Obama Motors: The Coming Disaster

by John Hawkins | May 27, 2009 11:02 am

You can spot the trainwreck coming a thousand miles away[1],

In better times, many employees of General Motors called their company “Generous Motors” because of its rich benefits.

The latest plan for the troubled automaker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 percent of a restructured G.M.

Including the more than $20 billion that has already been spent to prop up G.M., the government will provide G.M. at least $50 billion to get the company through Chapter 11, people with direct knowledge of the situation said Tuesday. By some estimates in Detroit, tens of billions beyond that amount may be required.

The United Automobile Workers, meanwhile, will hold up to 20 percent through its retiree health care fund, and bondholders and other parties will get the remaining share. Shareholders would be virtually wiped out.

…The prospect of a G.M. effectively owned by the government raises a number of thorny questions. Countless policy decisions — on matters such as fuel economy standards, tax incentives to replace aging cars and green technology initiatives — will present conflicting interests.

For example, with $30 billion invested in G.M. and Chrysler thus far, would the government tip the scales in favor of those companies when buying vehicles for its fleets? Will Ford find itself at a disadvantage, since it has turned down federal money?

There are cultural challenges, too. Can the government help turn around a company known for its bureaucratic approach to business?

Aides to President Obama have consistently said they would be reluctant shareholders, and they plan no operating role in the company.

“No one is going to put U.S. government employees on the G.M. board,” one person close to the ongoing discussions said on Tuesday.

The day-to-day running of the firm, this person said, would be left to professional managers, and the government would not be involved in decisions about closing factories, renegotiating contracts or selecting product lines.

But that may not be so easy. Already, members of Congress have been calling Steven Rattner and Ron Bloom, who are running the auto task force, to complain about the closing of Chrysler and G.M. dealerships in their states.

As factories close or move, those calls most likely will grow more intense, in part because members of Congress will have a hard time explaining to constituents how the government could own 70 percent of the company and still have no control over deciding which factories stay open and which are closed.

Mr. Obama’s representatives may also feel compelled to weigh in on the design of new models to achieve his goals for greater fuel efficiency and lower emissions.

“Every decision down to what material is used in the bumpers will be seen, rightly or wrongly, as government-influenced,” said one person who was a consultant to Mr. Obama’s task force. But clearly the administration will have oversight to select or remove management as it already had in ousting Rick Wagoner as chief executive in March.

$70 billion in taxpayer funds down the hole. Obama choosing the company’s CEO. A government board interfering in the company’s decisions. Members of Congress complaining about day to day business. The federal government trying to fix an overly bureaucratic company. The Obama Administration forcing the car companies to build politically correct, but unprofitable cars. It all adds up to disaster.

Obama’s interference in the US auto industry will probably turn out to be one of the most foolish and expensive mistakes in the history of governance, not just here in the US, but in world history.

Endnotes:
  1. spot the trainwreck coming a thousand miles away: http://www.nytimes.com/2009/05/27/business/27auto.html?_r=1&partner=rss&emc=rss

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