GM: The Good Ole Days

After a century in business, General Motors will cease to exist as a private company in this – its 101st year.

Technically, it should have died last year, but the infusion of $13.4 billion in taxpayer money last October – and another $6 billion since – has kept it afloat.

Sort of.

Now, with the government in complete control of its destiny, GM is set to enter a White House-engineered bankruptcy that has even ex-Great Society types crying foul against Barack Obama’s effective nationalization of the granddaddy of the American auto industry.

Obama – who had previously promised to administer some long overdue “tough love” to the woefully mismanaged, union-bled giant – apparently didn’t have it in him to ignore all those UAW campaign contributions. So down Bailout Boulevard we go … again.

First, the particulars of the deal, courtesy of the AP:

The U.S. Treasury, which already has loaned GM $19.4 billion, would get 72.5 percent of the new company’s stock and provide $30 billion in additional financing to keep the new GM operating under bankruptcy protection.

Canada’s government is expected to provide an additional $9 billion, a senior Obama administration official said. The official spoke on condition of anonymity because of the sensitivity of the negotiations.

A United Auto Workers trust that will take over retiree health care expenses will get 17.5 percent, and the old GM, effectively owned by the bondholders, would get a 10 percent stake.

GM’s existing shareholders will probably lose everything. “It’s fair to say that there would be little to no recovery,” the administration official said.

You read that right … taxpayers are pumping another $30 billion into a company that’s a total loss, despite the fact that nobody else would invest in it and seventy percent of Americans have clearly stated they don’t want to put any more taxpayer money into GM.

Basically, GM went broke, nobody in the private sector would bail it out … and now the taxpayers are being forced to pick up the tab for this clunker.

And as if there was any doubt whatsoever as to who was forcing that turd of a deal upon us, consider this excerpt from a CNN Money report entitled “White House Lays Groundwork for GM Bankruptcy …”

Throughout next week, Obama will dispatch eight cabinet secretaries and other top administration officials to Ohio, Michigan, Indiana and Wisconsin to discuss the federal response to the auto-industry crisis. The involvement of so many high-level administration officials in such an effort is rare. It reflects the administration’s concerns about the impact of such a large bankruptcy filing on already-hard-hit Midwestern communities with large numbers of auto-industry jobs.

Actually, it reflects the administration’s unquenchable desire to take control of yet another piece of the private sector.

Not surprisingly, many who supported the initial GM bailout are now balking at this latest extension of foolhardy – and failed – government interventionism. Take former Lyndon Johnson/ Thurgood Marshall staffer Richard A. Posner, who wrote an absolutely magnificent piece on the impending GM “bankruptcy” entitled “A Failure Of Capitalism.”

Since we opposed the initial bailouts, there’s obviously plenty in Posner’s article we take issue with, but we couldn’t help but agree with his take on further taxpayer investment in this lemon.

Forgive the excessive citation, but here’s the last five graphs of his expert analysis …

The government says that it’s not going to interfere in management decisions. I don’t believe that. Quite apart from the political pressures that the United Auto Workers, and other entities that have a financial stake in General Motors, can be expected to exert on members of Congress and on the President, the Administration seems determined to preserve General Motors in order to (1) affirm the nation’s commitment to remaining a major manufacturer of motor vehicles and (2) advance the Administration’s goal of reducing oil consumption and (relatedly) carbon emissions. Achieving these goals will require the Administration to intervene, directly or indirectly, in the design and production and even marketing decisions of GM’s management.

Goal (1) is ridiculous. Nowhere is it written that the United States shall produce motor vehicles, any more than that it shall produce television sets, which it no longer does. If other countries, such as Japan, produce better motor vehicles (from the standpoint of price and quality–and of the health of the environment and of reducing our dangerous dependence on oil produced by unstable or hostile foreign countries) than the United States, we should import them, and reallocate the resources that go into the manufacture of motor vehicles to other productive activities.

But what makes goal (1) particularly ridiculous is that even if GM (and Chrysler) liquidated, there would be a thriving U.S. automobile industry. There would be Ford’’s production, and there would be the foreign cars that are manufactured in the United States. Toyota and the other foreign producers that have factories in the United States are part of the American automobile industry; their ownership by foreigners has no significance at all.

Goal (2)–operating GM in accordance with the environmental and foreign-policy goals of the Administration (which I happen to agree with)–confuses regulation with ownership. The government can without owning the manufacturers require them to comply with rules designed to make driving less harmful to the environment and to our need to reduce our dependence on foreign oil. All that the government’s owning GM will accomplish is to make the company a political plaything.

And then there is the $30 billion that the government apparently is planning to pour into GM so that it won’t just limp along but will become a vibrant, revitalized producer. We are becoming accustomed to thinking of anything less than a trillion dollars as small change. But as the government’s loans, investments, and guaranties mount into the stratosphere, the danger of the “depression aftershock” that I emphasized in my book and in a number of my blog entries grows, and a further $30 billion expenditure deserves critical scrutiny. We should be concerned lest GM become a kind of economic Vietnam, where the federal government throws good money after bad, year after year, in a vain quest for victory.

Amen, people.

And not for nothing, but when a former LBJ advisor tells you something you’re about to do is dumber than a land war in Asia … you might want to listen.

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