Obama’s GM Policy Scares the Washington Post

Conservatives frequently claim that President Obama is leading us down the path that Europe blazed decades ago. But that is unfair. To Europe. The European governments socialized their economies by taking over more or less competitive industries and only then running them into the ground.

President Obama has decided to do an end run around decades of mismanagement and sink billions of tax payer dollars into corporations that are already on life support. I can't tell the story better than the Washington Post can. Well, maybe I could, but it's a lot more fun coming from the Post.

IN MARCH, we cheered President Obama when he extended a federal lifeline to General Motors and Chrysler. He was risking a fair bit of tax dollars -- $6 billion, on top of $17.5 billion in emergency loans tendered since December -- but he said he was setting tough conditions for anything beyond that. "We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars," he said. "These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."

So how did we get from there to here? Here, according to media accounts this week, is an imminent transformation of General Motors into a government-owned company, infused with upward of $50 billion in federal money. The United States will accept stock in lieu of the cash the company owes, and Washington -- that is, you, the taxpayer -- will become the owner of 70 percent of the new GM. When might the company stand on its own, to paraphrase Mr. Obama? When would the government exit the stage? The Post reports today that administration officials hope to depart within five years, but the truth is that nobody knows when or whether taxpayers would recover their investment. If you think the federal government is well equipped to manage a failing automobile manufacturer into profitability, you should jump at this deal.

I would like to say that the Post is shocked, shocked that the President has put us in this position. But that's what you say when someone isn't shocked at all. In fact, the Washington Post seems really bewildered that the President is sinking billions in public money into a corporation that has no realistic prospect of returning to economic viability.

So why is Obama doing something so obviously ill-advised that it is even obvious to the WaPo? As the WaPo points out, there was some reason behind the auto-bailout originally, when the collapse of the industry might have turned a developing recession into something much worse. But now, surely, we have reached the point where that policy pays diminishing returns. Keeping zombie corporations walking decreases confidence in the economy as a whole. The real threat to our economic future is much bigger now than the auto industry. Around the world the Money is now thinking, for the first time, that the U.S. is a bad investment. Trying to get out of the quicksand while carrying a bunch of Buick Enclaves might not be the way to reassure everyone.

The Washington Post answers the question:

Is a massive, unbounded federal commitment to a company that evidently still can attract no private capital really the only option? It doesn't take much imagination to forecast the political pressures that will buffet the government-as-auto-executive. We've seen one effect already in the preferential treatment of the autoworkers' union at the expense of private creditors.

The government sweetened its offer to creditors in the past couple of days, but they're still getting less return on their debt than the union is. Meanwhile, the union can boast that it has been promised no loss in "base hourly pay, no reduction in . . . health care, and no reduction in pensions." Influential members of Congress will insist on jobs in their districts; environmentalists will want electric cars; overseas sourcing will be frowned upon. How such decisions affect profits could become secondary.

President Obama is putting this weight on the shoulders of our children and grandchildren and great grandchildren so that, right now, the Union can boast to its membership that it hasn't given up anything.

This is nuts. We'd be better off dissolving GM and putting every union member up in a high priced hotel for the rest of his or her life. Of course GM may miraculously turn around. Its stock may soar. People might suddenly want to buy its cars. But one of the reasons it went into the ground was the union contracts, and President Obama is making sure that that problem won't get fixed. This isn't a long run solution for the workers anymore than it is for the rest of us.

The Washington Post is shocked. I am not. I never thought the President had any idea what he was doing.

Comments

[Mac]

Just remember, the President is cleaning up Bush's mess. We are here today due to the bad economic decisions of the previous administration.

[Parker Gor]

We do not need Chrysler or GM, they need to go away because of their corrupt practices, bribes of elected officials to create situations that only benefit them and their "ownership" by the oil companies. There are 35 electric car companies that the US, British and Italian governments have been forcing to stall or go out of business since last year. These companies can more than save the auto industry, yet the politicians have been ordered by the lobby groups for oil and detroit to not give them their money, a task that would take 3 weeks in the worst case scenario. When they handed detroit bags of money without even asking any questions, almost overnight, and they have made the new car companies wait endlessly until they die from lack of funds, you KNOW they are trying to kill them off, ie: Tesla, Zap, Bright, Apterra, Venture Vehicles, Eco Vehicles, etc.

Parker Gor

[KB]

Mac: Just remember: Obama is President now, not Bush. He has to take responsibility for his own policies.

[Miranda]

I love the closing line on this one, but I wish it weren't true.

[George Mason]

Concentrating on the union contracts misses the central issue in the collapse of Chrysler and GM. That is CAFE standards that have forced American car makers to build cars they can't make money on. American car companies can make money building cars Americans want, SUV's, Pick-ups, MiniVans, and larger sedans (even working under current union contracts). Under CAFE for every SUV they build they have to build a small car or two they cannot make money on (labor costs aren't much different for a small car vs. a SUV). Now Obama, in a frightening display of economic incompetence, is going to kill off any chance of the American car companies recovering by increasing the CAFE. Hybrids are nice but the average American car buyer can't afford them. Short term Obama will burnish his green credentials and keep the UAW contributions coming in while he drives us slowly into poverty. By the way Bush had nothing to do with CAFE or union contracts, the drivers in this mess

[Ron]

People like Mac will blame W forever. Tell me Mac, how do you think that Bush caused the collapse of the US auto industry? Ready to put any blame on the unions?

[Mac]

Yes, I do blame the previous Administration. See, I did not conveniently forget the prior 8 years to Obama coming into the White House with all the hyper tax cuts while we had a war to fight and pay for.

[Ron]

And that has what to do with the auto industry? And do you actually know what happened to government revenues despite the "hyper" tax cuts?

[redwing]

Hey Mac

The hyper tax cuts actually increased revenue to the federal government. Why is it that you liberals can't get this through your head. Even JFK recognized that cutting taxes will increase revenue to the treasurery.

[Mac]

Yah, keep telling yourself that...increased revenue has to be backed up with decreased spending. The previous Administration did not do that now did they? Funny thing Redwing, you conveniently focused on one part of that issue, but, we all know that was not the complete picture and Bush supported the increased spending, ok...so I rest my case. LOL

[KB]

Mac: Your complaints about Bush make sense only from a conservative point of view, and indeed many conservatives think Bush was a disaster. The only difference in Obama's policy is the enormous magnitude of the deficits he is planning on. From about a half a trillion a year to almost two trillion, what you would you be saying about Bush if he had done as much?

[Mac]

All that I am saying is that our current President is doing his best to clean-up 8 years of economic incompetance that began with a surplus and ended in the hugest deficit in our history. Our President is facing the largest economic disaster of any prior Administration. It's not a simple task that you can solve on a political blog.

[KB]

Obama is planning making the deficit much larger, by factors of two to four, than "any prior Administration." How is that "cleaning up" eight years of economic incompetence?