A Government work program
How do you create a multi billion dollar taxpayer-funded Government work program? Well, you begin with taking General Motors into a pre-packaged bankruptcy and come out with 60% ownership for the Government after sinking in a total of $50 billion (possibly higher), then give 17.5% ownership to the Union, offer 12% to the Canadian Government for their cooperation and investment, and finally provide a crammed down 10% piece to the bondholders with some possible warrants in the future to get the deal done. You then operate the company knowing that the Government is the majority owner, lender, regulator, and primary administrator of the new business, and possibly its number one customer. Combine that with the fact that there is no exit strategy planned for the Government’s withdrawal from the company therefore effectively resulting in another annexation of private industry that increases the Administration’s power and control of the economy. Sound familiar?
To progress this picture a bit more, you consider that profits will not matter to this new organization because theoretically they can always worry about that at some other time if the company becomes viable. Producing cars that customers want will be so passé, it will be about moving them from the bigger, more profitable cars and trucks that are demanded to the smaller, more fuel efficient and less profitable cars that the Government wants us to have. Also, when it comes to making decisions between the profitability of the company and Union interests, we all know how that one will go. This model of operation will all but guarantee that profits will be a secondary consideration at best, thus the Government ends up with a white elephant that stays on life support in order to justify the Administration’s involvement of taxpayer money and to keep their hands on the levers of control. It will be the gift that keeps on giving for years to come because the concept of profitability has been discounted as greediness instead of an effective tool that focuses the company on efficient operations.
To put the final touches on this picture is to then ask will customers visit the remaining showrooms and buy these cars produced by bureaucrats. That remains to be seen, but if they refuse, it is of no consequence because as stated previously there will be no requirement for profits, plus they can always get more taxpayer money to prop it up if needed. It is estimated that there will be about 40k jobs left in America for GM after the restructuring which equates to well over $1 million per job if these numbers are accurate and do not increase. This sounds a bit expensive for something that garners only about 20% of our citizens’ approval, yet here we are as disgusted owners anyway. The question that keeps being asked is “how will the Government run General Motors?” The most likely answer is “into the ground,” but what difference will that make? The important thing is that the Government maintains control and provides a work program for their supportive Union members courtesy of the taxpayers.
June 9th, 2009 at 12:53 pm
While you make some valid points, you need to take this a step back, look at this a different way.
GM has been failing for some time. Look at their product lines over the past 50 years, and you can pinpoint the start of the real demise to the early 1970s. That’s when their lack of strategic thinking/planning and poor design/engineering became really evident.
The nature of competition in the marketplace is that if you have a good thing, someone will want a piece of it. GM proved the US market to be very profitable for decades, which attracted then-foreign makers. As GM failed to handle the post Oil Crisis marketplace, they opened the doors to these other makers, thereby giving their business away. They failed to understand why their products were undesirable, and focused on making money by making cheap cars (to put it politely) or chasing clearly short-lived unsustainable trends (big trucks and SUVs). Outside of the original Saturn SL, circa 1992, I can’t think of any ground-breaking vehicles from GM since the late 1960s. Of course, they destroyed Saturn a few years ago.
My point is, the government will not run GM into the ground; it’s already underground; they’re just briefly brining in some light before nature takes its course. Bailing GM out is not REALLY about saving the company, it is about saving the industry, i.e. saving jobs. That’s what politicians live for. To their credit, you have to remember that it’s not GM employees, but all their suppliers, dealers, servicers that are at stake here. The bailout is just a stopgap measure, a way to ease people into a transition to other employment.
What is interesting is the ongoing obsession with protecting American-owned car companies. While GM and its cronies have shifted plants to other parts of the world, ALL the leading Japanese car manufacturers build cars in the US—they have been for years, and making a profit in the process using American workers. It helps that they not only make cars people seem to want, but they also make them efficiently. That these makers have also suffered double-digit sales declines in the past year is proof that the real issue is much bigger than individual manufacturers. And yet, Toyota, Honda, Nissan etc are neither asking for nor getting any bailout. My guess is it’s because the government has faith that these companies know how to run their business and will survive on their own. Their American employees are not at risk.
The government’s intervention in the American-owned car makers is evidence of two things:
1. The general public’s current lack of faith in capitalism and market forces. If GM is left to fail, the gap left in the market will be taken over by other makers. A saturated car market will not shrink with fewer suppliers, it shrinks from lack of demand. Unfortunately, the transition process is painful, and it’s politically undesirable. Politicians survive by doing the general public’s bidding. It doesn’t matter that Americans scream to save American carmaker jobs while they buy Hondas and Toyotas.
2. The Government knows GM can’t run their business on their own, so they feel the need to prop them up for a while.
Government-run auto industry can give you products like Trabants or Ladas. It can sometimes lead to something like VW too, which was started by a totalitarian regime and is now part owned by the State of Lower Saxony (and the union has seats on the board, I think). The big difference is that VW knows how to make good cars, and that’s why they’re in the top 3 makers globally (would be top 2 if we get rid of GM).
To summarize, what you are dealing with here is just politicians being politicians. I don’t think the government has an agenda to take over private enterprise per se; they’re just saving the big idiot from tripping as he takes his long walk off the now-short pier. Think of it as slow Euthanasia.