Can GM (Government Motors) Survive?
A funny thing happened the other day in my cozy little enclave of California's Marin County, where a registered Republican is as rare as a three-toed sloth. Our local Bank of Marin announced that it wanted to give back its TARP money. Apparently the well-heeled bank wasn't troubled, had adequate assets, and really didn't need a bailout.
But since Treasury was running amuck tossing bags of newly printed money at banks of all description, the Bank of Marin reasoned that it shouldn't be left out. Then its management discovered the strings attached. If you've ever borrowed money from a relative, you know what a bad idea it is. And good old Sam appears to be the uncle from hell as a creditor.
Unfortunately, GM and Chrysler didn't have the luxury of politely declining our largess. At this point, unless a miracle occurs and either one (most likely GM) can repay its loan, the result will look a lot like any other state-run automotive enterprise -- think former Eastern Block cars. Of course, in our free market, we won't have to buy the vehicles that Barack and company built. That's a nice theory, but don't bet your Lehman Brothers shares on it, since protectionism is regaining stature with our current crop of legislators.
Recently, the administration's automotive team descended on Detroit for some fact checking. I haven't discovered yet how they traveled to Motown. I'm pretty sure they didn't drive, since these folks are busy and important and can hardly waste their collective time in traffic. For that matter, with the hassle of airlines and TSA, a commercial flight seems like an unreasonable burden. Perhaps the speaker of the house lent them her government plane. That Boing 757 should be large enough to fit the automotive team, even in executive configuration. But if it's not available, we taxpayers have provided a whole gaggle of executive aircraft standing by for government junkets.
After the Treasury team was finished with their "Where's Waldo and What's he Driving" mission, Steven Rattner, the private-equity executive leading the team, said, "Plans won't include a comprehensive fix for the two companies. That will largely be left to the stakeholders, such as unions, management and investors." You'll notice that Mr. Rattner didn't include GM and Chrysler customers as stakeholders. Perhaps that's because the current customer, the one supplying GM and Chrysler money, is the Federal Treasury.
I also noticed that Rattner led with the union as its first stakeholder. Big Labor is the current elephant in the oval office and wandering around wherever policy makers gather inside the Beltway. Card check is working its way through Congress, we've stiffed Mexico for the teamster bosses, and the UAW has made sure every Democrat knows where their support comes from.
Following the Detroit visit, Rattner opined that "I don't think that bankruptcy is necessarily a better place for any company," suggesting that more cash and oversight was the best solution. And recent statements from the newly convened task force indicate that the Obama administration will lend GM and Chrysler more money if they secure sacrifices from their managements, unions, and GM’s bondholders. But GM CEO Rick Wagoner, someone who has resisted Chapter 11, seems to be reconsidering this option. Apparently, Rick has realized that whatever perception the damage a bankruptcy filing might cause GM, it has already occurred with the volume of negative press the company has endured.
Of course with a managed reorganization, the fate of the union and bondholders would be in the hands of a bankruptcy judge and there's a chance that a court may make decisions that are favorable for the health of the company. With the administration and Congress in its pocket, the UAW has little reason to negotiate, and that strategy appears to be working for them, at least in the short term.
As I write this, I've just finished testing the 2010 Chevrolet Camaro. It's a terrific car, with plenty of power, superb handling, and excellent fuel economy. But even if General Motors survives, there's no assurance that Government Motors will allow such a vehicle to exist, since it doesn't come with a power cord or deliver 50-MPG.
So even if our homegrown automakers endure or are kept on life support by public money and Beltway oversight, there's an uncertain motoring future ahead for consumers -- you know, the people who used to be stakeholders in the industry. Between ownership and/or aggressive regulation of the former Big Three, the future automotive products may not be what we want to buy.
Of course, other automakers should fill the product void, unless we decide that limiting imports is the best way to protect American jobs. Besides, if we taxpayers end up owning all of GM and Chrysler, we'll have to protect our investment. That's what this kind of meddling can bring, and it's a lot less fun than letting markets work so that people can have real choices.