GM Restructuring Its Way Out Of The US
Bill Warner Friday, May 08, 2009
What a kick in the head. As part of its restructuring plan, GM plans to dramatically move manufacturing offshore, taking advantage of cheaper foreign labor. In addition, an increasing number of its cars will be sold in foreign countries. The taxpayers, through the Obama bailouts, have paid billions to save GM. At the same time, Obama has pounded GM management for a new plan, as the unions compromised nothing. Well, they now are about to have the plan from hell that will eliminate more US jobs, putting thousands of auto workers on the street.
The unions are destroying GM
What the heck did Obama and the unions expect. GM has a failed business model, mainly due to expensive management negotiated union contracts and an unaffordable debt structure, that cannot be fixed under its current labor cost assumptions. Now Obama is between a rock and a hard place. He has to decide if he will put further restrictions on GM to keep the US jobs, which will spell the demise of GM, or suffer the wrath of the liberals who elected him by losing jobs to foreign countries. This is yet another lesson why government should stay out of private sector businesses.
The bailout was a bad investment
Our taxpayer dollars have been spent foolishly, as Obama tries to save a company that is tied in knots with union contracts and work rules. Any investor looking at this deal would walk in a second. The business model is just not workable and needs a total bottoms up restructuring. GM is predictably trying to do that by getting out from under the oppressive unions by moving manufacturing operations overseas.
Let the free market system work
None of this had to happen. We should let GM declare bankruptcy and undergo a court ordered restructuring. The free market system would have fixed this situation quite nicely, and we would have had a great chance of saving a lot of auto worker jobs in the process. GM would have been saved. Now we face losing it all.
Permalink
Achieving Independence From Foreign Oil
Bill Warner Wednesday, May 06, 2009
It seems like we have fallen back to sleep on the issue of independence from foreign oil producers. It now appears that we can drill on US soil, without going off shore.
We have plenty of oil
I just learned about a year old report by the US Geological Survey that points out that we have massive oil reserves in eastern Montana and western North and South Dakota. It’s called the Willston Basin, or more commonly the “Bakken.” With current drilling technology we have access to over 500 billion barrels. Because it is light, sweet crude, it would cost less than $20 per barrel; enough for the entire US for the next 40 years or more. So, US oil exploration is not dead after all.
What’s being done about it?
Did you know this? Do our elected officials know this? Does our administration know this? Sure they do, but they are not doing anything about it. When gas prices approached $5 per gallon, we all seemed very interested in “drilling now.” Now that gas prices are down to $2, our government leadership seems to have lost interest.
We need stimulus now
Well, know we are in a depression, with modest recovery being projected early next year, and unemployment continuing to rise. It seems to me that we need a “stimulus package” to go after our own oil. This would dramatically reposition the entire US economy through oil independence and trillions in taxable revenue. We should be aggressively extracting this oil as fast as we can. I can’t imagine a more important stimulus program. Far more important than bailing out the failed business model of the auto industry and irresponsible financial institutions, all of whom simply need a chapter 11 bankruptcy to clear their ills.
Continue to explore alternate energy sources
Sure, we should also be investing in promising alternate sources of energy, but none of them has the potential of giving us energy independence any time soon at a level that makes sense for our economy. These investments of our dollars should not replace those that could gain oil independence, and we should manage the transition to alternative source of energy as they become more efficient and effective.
Yell about this
Read up on this. Form your own views. Then contact your senators, legislators and the media to drive attention back on this issue. Oil independence is actually within our grasp. We need leaders that will take action. If the current crew doesn’t, we should replace them in 2010 with people who will.
Permalink
Stimulus Equals Zero Taxes
Bill Warner Sunday, February 22, 2009
I really don’t understand why it is so hard to understand why US business is not competitive and we are losing jobs to foreign countries. It’s because the profits on US business is taxed at the rate of 35%. It’s the second highest tax rate in the world just behind Japan. Think about it. US business has to compete with an anchor tied to its leg. Other countries can therefore produce goods resulting in lower prices because they don’t have to pay as much of their profit to their governments.
There are other anchors too, like unions that drive up wages and pension fund requirements. Government regulations also result in tremendous operating expense demands for compliance, like Sarbanes Oxley. Some of these regulations are necessary in order to assure that our goods are safe and not otherwise detrimental to the public, but many are an unnecessary burden on businesses. The reason we lose jobs to foreign countries is that we drive many industries out of the US with our tax and regulatory structures.
What if tax was zero?
What if the stimulus bill had done one simple thing; reduce the corporate tax rate to zero, and then brought it back in several years at a rate that is below the rate of the world’s leading economies? Businesses would not have to move offshore to be competitive, and instead hire Americans to do the work. We would see an almost immediate stimulus to the economy that represents lasting growth:
- US businesses would immediately become more profitable, making funds available for investing in new growth.
- Companies would invest in new products and services, reducing or eliminating the need for layoffs.
- Investing in the training of employees will increase because they are more likely to stay in companies that have a strong US presence.
- Worldwide prices for US products could be reduced to be more competitive with other countries, increasing sales for US companies.
- New businesses that supply US industries would be started; offering new jobs to build components and parts at competitive prices.
- Foreign companies will be more likely to open new companies in the US thus increasing the number of US jobs.
This would be great for all businesses and great for entrepreneurs who will not have to climb such a steep hill to create new businesses. Read more about taking the business tax rate to zero.
Just a dream
Unfortunately, we are not doing this, and doing things that will further stifle US business. Instead, we are going to borrow from foreign countries and print more money, increasing our debt and leading us to rampant inflation in a year or two. When the economy continues to drop and the jobs don’t appear as promised, remember that we elected these people that brought us the stimulus package. We will have another chance to get this right in 2010.
Permalink
Investing in Alternative Ethanol Fuels
Bill Warner Wednesday, December 03, 2008
What is happening to the ethanol business in the US? What did we get for the increase in grocery prices? Not much except for a higher cost of living and no corn. Ask anyone in the restaurant business what they think. Well, private equity investors aren’t too happy either. VeraSun is bankrupt, Aventine Renewables is trading at less than $2 per share and Hawkeye Holdings wasn’t even able to price its IPO. There continue to be reports that a gallon of ethanol takes more power to produce than it actually creates. Now with lower oil prices, the price of gasoline is hard to beat. Could it be that ethanol is not the right way to go?
Private Equity Bailing Out of Ethanol
Ugh, this is not what the “clean fuel” guys want to hear. Basic economics doesn’t seem to matter to them as they pursue their misguided view of the right alternative to reducing our dependence on foreign oil. This whole movement has been characterized by “firing now” and “aiming later.” Drilling for oil now and exploiting our natural gas potential is probably the best route to a practical approach to reducing our dependence while investing in sensible energy alternatives and maintaining some semblance of economic stability.
The private equity folks seem to see it that way too. For example, the Paladin Capital Group is leading the formation of a new ethanol production and infrastructure platform, called Vital Renewable Energy (VREC). They are assembling hundreds of millions with other participants being Leaf Clean Energy Company, Petercam Asset Management and PCG Clean Energy & Technology Fund.
Ethanol Investment Moves South
The interesting thing about this is that they are avoiding two major problems with this industry: the United States market and using corn as the basis for production. Instead, the company will focus exclusively on the Brazilian market, which is almost entirely based on sugarcane. Other private equity firms are poised to follow this same model.
The Brazilian ethanol market is booming, due to both the cost-effectiveness of sugarcane and a national adoption of ethanol as the power source of choice. No such commitment has ever been made in the US. Ninety percent of new cars sold in Brazil are flex-fuel, and new plants keep popping up to satisfy demand. VREC will focus on building new production plants, which will include co-generation facilities that can sell gas byproduct into the Brazilian power grid as well.
Lessons Learned from Corn-based Alternative Fuels
The U.S. ethanol experience, while characteristically distinct from Brazil, has scared off a bunch of would-be investors. Private equity investors ran to this corn-based alternative like thirsty cattle in the desert. It appears that not a lot of due diligence was done to assure themselves that they had the right business model and national infrastructure to make it work. Now with gas prices falling below $2.00 per gallon, the economics are even less attractive.
This is not to say that there is not a workable ethanol business model. It does say that corn is probably not the right foundation and that the US may not be the best place to start. Think of the opportunity for other South American countries as well as Southern African countries, where sugarcane can grow the best. Investments in production facilities could mean a brand new economy for these countries, and US investors can participate in making it happen. Meanwhile, let’s drill for some oil and natural gas, and dig for some more coal, in which we have abundant reserves.
Permalink
Business Plans for International Businesses
Joan Keston Wednesday, March 05, 2008
When creating a business plan for international business, there are some fundementals that have to be followed. Although many of the issues that will affect your business plan may be somewhat difficult to quantify in advance, they must be raised and analyzed and continually assessed as you proceed with the execution of your strategy. Their significance may be the ultimate cause of the success or failure of your international venture.
Permalink
Page 1 of 1 pages
