Workers union. Further, GM proposes that its CEO Rick Wagoner would receive a salary of $1 in 2009 and that the four most senior executives would have their compensation cut in half.

Making no commitments herself, House Speaker Nancy Pelosi said Tuesday, “We want to see a commitment to the future. We want to see a restructuring of their approach, that they have a new business model, a new business plan.” She said, “it is my hope that we would” pass legislation to help the industry, echoing the thoughts of some (including GM’s CEO Rick Wagoner) who feel that having GM in bankruptcy would be a catastrophe.

It is true that a Chapter 11 proceeding involving GM would require it to formulate a restructuring of their approach, have a new business model and a new business plan. That plan would likely include massive job cuts, a significant reduction in dealer locations, the closing of about 17% of the company’s plants and major concessions from the United Auto Workers union.

The only downside to the Chapter 11 approach for GM and the other major automakers is that it would prevent each and every taxpayer in the United States from obtaining a stake in these companies (which could prove useful if they ever turn a profit again) for the trifling sum of $40 billion (this sum includes monies previously pledged to the automakers). 

New & Improved GMWe are all looking forward to the prospect of being vicarious virtual shareholders in three of the most poorly managed corporate entities in America of the last 50 years.

If the bailout is approved by Congress, all new vicarious virtual shareholders will be able to participate in an online management forum, similar to an online casino, where estimates can be placed as to how long it will take for the Big 3 to deliver the first funding call notice demanding a further shareholder loan advancement.

Spam Resplendent

St. Louis – (BP) Most of the economic news during a recession is bad news, but things are looking up for Hormel Foods, LLC (Hormel) of Austin, Minnesota.

Hormel produces Spam®, a tinned meat product introduced to the world in 1937. Spam® is made from ham, pork, sugar, salt, water, a little potato starch and a mere hint of sodium nitrite. According to www.Spam.com, “bajillions” of people around the world eat Spam®, with some 90 million tins sold in the U.S. each year alone. 

When economic times are tough, demand for Spam® increases. That is certainly true now, as Hormel has to add more shifts at its plants in order to keep up with demand. When the entrée for the family meal retails for $2.40 for a 12-ounce tin, you can certainly stretch your grocery dollars further.

Hormel declined to comment on whether any original 1937 Spam® could still be found on grocery store shelves anywhere in America.

India-Pakistan Peace Process at Risk

London – (BP) Government officials in India insist the terrorists responsible for last week’s attacks in Mumbai had links to Pakistan, and have demanded the Pakistani government hand over some 20 fugitives believed to be hiding in Pakistan. Islamabad has not responded to the request but has offered India a joint investigation into the attacks.Taj Hotel

India’s home minister and the chief and deputy chief ministers of Maharashtra state have resigned amid criticism of the government’s handling of the crisis. At least 188 people are now known to have died in the attacks.

Intelligence officials outside India have said there are “strong indications” that the Pakistan-based Lashkar-e-Toiba group was behind the attacks. Lashkar-e-Toiba is a Jihadi organization based in Indian-administered Kashmir. It has been blamed for hundreds of attacks in the region since 1990 and is listed as a “terrorist group” by the United States and the United Kingdom. One of the gunmen involved in the Mumbai attacks survived and police have said he is “certainly” from Pakistan.

Observers of the political and military disputes in the Kashmir region of South Asia will perhaps have cause for concern when Indian Foreign Minister Pranab Mukherjee said a military response was not being considered, but that if Pakistan did not act the bilateral peace process would be at risk, according to the Press Trust of India news agency. Tensions between India and Pakistan continue to mount. It has been reported that even Taliban fighters engaged with Pakistani soldiers along its border with Afghanistan have suggested a cease-fire to allow troops to be moved to Pakistan’s border with India.

The investigation into the Mumbai attacks continues, with FBI and Scotland Yard personnel assisting Indian authorities. It remains to be seen what group is ultimately responsible for the attacks, but a massive diplomatic effort will be required from the U.S. and the U.K. to ease tensions between India and Pakistan, two countries with a long history of conflict over the Kashmir region and both with nuclear weapons capabilities.