Reason Foundation

http://www.reason.org
http://www.reason.org/news/show/how-not-to-run-gm

Reason Foundation

How Not to Run G.M.

Obama's environmental and employment goals could undermine profitability

Jacob Sullum
June 3, 2009

On Monday, after President Obama unveiled his plan to nationalize General Motors, G.M. Vice Chairman Robert Lutz exulted, "Their No. 1 goal is to make us successful." But Obama seems to have three No. 1 goals: turning a profit, building cleaner cars, and creating American jobs. These priorities clash with each other, with the president's professed desire to "get out quickly," and with his promise of "a hands-off approach."

On March 30, Obama assured a wary public that "the United States government has no interest in running G.M." This was the same speech in which he announced his firing of G.M. CEO Rick Wagoner, demanded a more "credible" restructuring plan, suggested that G.M. had not "consolidated enough unprofitable brands," unilaterally promised government-backed warranties for G.M. cars, and argued that the company should focus on "manufacturing the fuel-efficient cars and trucks that will carry us towards an energy-independent future."

This week the president reiterated that "what we are not doing—what I have no interest in doing—is running G.M." This was the same speech in which he announced that the federal government was forcing G.M. into bankruptcy, deciding what creditors should get (regardless of what bankruptcy law says), and taking a 60 percent stake in the company.

Obama insisted "we are acting as reluctant shareholders—because that is the only way to help G.M. succeed." He took it for granted that letting G.M. fail, and thereby letting its assets be distributed to more productive uses, was not an option.

Although Republicans portray it as yet another example of Obama's socialist tendencies, his G.M. plan reveals him to be deeply conservative. He can imagine a world in which the internal combustion engine is obsolete but not one in which G.M. is.

"We cannot, and must not, and we will not let our auto industry simply vanish," Obama declared in March. "This industry is like no other—it's an emblem of the American spirit, a once and future symbol of America's success." On Monday he said G.M., "this iconic American company," must be given "a chance to rise again."

But Obama offers more than blind nostalgia to justify sinking $50 billion of taxpayer money into a company that is failing, by his own account, because of "bad business decisions." He offers jingoism too. Obama says he is "absolutely committed" to "one goal: The United States of America will lead the world in building the next generation of clean cars." If those sneaky foreigners think they're going to build nonpolluting vehicles and sell them to Americans at reasonable prices, they'd better think again.

It's not clear what Obama plans to do if it turns out that "building the next generation of clean cars" is not the best way for G.M. to "rise again"—say, because such cars cannot be produced anytime soon at a price consumers are willing to pay. Obama's decree that "G.M. will start building a larger share of its cars here at home" also may undermine the company's bottom line (and therefore taxpayers' return on their involuntary "investment") by increasing production costs.

"The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions," Obama promised. "When a difficult decision has to be made on matters like where to open a new plant or what type of new car to make, the new G.M., not the United States government, will make that decision."

As long as the decision does not involve opening a plant in the U.S. vs. another country, hiring unionized vs. nonunionized workers, building SUVs vs. smaller, more fuel-efficient cars, or sticking with conventional cars instead of gambling on "the next generation of clean cars." After they see how Obama handles these and other corporate decisions, Americans may start to wonder whether a guy who claims to have no interest in running G.M. is the best candidate for the job.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist. This column first appeared at Reason.com.

© Copyright 2009 by Creators Syndicate Inc.


Jacob Sullum is Senior Editor


Print This