Save Money: Debt is Dumb

THE neighbor has a white picket fence! And they bought a new 2014 model car that has all the bells and whistles. And their lawn is perfectly manicured. Look at the kids playing about on the front yard (or these days, inside playing XBOX/PS3). Soccer and baseball after school, the mom piles the kids into their new SUV and off they go. You can see a brand-new 60 inch TV in their living room, it lights up the whole neighborhood. All seems to be well and good, isn’t it?

After all, you know Mr. Jones – he’s a contract specialist at the same company you work for. You know he makes about $60,000 a year at the age of 29, which is pretty good in this economy. And that Mrs. Jones works part time to the tune of another $20,000, so they have a combined household income of $80,000. The kids are aged four and one. Which is by any objective standard in the Midwest, not bad – by most standards, they are living the dream.

Don’t buy it for an instant – it’s all a facade. You only have to kick in the door and the whole rotten structure will come crashing down. The Joneses aren’t all that they make it out to be. A lot of that “stuff” is financed – meaning that the putative owner of that property went into a significant amount of debt in order to have that brand-new car right now. And something like 70% of all homes currently have a mortgage on them outstanding, so let’s say Joneses have one on their house as well. And here’s how their monthly budget breaks down.

Their combined gross income is $80,000 – or about $55,000 after Federal, SSI, Medicare, State, county, city (and in some areas) school taxes. Then there’s your 401(k) contribution, which let’s say is $6,000 a year – that leaves us $49,000 a year. Because I hate math, let’s call it $4,000 a month. (It’s actually $4,083.)

That brand-new SUV I talked about in the introduction is financed. If you get a midrange Chevy Tahoe LT – not the top trim level, mind you – the MSRP is over $48,000. That’s not counting the nice wheels, the tinted windows, or the cargo net that every car dealer tries to sell you on. And since few people have $48,000 in the bank to drop on a new vehicle, that new Tahoe is being financed.

According to a quick Bankrate.com calculator, at 4.9% interest over a 72 month loan period, that’s a monthly payment of $771 (or $55,512 on a $48,000 car). And that’s not counting the abysmal resale value that most Chevrolets suffer from, so that car is going to be worth a tiny fraction of its original $48,000 by the time 2018 rolls around due to depreciation.

That house is financed, too. Let’s say it’s worth $200,000, and the Joneses financed 80% of it – and took a $160,000 mortgage at 5% over the next 30 years. Their monthly payment on the house is $859 – without counting mandatory homeowner’s insurance and property taxes (which typically add up to another $400 or so a month), which the bank usually requires you to pay into an escrow account. (And the Joneses will pay $309,240 on a house that they supposedly bought for $200,000).

Go back to the Jones’ personal finances – I said earlier that their take-home pay is $4,000 a month.

Chevy Tahoe payment: $771
House Payment: $859
Home Taxes and Insurance: $400

These three payments alone leave the Joneses with $1,970 a month. Let’s be reasonable and say the Joneses have a second older car that’s been paid off. Out of this $1,970 needs to come gas and insurance for two cars (likely $400 a month or more, since both spouses work and someone has to drive the kids around), groceries (another $400 a month), all utilities such as electricity, heating gas, garbage, water, and internet (another $400 a month). That leaves our Joneses just $770 a month in disposable income.

From that need to come diapers, incidentals, entertainment, dinners at restaurants, fees for the extracurricular activities at school, credit card payments, clothes for when the kids start growing, holidays, and the lawn mower just broke, oh, that’s another $300 for a new push mower.

And it doesn’t include funds for when the water heater breaks, the driveway needs to be paved, a window gets broken, and the appliances explode. It doesn’t include the college fund for the kids. Or if you have six figures of student loan debt, that hasn’t been added yet either. If you get a speeding ticket, that’s not factored in. Or any other hidden taxes or fees, since there’s a good possibility that taxes will go up significantly in the next few years – not just Federal taxes but also local levies and taxes.

All of the last three paragraphs need to come from the $770 a month remainder the Joneses have.

Their finances don’t look so hot anymore. If they’re lucky, they’re breaking even. If not, they’re slowly sinking as they put the balance on credit cards until that debt piles up as well.

You only have to kick in the door and the whole rotten structure comes crashing down.

A financial emergency – the car gets totaled in an accident and the insurer refuses to pay the balance of the loan, the kid gets horridly sick and you have a large deductible or co-pay, a hurricane takes out the roof, or Mr. Jones loses his job due to outsourcing – and the Joneses are in a world of hurt.

Who is the winner in this case? It’s the bank. The bank makes a loan of $160,000 and gets paid back $309,240. The bank makes a loan of $48,000 and gets paid back $55,500. And I haven’t even started talking about student loans, which if federally guaranteed carry up to 7.9% interest, with private lenders going even higher. Credit cards are even more egregious, as many of them carry interest rates as high as 30%.

And if the Joneses ever default on their loans, the bank keeps the money they’ve received so far – and go on to foreclose the home, kick the Joneses out, and sell the house and recoup their money. And in the event they don’t raise enough money from the foreclosure sale, they sue the Joneses and get a deficiency judgment – attaching what remains of the Jones’ wages, cleaning out their checking accounts, and in some states, get warrants to seize and sell personal property such as jewelry and furniture to satisfy that judgment.

There’s a reason why the your house is 3,000 square feet (or less), and the bank’s building is ‘that big.’ Go to any downtown and the skyline is dominated with bank logos on all the high-rises. Consider the photo I used for this article – it is downtown Charlotte, North Carolina. I’ll give you three guesses as to which building is Bank of America’s headquarters, but you’ll only need one.

 

Realistically Dumping Debt

This brings us to the invariable question – what can we realistically do to keep our debt down (preferably to zero)? After all, the first thing someone will say is “There’s no way you can save $200,000 and pay for the house in cash.”

Yes, you can pay for things with cash. Take for example the Chevy Tahoe financing. You can go out right now and buy a nice used car for $5,000 cash – a 2004 or so Honda Accord, Toyota Camry or something similar – and it will run reliably for another five or six years, easily. And the gasoline and insurance will be far less than they will on a brand-new Tahoe – in fact, those cars are low enough in value that you may consider just maintaining liability on the car.

That said, I’m not telling you to go out and buy a rust bucket that belches blue smoke every time you get going and is held together by duct tape and a prayer – there’s lots of nice, used cars that can be easily had in the $5-6,000 range that will run for at least another five years.

Meanwhile, set aside that $771 every month and put it into savings. That’s $9,252 a year. If you put that money into a save investment such as six year CD’s at the bank, you can get 2.5% or so – and in six years (when the Honda Accord finally does break down), you’ll have $59,419 in the bank. If you’re more aggressive and put the money into a mutual fund averaging an 8% return every year, you’ll have $71,424 at the end of six years.

You can go out and buy that new Tahoe with cash, and still have plenty of money left over. I bet you can haggle the dealer way down from his $48,000 asking price if you show him a big stack of Benjamins and count them out dramatically in front of his face. His eyes will pop out as he says he needs to speak to his manager.

And YOU will have the extra money to spend, in your own pocket – not lining the gold-plated halls of the bank. In fact, that $25,000 or so that you’ve made on not buying the Tahoe up front can go towards a large down payment on the house! The more you’re able to pay down on the mortgage, the more the amount of interest paid drops – dramatically. And that, friends, will save you untold thousands of dollars over a lifetime – the bank won’t be getting as much of your hard-earned money.

 

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Make Money: Selling, Scrapping, and Flipping

“WELL, what do you think the hobo’s are doing?”

“I don’t know. They’re deranged?” – Newman in Seinfeld

There is an apocryphal tale that’s winding around the smorgasbord of stories I’ve heard and collected over the years. It has to do with a certain friend in law school (who will remain anonymous for legal reasons). He attended the University of Toledo, in northern Ohio. For any of you who don’t know, the city is only a few miles from the Michigan state line. His fraternity decided to save all the beer cans from their parties and keep them in a dumpster out back. When the year was up, they took the dumpster to Michigan – where you get 10 cents per aluminum can returned – and got over a thousand dollars back, which more than offset the cost of the dumpster and there was enough left over for one final kegger.

Now, it’s highly illegal to bring out-of-state cans into a “bottle deposit state” in order to collect on the refunds.

In theory, charging customers more for cans or bottles as a “deposit” encourages the customer to return the cans to be recycled – otherwise the customer doesn’t get their money back. It works: the recycling rate is something like 85% in those states, which usually charge 5 cents per can or bottle. But Michigan alone charges (and refunds) 10 cents per can. Hence the entire premise of the Seinfeld episode where Kramer and Newman “borrow” a mail truck to take a load of cans from New York to Michigan with “a thousand dollars worth of cans.”

So, if you live in one of those bottle deposit states, the answer is obvious: return those cans!

Scrapping

If you don’t live in a bottle deposit state (like Ohio), you can still make money on saving and crunching those cans. If you’re like me, and you drink a lot of pop and beer, then those cans can add up quickly. Almost any recycling center accepts aluminum cans and will pay cash for them, typically between 55 and 65 cents per pound. All you have to do is buy a can cruncher from Harbor Freight for five dollars and set up a separate trashcan for the cans – and you’re in business. I’ve been consistently able to bring in $15 or so every few months, or about $60 a year.

If you live in Cincinnati, I personally recommend Can-Dew Recycling in Covington. If you live in Dayton, I recommend First Street Recycling. Both websites quickly indicate that these organizations also accept a wide variety of other metals, including but not limited to wheels and rotors, copper, wheel weights, batteries, catalytic converters, and so much more. If a yard tool such as a weed whacker breaks down or a bicycle comes apart, don’t pitch the old one in the dumpster! Sell it to one of these companies, they’ll gladly pay cash.

The same goes for brass, and this is especially true if you like to go shooting, especially at public range. Sweep up all your brass and take it home with you. Even if you don’t handload your own ammunition, brass casings will fetch something in the neighborhood of $1.25 a pound.

Selling

There is another highly effective way to raise some quick cash (and probably make roommates/spouses happy), and that is to get rid of some of the clutter around your house by selling it. Old books and CD’s can go to Half Price Books. Clothing that doesn’t fit anymore or just doesn’t appeal to your fashion sense can go to Plato’s Closet. Stereos, iPod’s, computers, and other electronics can be sold at any pawn shop. Books, especially expensive ones like college textbooks, can be sold on Amazon or Craigslist for many times what you would get by returning it to the school’s bookstore.

(A bit of advice: tell the pawn shop you want to pawn, not sell it, even if you do intend to sell – they’re less likely to low ball you.)

On a personal basis, I sold some outdated political books, a few things I didn’t like, and just some plain inappropriate relics in exchange for $12 at Half Price Books. I turned around and used that money to pay for a $9.99 cut at Great Clips and I even had $2 left over for the tip. So I basically got a haircut for free, and I did myself a favor by clearing up a shelf on the bookcase. I’ve also done similar things at yard sales and picked up books that were given away, and boxes of books fetched in the $15-20 range – which went straight in my pocket (or I bought something I was actually interested in reading).

Flipping takes many forms and styles, but it generally all revolves around one premise: buy something low and turn around and sell it high. I’ve had friends who made money as kids in elementary school flipping Beanie Babies dolls because they’d buy them for $5 and turn around and sell them for $15 or more. Others buy cars from sellers who either need to sell in a hurry or simply don’t care; then sit on the cars until the right buyer comes along. On a grander scale, speculators buy and flip houses all the time (well, they did until the financial crisis).

But it doesn’t have to be all grand scale. Almost everybody knows someone who has a small arsenal of ammunition in their basements. If they bought in 2008 before President Obama was elected, they made a wise investment – as it has likely appreciated significantly, as the wholesale price of ammunition continues to rise. Anybody who bought gold or silver before Ben Bernanke was appointed Fed chairman is sitting pretty on their investments, too. A quick scan of eBay shows prices for Hostess Twinkies spiking as soon as news of the company’s impending bankruptcy went public.

So, somebody went to Wal-Mart and bought all the Twinkies for $2 per box and then flipped them on eBay for $30 – and then laughed all the way to the bank.

Now, none of these ideas or methods will by themselves constitute a big change in your lifestyle or your overall financial health. If you have a spending problem, it doesn’t matter how much stuff you pawn off if you’re spending ten times that on new stuff. If you don’t have steady employment, no number of crunched cans will keep the bills paid and the lights on. There’s a reason why you see homeless people pushing around shopping carts filled with cans – they can make a few bucks, but nothing near enough to pay rent on an apartment.

All of these are merely “supplements” to your income – a free haircut here, $10 in your pocket there – but a help nevertheless. It’s not unreasonable to say you couldn’t raise several hundred dollars per year this way. And in this economy, is anyone going to say “no” to free money?

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Save Money: Inflate Your Car’s Tires

YOU hear it endlessly on every news cast, every automotive repair shop’s walls, every website, and every place that talks about how to save money: Make sure that your car’s tires are properly inflated. Under-inflated tires rob your vehicle’s fuel economy, increases emissions, and poses a significant safety risk, as under-inflated tires are liable to blow out.
Many of these same automotive groups will tell you to inflate your tires according to the vehicle’s instruction manual. Or they’ll say to inflate them to the instructions on the little placard inside your driver’s side door. Those typically say to inflate your tires to between 30-35 psi.

However, I believe this is insufficient. Modern steel-belted tires are not your grandfather’s synthetic-rubber radial single-ply tires. Modern tires are capable of taking far more pressure, passing much more stringent quality control standards, and consequently, can be inflated beyond the door placard. If you need any proof of this, consider the cover photo of this post. This image is courtesy of Bobby Ore Motorsports out of Florida. He is driving a Ford Ranger on two wheels. The tires are inflated to 100 psi, and are actually tires and wheels from a Ford Crown Victoria! It’s a dramatic expression of how much stress a modern tire can handle, and more importantly, how higher pressure keeps a tire in shape.

Now, I’m not saying you fill your tires to the point of exploding in the name of a few MPG. I recommend that you inflate your car’s tires to the maximum rated sidewall pressure, which is stamped on the side of the tire. For most passenger car tires, this is usually 44 psi. Regardless of what your vehicle is, use the maximum pressure stamped on the tire’s sidewall. This is completely within the tire’s design specifications and will have no adverse consequences except perhaps a bumpier ride.

Before I launch into the benefits of higher tire pressure, let me kill one myth: the center of the tread will not “balloon out” causing uneven wear above 30-35 psi. As I mentioned before, modern tires are built to much better specifications and quality control than the tires of yesteryear. There is a steel belt that prevents tires from being forced out of shape.

Increasing tire pressure helps to reduce the amount of unnecessary contact a tire has with the road, reducing rolling resistance. The constant flexing and bending of the tire, especially at highway speeds, heats them up considerably during the course of your daily drive – and this is wasting energy. Increasing the tire pressure reduces this. This helps your car coast further and also reduces the amount of power needed to maintain speed, especially on the highway. All of that translates to savings at the pump.

In addition to improved fuel economy, higher tire pressure also results in dramatically improved handling. When taking a hard corner, lateral gravity will literally force an under-inflated tire to deflect from the tread onto the sidewall – and you’re effectively driving on the side of your tire while taking a corner. The sidewall has almost no gripping power. Consequently, with a tire at less than maximum sidewall pressure, you risk losing control of the car completely (usually due to catastrophic understeer). As an additional benefit, reducing the amount of unnecessary tire contact with the road decreases your chance of hydroplaning in wet weather.

If you don’t believe me, then test it yourself – especially if you like to take turns and corners fast. Check the tread of your tires with a penny. I guarantee the outside of the tire’s tread has worn more quickly than the center of the tire.

I personally run 51 psi in my tires – which is the exact number on the sidewall of the tire. I average 55 MPG in a Prius, a vehicle that’s only supposed to get 46 MPG. And the tires have worn evenly over the past 30,000 miles. How about you?

(Image courtesy of Bobby Ore Motorsports, Sebring, FL.)

Posted in All Blog Posts, Automotive, Frugal Living | 2 Comments

Giving Thanks in 2012

I consider myself to have been saved on September 22, 2010. However, I only pursued the Lord in a lackadaisical fashion for some time after that. The turning point was about this time last year. I distinctly remember sitting in the restroom at about 4:45 PM on a Saturday, on the phone with a friend, asking if “that Mount Zion church still had their Saturday night service going on?”

Well, the rest, as we know it, is history. It would be impossible to sum up an entire year’s worth of experience, spiritual growth, development, new friends, and knowledge I’ve gained in so many respects. By any objective standard, a third party observer could take a look at me and say I was a fairly successful person – I’m halfway through law school, I owe almost nothing in student loans, I’ve kept my health, et cetera.

But they could have said that a year ago, too. And the truth is, a year ago, I was so lost in my spiritual and personal walk that it wasn’t even funny. I attended the law school’s Halloween party in 2011. I can’t peg a precise date when I started attending Mount Zion, but I know it was less than two weeks after that party. And it wasn’t exactly the right place to be. (picture not safe for families)

I could go on about how the summer of 2012 was probably the best summer I’ve had. And the title picture I used encapsulated the entire summer in a profound way. We were at The Greene and on a whim I decided to give this guy a dollar (the only dollar all five of us had), at which time he starts playing Amazing Grace. Some guy jumps out of a passing car, runs up to us, shouts “Praise the Lord!” while showing us an enormous tattoo of Jesus and John 3:16 on his arms.

So then Ashley (the young lady in the picture) joins him in hooping and hollering about Jesus. Meanwhile, I was completely stoked, it made my whole day. For that matter, it made my week. All my life, I’ve come to expect the polar opposite – if you mention God in public, you’ll get shouted down and told to be quiet. Not here, and not this day!

Rather than attempt to describe my entire experience since then, I’m just going to make a shout out to everyone who played a role in my spiritual growth, breakthroughs, and general peace that I’ve achieved lately. This is in no particular order, except for who came to mind.

First off, I remain forever thankful for Jesus. For dying for me and loving me forever and never giving up, even when I’m an intractable sinner. I’m thankful that Your grace overflows and is enough for all of us. I know that I repeatedly fail at living up to Your standards, and I repent those sins.

I’m thankful for my parents, both of which have provided financial, moral, and (in the case of my father) spiritual support and growth over the past year. I hope you understand how much you’ve managed to do for me, Dad.

I’m thankful to have been blessed with a growing circle of friends that are also pressing into Jesus with all their hearts. I’ve leaned on a lot of you over the past year, especially when looking for spiritual support. That immediate list includes, in no particular order, Brent and Cliff Engels, Matt and Clint Holderman, their mom Aurora, Eric McComas, Jake Crawford, Nathan Stroble and his father Larry, Tiffany Presley, Caitlin and Stephen O’Guin, and their father Jeff for his timely and often hard-hitting sermons that led to great breakthrough.

Hats off to Tommie Culpepper for his advice that probably meant the difference between making it through law school or not. And for Grace, who is probably the only teenage girl I know of who doesn’t tune out when the subject turns to politics or economics.

A salute to Rosemary Bradford, Wanda Peden, and Glenn Laack for ramrodding the logistics behind healing prayer training this past summer. To the other healing prayer team members who I’ve received enormous breakthroughs with – Sarah Blosser, Ashley O’Neal, Geoff Griffith, Abby Granato, Barb Beckley, and I’m sure I’m missing a few more here.

To the Monday night men’s group that I haven’t already mentioned – Dave Stanford, Matt Porter, Joe Martin, Rick Vice, Mike Bates, Phil Granato.

To Jack and Jenni McComas, for the numerous breakthroughs that have occurred at SHOP, when the Lord opens up the floodgates of heaven and truly lets it rains.

To the friends in Northern Kentucky who have contributed to my growth, too – Katie Smolkovich and Sarah Burress. You guys are some of the only friends I still have in the area.

To everyone else who played a role, I hope I’m not forgetting anyone. Caleb, Carson, Dani, Sunny, Keith, Shannon, Mandie, Paige… and yeah, I’m sure I’ve forgotten a LOT of people. But I’m still thankful for everyone nevertheless.

Here is to sincerely hoping that 2013 is an even greater year. Praise the Lord! Nothing that has happened has been an accident. It has all been in accordance with His plan.

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The Economic Case Against Barack Obama, Part Three

Osama Bin Laden is dead, and General Motors is alive. That sales pitch is likely what propelled President Obama to victory in Midwest states such as Ohio and Michigan. But how much credit does President Obama deserve for “keeping General Motors alive” as he claims?

There is an apocryphal tale that you will often hear if you’re around my father or his immediate friends. Once upon a time, the friend owned a Chevy Vega. He never had to change the oil, because the car burned a quart of oil every 100 miles. He had to keep a case of oil in the trunk at all times, regardless of where he went. He could sit in the car and literally hear the car rusting away around him. And when he finally got it up to 60,000 miles and was coming up to a red light, the brake pedal literally broke off and he rear-ended the car in front of him.

Luckily for him, the car in front wasn’t a Ford Pinto. Or they would have both exploded and my ears would have never been graced with the Vega horror story a hundred times over.

I will focus in this article primarily upon the automotive bailouts as opposed to those of the financial sector, partially because I mentioned the banks in Part Two but also because over 90% of the bank bailout money has been paid back. We of course can’t say quite the same about General Motors and Chrysler, companies that have been on the ropes multiple times in the past forty years.

A Brief History of the Big Four

For years, pundits and politicians have talked about the “Big Three” when it comes to the American automotive industry. Although for years there were second-tier manufacturers such as AMC and Packard, they all invariably went under or were bought up by the Big Three by the 1980’s. The Big Three, in modern parlance, consists of General Motors, Ford, and Chrysler. But I would like to add a fourth to that list – the United Auto Workers.

The fortunes of the UAW have waxed and waned in similar fashion to the other Big Three over the decades. Almost all of Detroit’s workers are represented by the UAW. In 1970, UAW membership peaked at 1.5 million and Detroit effortlessly dominated the American auto market. Except for the occasional oddity imports such as Volkswagen hippy vans, most mainstream European cars such as Fiat, Peugeot, and Renault were crowded out of the American market. Detroit literally had the bull by the horns, and they were making money hand over fist.

Today, UAW membership has dropped to 390,000. Detroit, once controlling over 90% of the market share, have dropped to 45%. Toyota is on track to be the sales leader in 2012, despite owning only two additional marquees, Scion and Lexus. I can go on and on about the rebadging and different marquees General Motors has had over the years – Oldsmobile, Cadillac, Buick, GMC, Chevy, Hummer, Saab, Saturn, Pontiac, and others that aren’t off the top of my head. If you go international, the list gets even longer – Opel, Holden, Vauxhall, Asuna… and on and on.

What has brought us to this juncture? If I were to point a finger, it would invariably have to be at the UAW. That’s not to say that GM’s management didn’t have its own share of incompetent and shortsighted decisions that ultimately brought a once-great company to the brink. But it was decades of ceaseless GM-UAW adversarial action that caused Rick Wagoner to fly on his corporate jet, hat in hand, asking Congress for taxpayer dollars.

Go back to the 1950’s. The economy was booming. Millions of post-war veterans returned home, capitalized on their GI Bills to get an education, started families, and began making money. Suburbanization began to take hold with the advent of the Interstate Highways, and suddenly demand for cars skyrocketed as suburban residents had few other feasible ways to get around. Demand, pent-up by wartime rationing, exploded.

What, then, went wrong? The answer lies in the UAW’s ability to extract increasing concessions out of GM management. The middle of the 20th Century was the union’s heyday, and few management teams could stand up to concerted union action before long. This was especially true at companies such as GM, where sales were rising, profits were at record levels, and demand continued to rise. So, GM handed out generous pay and pension packages based on those optimistic predictions of demand for cars continuing to rise.

And for a few decades, it did. GM became relentless in its quest to push more iron out the door, with corresponding declines in build quality. Ask your father or grandfather about the GM car they drove in the 1970’s. Odds are the seats weren’t bolted down correctly, the carpet wasn’t nailed in properly, the vinyl top shredded away after a couple years, or the engine block cracked. Remember, folks, that GM is the company that invented the term “planned obsolescence.” Meaning that your car was deliberately under-engineered, it was guaranteed to break down before long, and you would have no choice but to buy another car.

And buy another car America did. GM production peaked at 15.3 million cars in 1978, even as build quality declined. Meanwhile, the Europeans were driving up and down their mountain roads, developing proper things such as suspension, handling, and brakes. And the Japanese, guided by principles such as kaizen, were perfecting a manufacturing process that, once it gained a foothold, began to slowly eat the Big Three alive (and continues to this day).

The writing has been on the wall since 1973, when the first oil shock hit. While GM built 11 mile-a-gallon Cadillac Fleetwoods and powered them with V8 engines, Honda entered the US market with its Civic, which got an unheard-of 30 miles per gallon. More importantly, its clean-burning CVCC engine didn’t need a $250 catalytic converter to meet the EPA’s emissions standards. This provided Honda with an enormous competitive advantage over domestic compact cars, an edge which Japanese cars retain to this day as they continue to perfect their manufacturing process.

Now, anybody knows that the thin steel of the early imports was so prone to rust that it isn’t even funny. Any old Honda or Toyota compact invariably has enormous amounts of rust near the wheel wells. Those four-bangers aren’t exactly known for being fast either, even if the driver attaches a coffee can to the exhaust in a pitiful attempt to compensate.

But they provided fuel economy and reliability. In the face of ever-increasing GM horror stories, whole generations of Americans began to buy import brands. And GM did little to help its reputation or react properly to the arrival of the imports. Many at management and the union, as hindsight reveals, had big blinders on. I could name you terrible car after terrible car that GM has produced since then – all of which were made after Japanese cars entered the market. Some of the concepts were brilliant in theory but rubbish in execution. Others were fraught with rushed engineering, poor quality control, or perhaps GM simply didn’t have their heart in the program.

The Chevy Citation in the early 1980’s was notorious for its faulty brakes. The Oldsmobile diesels would reach about 90 horsepower before shattering into pieces. Cadillac’s 8-6-4 engine was a disaster. The Ford Taurus was associated with an unusual nickname – the transmission from hell – because they went out every 30,000 miles or so. Early 2000’s Ford Explorers had the same transmission problems as the Taurus. The 2.7 liter V6 engine used in the ~2004 Dodge Intrepid is notorious for collecting oil sludge in the bottom before failing prematurely. More recently, the Chevy Cavalier and Ford Focus are well-known for their electronics woes, especially the dashboard and power windows. The Chevy Sonic (brand new for 2012) is beset by transmission and electronics recalls.

I distinctly remember, back in 2008, renting a brand-new Buick Lucerne with my father to take on a road trip to Myrtle Beach. It only had about 25 miles on the odometer, which leads me to think we were the first people to rent that car. We got about a mile down the road, and I promise you I merely pressed the radio control knob and my finger went straight through.

In the face of these problems, is it surprising that whole generations of car buyers swear off domestic altogether?

Leading Us To Bailouts

Car sales as a whole have declined across the board since the 1970’s. Today’s cars last longer and are far more reliable than the cars of forty years ago – thus holding car sales down even as the absolute number of drivers continues to increase. But nowhere is this decline more precipitous than at General Motors, which was once one of the world’s models for corporate governance.

GM production peaked at 15.3 million in 1978. According to the Wall Street Journal, the entire US market is on track to buy 14 million cars in 2012. And in this shrunken market, GM is only on track to sell 2.5 million cars in the U.S. this year. It doesn’t take a genius to say that GM’s business model – handing out generous pay and retirement benefits to its unionized employees – is doomed to failure.

None of the Japanese or European auto plants in the U.S. are unionized, and the majority of them are located in “right-to-work” states, predominately in the South. The cost of labor in these plants, after factoring in benefits, is roughly $35 an hour.

The cost of labor in a UAW-represented plant is $73 an hour.

Chew on that one for a second.

Now, to be fair, ask any UAW veteran – and they’ll probably tell you they make $20-25 an hour. But they’re forgetting about the health benefits, the guaranteed pension, and the other retiree benefits. That is what is killing GM. Their labor costs are higher, and consequently they can’t make any money on small cars, which have narrow profit margins. Small compact cars were never taken seriously by Detroit, which is why we wound up with so many truly terrible cars over the decades. Their hearts weren’t in them, they weren’t making any money on them, and consequently, they didn’t really want to build them.

GM has known this for decades. This is why they pushed sales of pickup trucks and sport utilities so hard in the early 2000’s – because they could get a nice fat profit margin off those vehicles, the higher trim levels of which approached the price of small houses. In 2001, GM and the UAW unwisely signed an agreement to provide wage and benefit increases totaling 24 percent over the next four years, as if they would sell pickup’s and SUV’s forever.

We know the rest of the story from here on out. Hurricane Katrina helped boost gas prices over $3 a gallon. Sales of large V8 pickups and SUV’s cratered, and GM’s profit margins went with them. They began quickly losing money, and by 2008 had exhausted all available supplies of cash and credit. Judgment Day had come.

Bailouts have worked before in the past. In 1980, as Chrysler was nearing bankruptcy, Congress reluctantly extended a $1.5 billion line of credit in order to buy Chrysler sufficient time in a bad market to roll out new designs. Led by Lee Iacocca, the turnaround was immediate. The lasting legacy of the 1980 bailout was the minivan and a whole line of new, front-wheel drive compact cars that led Detroit’s attempt to push back against Japanese imports. And the bailout money was paid back within two years. Bailouts can work, and you could make a national security argument in favor of keeping a significant automotive industry in the States – after all, that automotive manufacturing expertise is the same skill set needed to produce military vehicles.

I am assuming that a bailout similar to the line of credit the US government extend to Chrysler in 1980 was what former President Bush had in mind when he sought to extend money to GM. Unfortunately, that is not what happened. The taxpayer has just begun to pay for the 2009 bailouts, not only in our pocketbooks, but in our politics and our lost job opportunities.

The problem with the 2009 bailout therefore does not lie in the fundamentals of the bailout, but rather the politics behind it. And it is the underlying politics that causes me to point a finger at the UAW and President Obama when talking about the President’s failed economic policy.

A Shameless UAW Power Grab

The bailout quickly developed as follows: The old GM was allowed to sell off its assets in a controlled bankruptcy, while $50 billion taxpayer dollars were funneled into buying millions of shares of preferred stock in the new GM, which was technically a new legal entity. This gave the US Government a 61% majority ownership of General Motors and 74% of GMAC – the latter of which was GM’s car financing arm. The UAW received the second-largest share (17.5%), followed by the Canadian government and province of Ontario (11.7%). The residue went towards the unsecured bondholders who had just taken a massive haircut.

So, to sum up: The government wins, the union wins, the taxpayers lose, and the investors lose.

A share of GM purchased in 1916 for $1 soared to $1,000 in 2000. And it became completely worthless in 2009.

But it doesn’t end there. The UAW used this opportunity to solidify their position as the sole representative of the workers at all GM plants by quite simply freezing out all other rival unions. The UAW, capitalizing on its political leverage, managed to push through a “job guarantee” for all UAW members if laid off. That meant if a GM plant closed and people were laid off, the former UAW workers would be the first to get their jobs back. The largest of these rival unions, the IUE-CWA, represented some 45,000 employees at GM, Delphi, and other manufacturing companies, largely in central and southern Ohio.

None of these workers have their jobs back, despite GM reclaiming the #1 spot on top of the auto sales chart in the US in 2011. These include the Moraine Assembly (south of Dayton), the Warren Assembly (near Cleveland), and the Inland Plant (Vandalia, Ohio).

The only assembly plant in Ohio still operating, to the best of my knowledge, is in Lordstown, Ohio. It’s the plant that gave us the Chevy Vega. I’ll give you three guesses as to what union represents the workers there, but you’ll only need one.

In addition to jobs, the UAW managed to extract other guarantees for its members. The old Delphi pensions were put under the trust of the PTGT, Pension Trust Guaranty Corporation, an arm of the US government. Current GM workers continue to receive their generous benefits packages, including guaranteed pensions – while new hires make less than $15 an hour without those same benefits.

It gets sweeter from there. General Motors will say that they have posted a profit every year since the bankruptcy, and are in strong financial shape for the future. However, what they don’t tell you is that the IRS is allowing the new GM – which is a new legal entity – to write off the continuing losses from the old GM (now renamed Motors Liquidation Corporation). These extensive write-downs mean that GM has paid zero dollars in Federal taxes since 2009.

Well, if I didn’t pay any taxes, I’d probably be socking away the cash, too.

Enter “cash for clunkers” in 2009, which was ostensibly designed to get all those old gas guzzlers off the road in the name of improving fuel efficiency.

Only thing is, there were two huge problems with Cash for Clunkers.

First, the program required all “clunker” vehicles to be in running condition – and it was now the dealer’s responsibility to ensure that car was rendered inoperable. This meant that millions of older but still serviceable vehicles were taken out of the used-car market altogether. The effect on buyers in the used-car market has been nothing short of disastrous, with good used cars now selling significantly above Edmunds or even Kelley Blue Book figures.

Take just one example, my personal example. In 2007, before Cash for Clunkers, I purchased a base model 2000 Toyota Echo, 5 speed, with 80,000 miles on it, for $4,000.

In 2012, I sold that car after five years. It had been to college, to various jobs, up and down the East Coast I don’t know how many times, around old country roads, mountains, cities, everything. It had 180,000 miles by then. The car had been dinged and dented in various places due to parking on campus all those years. It had certainly seen happier days. And I managed to fetch $3,300 for it.

It’s pretty obvious I depreciated that car a heck of a lot more than $700 in five years. Kelley Blue Book stated that the car was worth about $2,500 – but the classifieds were running twice and even three times that. So, dings and all, the buyer and I agreed $3,300 was a fair price. And it was.

This was great for me, the seller – but terrible for the buyer. And those effects are magnified on millions of low-income families who can ill-afford to drop $3,000+ cash on a good, serviceable car – much less finance payments on a new vehicle.

Second, Cash for Clunkers backfired in an interesting way: not a single bailed-out company had a make or model crack the top 10 list of new cars sold under the program. The top three makes and models sold were: (1) Toyota Corolla; (2) Honda Civic; (3) Toyota Camry. Ford alone among the domestics cracked the top 10 with their Focus – and Ford didn’t take a bailout.

How Does this All Tie Back to President Obama?

The UAW made a power grab and by any objective measure pulled it off. They are in more control of GM’s destiny today then they ever have had in the company’s troubled history. They, through their political fundraising on behalf of Democrats, can match even the most aggressive corporate SuperPAC’s dollar for dollar. The enormous organization provides a lot of on-the-ground muscle for re-election campaigns, staffs rallies, and stages protests outside the opposing candidate’s campaign headquarters. Almost every GM worker today is subject to mandatory union dues being docked from his or her paycheck, regardless of the worker’s personal political beliefs.

The UAW, as an affiliate of the AFL-CIO, has thrown its full weight behind the support of President Obama, his reelection, and his continued political fortune. For his part, the President has returned the favor, by allowing General Motors to avoid paying a single dime on Federal taxes since Obama became President. To this day, the UAW still owns a 17% stake in General Motors – and is the second-largest shareholder after the United States Government.

Will the taxpayer ever get his money back? Unlikely. In order for the taxpayer to break even on his “investment”, the current shares held by the US government would have to appreciate to $55 per share. Although the IPO was for $34 a share, the stock quickly dropped to $23 a share, where it has languished for the past year. This equates to roughly an $11 billion loss for taxpayers – solely to benefit the UAW. There is little reason, barring significant inflation that debases the dollar completely, that GM stock will ever rise to its needed $55.

Don’t be surprised if General Motors goes bankrupt again in a decade or so – their new makes and models continue to lag behind their foreign competitors in build quality, reliability, and most importantly, perception by consumers. But you can guarantee that as long as the UAW enjoys the continued political and economic support of the Obama administration, the UAW will survive. And as long as the UAW survives, it will dump tens of millions of dollars into re-electing President Obama and others of his like.

In Part Four, I will lastly turn to the direct policies and legislation signed by and enacted during the Obama administration, namely the Patient Protection and Affordable Care Act, otherwise known as Obamacare.

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