Welcome to Government Motors
Considering the various other moves that have been made since last October, what the government is planning to do with General Motors seems like a reasonable choice out of the set of viable options. That said, I’ve been uncomfortable with this policy trajectory from the beginning precisely because this outcome seemed like a best-case scenario for an auto bailout endgame and it’s not a very good endgame. Recall that as of November, in theory government assistance was just a “bridge loan” that was going to be repaid and all was going to be well. Now the government’s going to own a large dysfunctional auto company.
I mostly share Kevin Drum’s concerns about this. But to put the problem more broadly, the issue is simply that the government, in its capacity as GM owner, has too many divided loyalties. It would be nice to think that Government Motors will protect the environment, protect the financial interests of taxpayers, protect the interests of GM’s workforce, and protect the interests of GM’s business partners all simultaneously but in the real world these objectives are clearly in tension. Trying to resolve these questions is going to be a mess.
I think it’s entirely appropriate to be spending money to help people working in the auto industry and, more generally, people living in the “Greater Michigan” zone where the decline of auto manufacturing jobs is causing huge problems. But there’s little reason to believe that propping up GM in this manner is the best way of getting assistance bang for the taxpayer buck.
33 Responses to “Welcome to Government Motors”
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May 27th, 2009 at 10:02 am
Hey, I guess what’s good for General Motors really is what’s good for the nation! Or vice versa! But one of the two!
May 27th, 2009 at 10:03 am
Selling Michigan to Canada is the best option. Sort of a “Seward’s Folly” in reverse.
May 27th, 2009 at 10:05 am
Of course having the Detroit Lions as part of the asset mix would probably scuttle the sale.
May 27th, 2009 at 10:08 am
Plus if the Republicans regain power at some point, they will grab a pillow and suffocate the baby in the crib. Just to kill off the UAW, a major Democratic campaign donor, and promote the fortunes of all those Japanese auto plants in Tennessee and Kentucky.
May 27th, 2009 at 10:10 am
But there’s little reason to believe that propping up GM in this manner is the best way of getting assistance bang for the taxpayer buck.
No, Matt, in fact there are tens of billions of reasons to think this is the best way to leverage our assistance. To be brief (since I have made this point many times here before), GM’s sales, even ar a depressed level, ultimately lead to tens of billions of dollars going to GM’s employees and the employees of GM’s suppliers. If we instead let GM go bust, those tens of billions of dollars would flow to employees in other countries, and our tax dollars would have to make up the difference. And that isn’t even accounting yet for all the other employees of other carmakers in the U.S. who might lose their jobs as a GM failure rippled through the suppliers.
May 27th, 2009 at 10:11 am
About the only good thing you can say about this is that it beats the hell out of just letting the company collapse and vanish so that the vulture capitalists can collect their risk insuranace.
May 27th, 2009 at 10:12 am
Wonder if Obama is gonna have a problem getting parts and service on that big ass armored Caddy the Secret Service just bought.
Knowing the boneheaded General Motors management, they will probably approach Obama and offer to “Pimp his Ride” in exchange for favors.
May 27th, 2009 at 10:13 am
Learn from Europe:
Protect the worker, not the job. Preferably with relocation assistance so people can migrate to where there are jobs.
May 27th, 2009 at 10:15 am
What I really worry about is competition from a subsidized GM (not to mention Chrysler or Fysler or Chriat or whatever it’s going to be) negatively impacting the one US automaker that’s actually gotten a clue- Ford. While Ford is on the right track it’s also mortgaged up to its eyeballs, and needs to grab some market share from the two dead men walking to insure its survival.
May 27th, 2009 at 10:22 am
But there’s little reason to believe that propping up GM in this manner is the best way of getting assistance bang for the taxpayer buck.
Why? What’s the cost per person assistance as compared to what you’d offer?
May 27th, 2009 at 10:24 am
I do like the sports Cadillac, though. And Ford’s Crown Victoria.
I think a proper automobile should have plenty of leg room even after you stuff in a driver and a bodyguard with an AK-47. Plus ample space in the trunk for provisions,spare weapons, and a medical kit.
My brother-in-law loves his Porsche, pointing out its acceleration and handling. But whenever we go out, he is constantly stepping on the brakes when the radar detector goes off. Most USA roads are too crowded –and our speed laws too constipated — to enjoy cars designed for the Autobahn.
Plus I pointed out that any asshole on a Kawaskai Ninja could outrun him, pull up alongside and toss a grenade in his non-existent back seat. In which case, he would be properly fucked.
CIA traitor Aldrich Ames used his Jaguar once to evade US surveillance –kinda hard to remain covert and follow someone driving 100 MPH on the Beltway.
After that they bugged the motherfucker and tracked him on a computer screen. Suspicious suburban wives can buy the GPS beacon kit nowdays, for Christ’s sake, and track where hubby goes after work.
Of course, the car salesmen never point out these issues, for some reason.
May 27th, 2009 at 10:33 am
I don’t think you two really understand what is happening here. This is exactly what you wanted to happen several months ago: GM is going to go through bankruptcy.
If there is anything to learn from the Europeans, based on that NYTimes article it would be buy up your auto companies. Germany is shoring up Opel and Italy just bought Chrysler and maybe Opel too. After all, Fiat got their capital from the government. Who will be laughing in 10 years when they own the US auto industry?
May 27th, 2009 at 10:36 am
Plus anyone who’s ever rolled over three times in a SUV –as I have — hates the motherfuckers. Sure, they may let you do a U turn across a median in heavy traffic — but that’s about it.
Of course, if you ever think you might get bogged down on an Interstate evacuation route, one might come in handy for an impromptu exit , Stage Right. Remember to pack boltcutters for the wire fence.
Do this in Florida during a Hurricane, however, and you’ll get stuck in the mud and have alligators moving in as night falls.
May 27th, 2009 at 10:39 am
Didn’t we go over everything when the crash began?
The lost economic capacity from Chrysler or GM going under can’t be replaced by any other entity. The only way to “protect the workers” in this instance is to directly pay their salaries (and the salaries of the parts manufacturers who would also go under, having lost their only client). If we’re going to do that, we may as well have them build some cars.
There’s obviously a lack of private capital interested in creating a new GM to replace the old one, so public capital will have to be used. After all, we’re not going to rebuild the same old thing–the company will have almost nothing in common with its predecessor, I’m guessing.
It’s not GOOD that this is happening, but it’s much better than letting the Big 3 die and then trying to restart domestic auto manufacturing after the recession.
May 27th, 2009 at 10:49 am
Restart? If Ford can survive the recession- which seems likely, and can only be hindered by the bailouts of the other 2- it’s well-situated to be a global powerhouse.
May 27th, 2009 at 10:50 am
Good Lord. Where did you and Drum get the idea that having domestic transport manufacturing is optional? Investment banks are optional, and we bailed them out. Do you want to be a first world country or not?
May 27th, 2009 at 10:59 am
1) Why do we have massive engineering programs to build nuclear weapons (Manhattan Project) or ICBMs or Nuclear submarines but we don’t have a national program to build a decent fucking car for the masses?
The socialist Swedes built the Volvo 240 DLs — and those motherfuckers run after 20 plus years of service. Er..until Ford bought the company and ruined the product. Known as castrating your competition.
2) First , though, you need to fire GM management. As their products show, they HATE their customers.
3)So make lemonade out of this lemon. There is no reason why large portions of the national income has to be wasted on pieces of shit that fall apart after 3 years. On Poorly conceived and designed products Whose low mileage requires a $1 Trillion /year military budget to keep the oil flowing and the gasoline refineries working constantly.
4) You can make a massive improvement in the efficiency of the US economy –and deliver a great benefit to the average American — if you shoot the lying “free market” whores and ask the defense industry to collaborate with GM to build and mass-produce the best fucking car in the world. PLus develop a roadmap for how to continue followon development of its successor 10 years later.
First off – what will be the energy source?
May 27th, 2009 at 11:02 am
I mean, Adolf Hitler was an asshole but even he produced a car for the German masses that the hippies loved 30 years later.
What did GM CEOS ever do? Other than play nice rounds of golf at those country clubs.
May 27th, 2009 at 11:06 am
It’s no mistake that the few decent products out of Detroit are socialist products — built for utility, not flashy chrome fashion.
The pickups –before they became fashionable. The Crown Vics used by police forces and taxi companies.
May 27th, 2009 at 11:10 am
Protect the worker, not the job. Preferably with relocation assistance so people can migrate to where there are jobs.
I generally agree with this statement, and I would personally love to see the U.S. adopt a wage insurance scheme.
But the thing is, right now there are no excess jobs available for the millions who would lose their jobs if the domestic auto industry and their suppliers went bust. Instead, the economy is still shedding jobs, and likely will not return to normal job growth for several more years.
So unfortunately, this is not a time in which we can apply this policy.
If Ford can survive the recession- which seems likely, and can only be hindered by the bailouts of the other 2- it’s well-situated to be a global powerhouse.
Ford’s relation to the bailout is quite complicated, actually. You are right that too much government investment in its competitors could eventually crowd Ford out, given the government’s low cost of capital. On the other hand, Ford has many suppliers in common with GM and Chrysler, and if those suppliers went down it would severely hurt Ford. So the ideal for Ford would be for GM and Chrysler to be kept alive, but sickly.
Anyway, even if Ford did survive, they aren’t going to take all of GM and Chrysler’s market share, and instead a large portion would just be shifted to overseas makers. Indeed, the one carmmaker that most clearly would benefit from a total meltdown of the U.S. auto industy is Volkswagen, because they are the one high-capacity global maker that doesn’t have much manufacturing presence in the U.S. and also doesn’t currently have much market share in the U.S. (relative to their total capacity).
May 27th, 2009 at 11:13 am
Thorazine. It works, Don. Plus you shouldn’t drive and take it. A twofer. Just sayin’…………
May 27th, 2009 at 11:18 am
It’s no mistake that the few decent products out of Detroit are socialist products — built for utility, not flashy chrome fashion.
By the way, this is total nonsense. For example, GM’s most competitive and profitable products are actually the high-end ones: Cadillac has several succesful cars and SUVs, the Corvette remains a high-performance favorite, and so on. Rather, where GM has sucked is in the low-to-middle range of the market. The same used to be true of Ford as well, but now they are finally bringing over versions of their popular European models.
Indeed, it has long been a puzzle why American companies made popular low-middle market cars in Europe but offered inferior products in the same classes in the United States. The leading explanation ended up being that in the U.S., they could simply get away with it due to brand/country loyalty–but obviously no longer.
May 27th, 2009 at 11:24 am
That is pretty much word for word what K-Drum says in his anti-Amtrak rants. Interesting.
May 27th, 2009 at 11:36 am
I’m not sure that I agree. Is your argument that generally superior outcomes occur when a firm can ignore the concerns of the environment, the workers, and various other interests. I agree that there is a tension inherent in what the government is trying to do, but I don’t think it’s obvious that the government’s inevitable failing to please everyone is axiomatically inferior to a firm not even trying to preserve interests that do not contribute to their firm’s profitability.
May 27th, 2009 at 11:43 am
It might be a rich bit of fun to watch the government’s assigned “CEO” conduct a press conference, complaining about how onerous the EPA emission laws and CAFE standards are and the hindrance they present to GM’s recovery.
May 27th, 2009 at 11:56 am
It’s only recently that Americans are getting used to the idea that small cars can actually be nice (like my new Honda Fit, which I love) rather than cheap and nasty econoboxes- and therefore can be worth paying more than rock-bottom prices for. And even now, Ford eg. has admitted that there will have to be some degree of decontenting in the US version of the Fiesta.
May 27th, 2009 at 12:30 pm
The biggest pile of toxic waste left by Ford and GM was not their manufacturing factories, their finance subsidiaries, or even their shitty management. It is the minds of the American consumers brainwashed by massive expenditures of advertising. The best thing for the US auto industry would be if the American consumer grew up.
Every car is supposed to be “sporty” –even though most are ill-handling, chrome plated , low performance laughingstocks. And why?
The USA doesn’t have high speed Autobahns, its top speed is 65 ,and most of our Interstates are greatly overcrowded due to lack of infrastructure investment. What can a high performance Euro-sedan DO here?
Besides, most of the people driving the BMWs, etc obviously never took a training class and don’t know how to drive them. Most of the owners I see are middle-aged farts who creep alone at 10 MPH under the speed limit. The only reason I can think of for why they bought their sports car is that they thought the cars would somehow make their dicks grow 2 inches longer and magically attract high school cheerleaders.
Yet GM’s story is that inside every Pontiac is a BMW struggling to get out.
By contrast, the vehicles built for utility have value. Because farmers, policemen and taxi owners don’t give a shit for flash and won’t accept crap designed to fall apart within 3 years.
How could GM build so many different models of car — and not build a single good one? (Except for the Cadillac I mentioned earlier.)
May 27th, 2009 at 1:16 pm
Kinda funny how back in the 50s everybody thought GM actually would do all those things Matt said.
Fact is, we’re just beginning to sober up after a 60-year binge drinking the world’s oil. We were all raised on tales of electricity too cheap to meter and atomic ships that run forever. These stories didn’t exactly square with filling the tank every third day, but 427 horses under the hood for the cost of a few hours labor was still magic compared with all of humanity’s previous existence.
I have no idea why the government couldn’t run GM as well as an executive class that doesn’t even understand global warming.
May 27th, 2009 at 2:35 pm
I’m not sure that I agree. Is your argument that generally superior outcomes occur when a firm can ignore the concerns of the environment, the workers, and various other interests.
As I see it, this has pretty much been the policy of the big three automakers in the United States. They concentrated on an increasingly incestuous and out of touch corporate culture which paid itself big rewards and attempted to disregard or overcome any constraint on their own impulses.
The result, through the 1970’s and 80’s was steadily declining market share and occasional financial crises. Hardly an endorsement of megacorporate capitalism.
In truth, the American Car industry wasn’t about capitalism at all, but about a sort of interlocking oligopoly. Unfortunately, the shared assumptions and conduct of that oligopoly has not fared well faced with actual challenges
So now, the Car companies have reached the point where they desperately need to be bailed out, and the answer seems to be “No.”
Well, I’m not so sure that’s wise. At this point, America seems wholesale into deindustrialisation and surrendering every commanding height of its economy to other nations.
At some point, you have to look at things and ask if we’re heading to the third world.
May 27th, 2009 at 2:54 pm
It’s only recently that Americans are getting used to the idea that small cars can actually be nice (like my new Honda Fit, which I love) rather than cheap and nasty econoboxes- and therefore can be worth paying more than rock-bottom prices for.
Well, yes and no. The Civic and Corolla, two nice and not rock-bottom-priced compact cars, have long been pretty successful. But I believe the market studies have shown that there actually isn’t that much cross-shopping between import compacts and domestic compacts, and I think what you are saying is correct about domestic compacts: few people in that market are willing to pay much of a premium.
Still, one might speculate that if the U.S. makers had marketed better small cars, then those expectations for domestic compact cars could have changed long ago . . . we’ll never know.
May 27th, 2009 at 9:36 pm
There is no good reason we need an auto industry in the United States. It is a saturated, globally subsidized market, and we take advantage of that best by getting rid of our share. Invest in the future.
May 28th, 2009 at 6:33 am
Re: its top speed is 65
This varies by state. In a number of states (e.g., MI, and FL) it’s 70, and in several western states it’s 75.
Re: most of our Interstates are greatly overcrowded due to lack of infrastructure investment
True only when you are near a major city (or during construction). Most interstates are not particularly crowded in their rural stretches, which comprises most of their mileage.
May 31st, 2009 at 10:54 pm
[...] poised to take a large ownership share in General Motors, both Mother Jones’ Kevin Drum and the Center for American Progress’ Matthew Yglesias are worried that “propping up GM … [is not] the best way of getting assistance bang for the [...]