We received good news this week from our nation's struggling automobile industry, as Ford reported a profit of $2.3 billion. What's more, according its CEO, Alan Mulally, as reported in the Wall Street Journal, "Ford remains on track to break even or even make money in 2011 and has sufficient liquidity to fund its turnaround plan."

I think Chrysler and GM could learn something from Ford's example.  Ford made the tough choice to restructure internally instead of taking an infusion of taxpayer bailout money and a government-run bankruptcy. They closed plants, eliminated different brands of cars, and had to cut about 40,000 employees.  And, they borrowed $23.5 billion from private lenders, " mortgaging almost everything of value in the company."  They made the tough choices, took the risks, and now they are on track to reap the rewards, branding themselves to be on track to be a vibrant, job-creating company once again.

On the other hand, we have the Chrysler and GM example.  Who knows what's next on their dance card having danced the bailout/bankruptcy two-step with the federal government.  What's more:  Who knows how these rival companies will fare against one another taking such radically different paths.  Will Ford find itself at a disadvantage for doing the right thing and living up to the American spirit of risk-taking, ingenuity, and innovation?  As the Wall Street Journal reports today, "Ford's decision to decline U.S. aid or file for bankruptcy protection may have created consumer goodwill, but rival GM was able to eliminate about $40 billion in debt.  Chrysler Group LLC similarly exited bankruptcy with lower financial obligations."

Henry Ford is responsible for the birth of the American auto industry.  It's encouraging to see that the spirit of America still lives on in Ford.

Tomorrow, just as Congress has mandated, the national minimum wage will increase 70 cents to $7.25 an hour, which on the surface, appears a positive step for those workers in this wage bracket. However, economist David Neumark of the University of California, Irvine "calculates that the 70-cent-per-hour minimum wage hike this month would kill 'about 300,000 jobs for those between the ages of 16-24.'"

The matter of increasing the minimum wage is typically contentious because, on the surface, at least, it's tough to see how workers making more money can be bad for the overall health of our economy or for those workers. But if you dig a little deeper, if employers are forced to pay all their employees more, then these same employers can't afford to hire as many workers leading to increased unemployment.  Particularly in an economy like this, the pie doesn’t get any bigger, so if you’re forced to hand-out larger slices, you’ll be handing out fewer of them.

Neumark along with William Wascher of the Federal Reserve Bank have done extensive research on the effects of minimum wage hikes on unemployment, and they have come to two conclusions:

1 - "A sizeable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects.”

2 - "Studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects."

As the Wall Street Journal points out: 

“[T]hat single mom can't collect those checks if she doesn't have a job, and the tragedy of a higher minimum wage is that it will prevent thousands of working moms striving to pull their families out of poverty from being hired in the first place.”

If raising the minimum wage leads to increased unemployment, then aren't we hurting more Americans than we're helping, especially when unemployment already sits at a staggering 9.5% and is only on the rise? One of the shortfalls of legislation that comes from Washington is that it's often too short-sighted and focused on emotion rather than logic.

Looks like the Obama Administration is also going to great lengths to oppose H.R. 2743, the "Automobile Dealer Economic Rights Restoration Act of 2009."

I've talked extensively about how on July 6th GM dealers received a letter from the General Motors National Dealer Council urging them to sign a sort of petition to Congress immediately; no later than 5:00 p.m. the very next day, saying that they opposed passage of the bill.

I am a co-sponsor of H.R. 2743 along with 241 other Members of Congress.  If passed, it would essentially reinstate the economic and contract rights of dealers who were arbitrarily dropped by Chrysler and General Motors during their respective restructurings. In essence, H.R. 2473 makes these dealers whole instead of allowing their livelihoods to be taken from them with no legal recourse and no financial compensation.

According to TradingMarkets.com, the Obama Administration is urging opposition to this bill, too.  The White House has said that reversing the closings would set a "dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point."

With all due respect:  Tell that to the retired teachers and police officers in Indiana whose pension funds were decimated when the Obama car czar leapfrogged the unsecured debts of the United Auto Workers ahead of the secured debts of these legitimate bondholders.

The deal crafted by the Obama White House to quickly move along the restructing of Chrysler and GM trampled on the rights of pension fund creditors by giving a bigger share of the pie to more junior, non-secured parties - like the UAW.  Now, that’s a very ugly precedent for future investors.
 
Apparently, the Administration observes legal precedents only if doing so moves forward their priorities and agenda.

Over the past couple of weeks, I’ve spoken with the GM and Chrysler car dealerships from my district that have been targeted for total or partial closure by President Obama’s Auto Task Force. They were given no reason, and really no recourse to challenge their closure. It is as if the Car Czar threw a dart at a dartboard to decide which dealerships would be given a pink slip. In fact, we still do not know the formula used to determine which dealers would remain open and which ones would close; which ones would lose certain brands and which would get new brands.

Now, GM is officially pitting dealers against another.  And, remember:  the government owns 60% of GM.  It has committed $50.7 billion directly to GM, plus another $12.5 to their financing arm, GMAC.  When we talk about GM, it’s hard to consider it a private entity.

GM is encouraging their "viable" dealerships to put pressure on Congress to defeat legislation aimed at protecting the hundreds of dealerships across the country slated for closure. I am a cosponsor of this legislation, the Automobile Dealer Economic Rights Restoration Act of 2009, that would honor a car company’s previous commitments to local car dealers.  GM is lobbying for its defeat.

According to the Detroit News:

"GM gave its dealers talking points - and even a telephone script to use while talking to their members of Congress to oppose the measure. Dealers also have access to a toll-free number to help them reach a member of Congress -- dubbed the Dealer Voice Hot Line -- or dealers can e-mail legislators via a company Web site: www.gmdealervoice.com."

GM maintains that "In order to build a stronger, more viable GM, it is essential to have the best performing dealers, in the right locations, aligned with GM’s brand distribution strategy to be a part of GM’s reinvention."

Yet many of the best performing dealers are the ones GM is shutting down. The government is playing politics with private enterprise, and sadly, family businesses across the country are the ones taking the hit.

Yesterday, Justice Ruth Bader Ginsburg rightly put a hold on the Obama Auto Task Force’s plan for selling Chrysler to Italian automaker Fiat  in order to take a closer look at the claims made by teachers and police officers that their rights as secured creditors were violated in the way this plan was put together.

As I've discussed in earlier posts, the question in all this is whether the Obama Administration had the right to violate established bankruptcy law to give unsecured lenders like the United Auto Workers priority in place of secured lenders like the Indiana pension funds who brought the case forward. According to established law, secured lenders have first priority in bankruptcy cases to recover debts owed to them.

Indiana State Treasurer Richard Mourdock also argued that the Treasury Department should not have been allowed to use money in the Troubled Asset Relief Program (TARP) to help Chrysler and General Motors reorganize.

David Skeel, a professor of corporate law at the University of Pennsylvania, says that the pension funds have a legitimate case:

"I'm very encouraged that they did decide to at least take a closer look because the one thing that nobody has really done yet is that. Everything has been so rushed from the minute the sale was proposed. It sure looks like the sale promises [the union] a fair amount more than they would get in a normal bankruptcy."

We can't choose to follow the law sometimes, and then sidestep it when it gets in our way. The rule of law is an important principle that should not be ignored when it is inconvenient. This case is just another example of Washington’s arrogance.  They chose to side with their political allies in the UAW over the rights of hard-working Americans.

The Chrysler and GM filings for Chapter 11 bankruptcy are all the headlines, but the sub-headings aren’t getting much notice.  Both deals are happening under the unprecedented direction of the federal government and it’s the little guys that are taking the hit.

This Saturday, I attended an event in Lake Elmo, MN where hundreds of local residents came out in support of a very successful and profitable dealership, Fury Chrysler Dodge. Fury is one of the largest employers in Lake Elmo, as well as one of the most profitable Chrysler dealerships in the metro market.  Yet Chrysler, under the direction of the Obama Auto Task Force, is calling for its closure in an attempt to reduce its inventory nationwide by 25 percent.

This simply makes no sense.  Businesses and consumers should dictate decisions like this, not federal bureaucrats with no expertise in the auto industry.

And, that’s not the only leap into Wonderland that the Obama Auto Task Force has taken.  In restructuring the auto companies, they also turned basic American legal principles upside down. For instance, let’s examine how the Car Czar leapfrogged the unsecured debts of the United Auto Workers ahead of secured debts of legitimate bondholders. Last week, teachers and police officers in Indiana filed to have their claims heard in federal district court in an attempt to protect their pension funds, which had been decimated despite their status as senior secured lenders to Chrysler.

According to Global Pensions, "The Indiana pension funds are holders of Chrysler’s secured debt. The Teachers’ pension fund holds $32.4 million in Chrysler debt and the Police pension fund holds $1.3 million."

Opposing the bizarre and questionable actions of the Obama Task Force, Indiana Treasurer Richard Mourdock rightly said:

“As fiduciaries, we can’t allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining ‘secured creditors’ to mean something less.”

The deal crafted by the Obama White House tramples on the rights of pension fund creditors by giving a bigger share of the pie to more junior, non-secured parties - like the United Auto Workers.
 
What an ugly precedent we've set.

An opinion piece from the Wall Street Journal today does an excellent job summing up the federal government's power grab while detailing what lies ahead for the industry and its owners - you and me, now that we own 60% of GM. Give it a read: The Obama Motor Co.

"Mr. Obama likes to say he's a pragmatist who only prefers a government solution when it will work. But in resurrecting an industrial auto policy that even the French long ago abandoned, the President has made himself GM's de facto CEO. Our guess is that he'll come to regret it as much as taxpayers will."

I couldn't agree more.

Small businesses are the backbone of our nation's economy, yet the Obama Administration Auto Task Force is planning to eliminate more than 3,000 Chrysler and GM auto dealerships. Sadly, these closings are expected to put more than 150,000 people out of work, devastating many small towns.

These aren’t necessarily unprofitable dealerships.  In fact, many of them have been doing quite well even in the economic downturn, yet the Administration finds it necessary to close them down. This is unprecedented and simply astonishing, as neither the Administration nor any government official should have any authority over the management of private companies.

My staff and I have been in close contact with the National Automobile Dealers Association (NADA), which represents auto dealers’ interests in Washington.  NADA has hired a firm to represent the legal interests of those auto dealers that have been chosen by the Task Force to close.  Any such auto dealer should call 703-821-7000 for more information.  I shared that information with several Chambers of Commerce throughout the Sixth District of Minnesota so that businesses that are hurting or worried can look for concrete help.  And I urge you to get it to anyone you know that might need such assistance.


The Administration’s Car Czar has put theory above real hard-working Americans, while simultaneously standing rock-solid American legal principles on their head.  If he can throw a dart at a map and determine which car dealers don’t deserve to be open, what business is next?  Will the drive for socialized medicine mean that a “health czar” in Washington will determine which hospitals can remain open or which doctors can keep their practices?   The precedents we are setting are scary and we must consider them carefully now before the consequences gain too much momentum to stop.

The Obama Administration is certainly having its say when it comes to the U.S. auto industry.  

For instance, what kind of cars should we drive?  The Administration is announcing plans to increase the fuel efficiency of cars by 2016 to 35.5 mpg. The current CAFE standard is 27.5 mpg for cars and 24 mpg for light trucks. Current law already requires a 35 mpg standard by 2020.  But, given the Administration’s dominance in the auto board room these days, why not move the deadline up 4 years?

Automakers are strapped as it is when it comes to manufacturing and car sales, and this new standard will increase the strain on these manufacturers to meet requirements four years sooner. Furthermore, the AP reports that new fuel and emission standards for cars and trucks will increase the costs to consumers of about $1,300 per vehicle by 2016. 

Seeing as how standards were already in place to meet these fuel efficiency standards by 2020, it's interesting that the President would choose to hit the wallets of already struggling Americans yet again to advance his environmental agenda.

The President's intercession has essentially made him CEO of the American automobile industry. In fact, his Auto Task Force has called for the elimination of more than 3,000 Chrysler and General Motors automotive dealerships which would subsequently put over 150,000 employees out of work.

Arbitrarily, dealerships across the country are receiving notice that no matter how profitable they may be, they’ll be closing their doors by government fiat.  These closings will not fix the litany of problems facing the automotive sector nor make it viable once again, yet the President has chosen to destroy small businesses, hurting families and worsening the recession for communities all over America.

Given that nowhere in the U.S. Constitution is the President given the power to make such demands on businesses, the President should reconsider this plan. The government takeover of the automotive industry is unprecedented and unacceptable, and it’s families and small businesses who will bear the weight of this misguided policy.

Today, the House passed the Ledbetter Fair Pay Act and the Paycheck Fairness Act at the urging of its Democrat leadership. While these bills sound well and good by name alone, the fact of the matter is that they do nothing for the struggling American worker and go a long way in lining the pockets of a key political ally of the House majority– trial lawyers.

The truth of the matter is that there are effective and sufficient payment discrimination laws already on the books. These bills simply make it easier to file lawsuits – whether they’re frivolous or well-founded.  And, it makes it harder for employers to defend themselves.

The Ledbetter Fair Pay Act eliminates the statute of limitations on pay-discrimination claims currently set in place by a U.S. Supreme Court ruling. As a result, the number of frivolous pay-discrimination claims in future years is likely to skyrocket since older claims are more subject to faded memories, missing documents, unfound witnesses, and businesses that have changed hands or no longer exist.

The Paycheck Fairness Act expands the Equal Pay Act to provide for unlimited punitive and compensatory damages to a successful plaintiff. Worst of all, it moves the burden of proof to the employer. Instead of the employee having to prove they were discriminated against, they simply will be able to make the allegation and the employer has to prove that they acted out of “business necessity.”  Furthermore, the employer defense would be negated if an employee could show that another employment practice could have yielded a non-pay-differential result.  This removes key business decisions from employers and gives them to a judge and jury.

But that’s not all. The true intent of the bill – to generate more lawsuits and line the pockets of trial lawyers – is made most clear in its provisions expanding class action lawsuits.  These provisions are plainly designed to ensure that plaintiffs’ lawyers get the “most bang for their buck” in bringing class-action lawsuits rather than protecting the paychecks of American workers.

And the only Republican amendment allowed to be offered by the Democrat majority – a commonsense amendment that would have capped attorney’s fees at $2000 an hour in cases brought under the Paycheck Fairness Act – was rejected on a nearly party-line vote.

It's a shame that the Democrat majority found it more worthwhile to protect their political allies than the American worker desperately depending on job growth. Instead of fostering a business environment where jobs can flourish, these bills severely hamper the ability of American business to increase our nation's prosperity.

When the 111th Congress convenes in January, one of the first pieces of legislation Congressional leadership will bring to the floor is the Employee Free Choice Act, also known as "card check."

The House passed the bill last year 241 to 185 – over my opposition, but it was hung up in the Senate as the Democrats were unable to get the votes needed to pass it. Having made substantial gains in the House and Senate, "card check" is going to be a top priority in the new Congress. It's also another reason to keep your eyes on the outcome of the Senate races in Minnesota and Georgia. Democrat victories in both of those states likely means smooth sailing for the bill.

The Coalition for a Democratic Workplace has launched a nationwide campaign to educate the public on how dangerous this legislation really is.  It eliminates the secret ballot for workers.

In states like Minnesota, they have launched individual websites. Check out My Private Ballot - Minnesota to learn more about "card check," and to find out how you can take action and stand up for worker's rights. Also, if you're a Sopranos fan, I think you'll get a kick out of who they have as spokesman for the campaign.

Fresh off the $700 billion-plus financial service sector bailouts, including the most recent dole to AIG that upped their bailout total from $85 billion to $150 billion, the Democrat-controlled Congress is trying to rationalize a new $25 billion bailout for the auto industry.

For years, the American auto industry has struggled to keep up with foreign manufacturers like Toyota, Honda, and Nissan. CEOs at Ford, GM and Chrysler  have operated using outdated business models, failed to invest wisely in new products and technology, and were not prepared for the massive rise in gas prices that scaled back their truck and SUV sales dramatically. 

But besides the Big Three’s lack of innovation and mismanagement problems, the Big Three have labor costs that are far higher than their global competitors.  Their CEOs failed to take on union bosses – and as a result millions of jobs could be in jeopardy.  Ironic, isn’t it?

The Big Three pay out an average of $30/hour more than their competitors, including pension and health care costs for hundreds of thousands of retirees.

Take GM for instance, as Michael Levine from NYU School of Law wrote in the Wall Street Journal yesterday:  “GM is contractually required to support thousands of workers in the UAW’s ‘Jobs Bank’ program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure.  It supports more retirees than current workers.”

Taxpayers are once again being asked to throw their hard-earned money behind a short-term, unproductive investment which will only prolong the companies’ failures at a cost that could be even greater later on down the road.  Throwing taxpayer money at Detroit’s spiraling problems will not fix their long-term management and productivity problems. Any urgency that would force the Big Three to make tough restructuring choices would be lessened if federal money is available. Like AIG, they will be back at the taxpayer’s trough in no time.  Let’s not forget that Congress already approved $25 billion in auto industry loans only a couple of months ago.

There are alternatives.  For instance, if the Big Three were able to restructure and reorganize under the protection of the bankruptcy courts, they could be saved without a taxpayer bailout and could fix many of their long-term management and labor problems.  Filing for Chapter 11 bankruptcy does not mean a company has gone belly up, that it will be broken up and that all jobs and productivity are lost – it means a company actually has the ability to make structural changes to keep it afloat without the threat of outside lawsuits and through a comprehensive payment plan.

Once you cross this line and bail out the auto industry, where does it end? Are the airlines next?  We have already spent more than a trillion dollars in bailouts this year.  We must take a hard look at why the auto industry is in this position in the first place. Only then will our economy regain the stability it desperately needs.


Cross-posted at the Hill's Congress Blog

For those who want to learn some more about the roots of the financial markets crisis we are experiencing today, check out this editorial from Investors Business Daily. I think it's important to examine the past to prevent a similar crisis in the future.

'Crony' Capitalism Is Root Cause of Fannie and Freddie Troubles

"In the past couple of weeks, as the financial crisis has intensified, a new talking point has emerged from the Democrats in Congress: This is all a "crisis of capitalism," in socialist financier George Soros' phrase, and a failure to regulate our markets sufficiently."

The country is buzzing with news of a potential $700 billion bailout of our financial services sector by the taxpayer. I've received hundreds of calls this week from constituents who share my skepticism about this potential bailout. Most of them have asked how we got into this problem in the first place, and they deserve an answer.

Fox News has does a nice job tracing the steps of this crisis. You'll notice that many of the Congressional leaders responsible back then are now the ones trying to steer us out of this mess. Scary, huh?

The nonpartisan Tax Foundation has made a pretty interesting case that those states with a forced employee/union system not only pay higher taxes than those states with Right to Work laws which protect employees from being fired for refusing to join or pay dues or fees to a union, but household incomes in Right to Work states are also higher.

This year, Americans celebrated their "Tax Freedom Day" on April 23. This is the day when Americans have earned enough money to cover their total federal, state, and local tax bill for the year, on average.

The Tax Foundation and U.S. Census Bureau data have found that in 2008, the average Tax Freedom Day in the 22 states with Right to Work laws was April 18, five days earlier than the national average. For the 28 non-Right to Work states as a group, their Tax Freedom Day came nine days later than the average in Right to Work states.



In addition to a higher tax burden, forced-union states’ cost of living is higher as well. Economist Barry Poulson from the University of Colorado figured that living costs average nearly 18% higher in metro areas in non-Right to Work states than in Right to Work states.

Why?

The National Right to Work Committee says that "where forced dues are legal, union officials use their power to disrupt labor markets, jack up costs, and bankroll regulation-happy, Tax-and-Spend state legislators and governors."

Hopefully the Minnesota state legislature will come to understand the benefits of a Right-to-Work state and come on board for the sake of all Minnesotans.

For more information on the report, click here.

Today, as a Member of the House Financial Services Committee, I'm hearing testimony from the Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson regarding the U.S. economy and the potential government bail-out of mortgage lenders Fannie Mae and Freddie Mac.

While the mortgage market is already precariously balanced and this added instability is cause for concern, it is imperative that Congress wait and examine all the facts before jumping in to assist Fannie Mae and Freddie Mac. Far too often, the government over-reacts and involves itself in market matters, preventing the free market from correcting itself and making things much worse.

It is important that before legislation is considered, Washington carefully looks into the financial situation of Fannie and Freddie. We must ensure that our nation’s taxpayers, who are already struggling because of skyrocketing food and gas costs, are not left shouldering an increased burden due to a massive bail-out bill. We must balance that with care that these taxpayers are protected in case this situation leads our economy to take a tumble for the worst.