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Silver Spring, MD 20910


Providing news and analysis on business, economics, and drug prohibition
Issue 3: Spring 2006
Open letter to GM

*This letter was sent to GM Chairman G. Richard Wagoner on March 13, 2006. A nearly identical letter was also sent to Ford Chairman William Clay Ford.

G. Richard Wagoner, Jr., Chairman and CEO
General Motors Corporation
300 Renaissance Center
P.O. Box 300
Detroit, MI 48265-3000

Dear Chairman Wagoner,

Being an S&P 500 Index mutual fund investor, the value of General Motors shares is important to me. Indeed, every American knows that General Motors plays a crucial role in our economy. The plant closings and employee layoffs at GM and Ford Motor Company due to depressed sales disturb every American.

As you strategize to grow your corporation, and protect its health, I am sure that you and your financial team look carefully at every element of your cost structure, and every factor that you think affects car sales, such as interest rates, and other economic indicators.

I am concerned that you may not be paying attention to a factor that seriously burdens your market -- the fact that 12 percent of America’s men have a felony conviction. Pause to consider that one out of nine customers in your prime market suffers the economic handicap of a felony conviction.

There is enormous economic impact when a person gets a felony conviction: primarily their family experiences a dramatic loss in earning capacity. And, legal costs deplete all savings, and personal debt usually increases. Obviously this undermines the family’s ability to buy a car. Even ex-felons who are earning enough to pay car loans, our research reveals, have reduced credit scores, reducing the ability of potential car buyers to obtain car loans, and reducing GM’s market in the United States.

The laws that are weakening your market are not laws of nature. It does not have to be that way.

One aspect of our criminal justice system that is widely and justly questioned is the effectiveness of our anti-drug policies.1 Since 1986, American courts have imposed more than six million felony convictions for drug offenses, about 340,000 felony convictions last year.2

What has the promiscuous imposition of these felonies done to car sales? The American population above the age of 18 from 1976 to 1978 averaged 154.7 million persons, and average sales of autos and light trucks then was 14.5 million vehicles annually. In 2001 to 2003, the adult population had grown by 38.9 percent to an average of 215.0 million, but auto and light truck annual sales had only grown to an average of 17.2 million vehicles, an increase of only 18.6 percent.

Why have automobile and light truck sales grown at a rate that is one-half the rate of growth of the American adult population since drug enforcement was ratcheted up since 1981? There are probably many factors, many of which are probably well known to your management team, but many outside your influence or control.

GM appropriately lobbies the Congress and legislatures to change the law and public policy for a wide variety of trade, financial and regulatory issues in order to improve the company’s profitably.

To improve shareholder return and value, it is time for GM to examine and take a stand on laws that don’t help public health and safety but hurt the GM and the economy, namely the drug laws.

I urge you to assign a small team of financial analysts to study the negative impact of drug prohibition on GM’s sales according to these six hypotheses:
Hypothesis #1: A person’s ability to buy a car is reduced if a person is a convicted felon.
Hypothesis #2: On the whole, Americans convicted of felonies would have been more likely to buy American label cars than foreign label cars if they had the money.
Hypothesis #3: The size of the fraction of the American car buying public who are convicted felons reduces total car sales and GM corporate earnings.
Hypothesis #4: Property stolen from cars, such as electronics, air bags and personal property, are easily fenced to pay for drugs. Such crime is increased by the prohibition-based drug control approach which raises the price of drugs and stigmatizes drug treatment. The crime committed by drug dependent offenders increases the cost of auto insurance and depresses the market for cars and trucks. This crime makes car ownership both more expensive, and the car a less valuable asset.
Hypothesis #5: Convenience store and gas station robbery increases insurance costs and contributes to the higher cost of gasoline, also making car ownership less attractive.
Hypothesis #6: Drug-related crimes in many metropolitan areas depress the value of commercial areas, depress business traffic in retail areas, and reduces the attractiveness of many neighborhoods for housing. The clustering of such crimes distorts home buying and development which amplifies traffic on many arteries and aggravates traffic congestion. These effects decrease the attractiveness of car ownership.

As you consider those costs to your industry, consider that America’s prohibition approach to drug use is not reducing deaths and injuries, reducing availability of drugs to teenagers, and not hurting the drug traffickers. DEA’s goal is to create drug scarcity measured by increased prices of illegal drugs and reduced purity. But the government’s data over the past twenty-five years reveals that drug purity has increased and prices have dramatically declined.

Abandoning our current drug policy not only might improve GM’s profitability but would be good for public health and public safety.

I urge GM management to look into how large a fraction of its American customer base cannot buy a GM car because of a criminal conviction, and to consider whether criminal justice and drug policy reforms may positively change GM’s market.

Sincerely yours,

Eric E. Sterling
Criminal Justice Policy Foundation


1 See Robert J. MacCoun and Peter Reuter, Drug War Heresies, Cambridge University Press, 2001.
2 Data from the U.S. Bureau of Justice Statistics does not identify the fraction of the convictions are second or subsequent convictions. But the impact is substantial.




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