Chrysler and GM will rise again. I don’t make many predictions, but I’m comfortable with this one. But can this public-private partnership model really work? Is it possible for the U.S. government to run–more or less–a large manufacturer at a profit? The answer is yes, but you can pay dearly for their profits.
Consider that Washington is already providing these companies with an endless stream of taxpayer capital other carmakers cannot access. Government funds are also being provided to their finance wings to make it easier for their customers to purchase cars. Research grants and incentives indirectly fund the development of vehicles that will be required in Obama’s new “green economy.” Revised CAFE standards and other regulations will add production costs to all carmakers, while Chrysler and GM (and perhaps Ford) will have some of these offset by government subsidies. Government-run healthcare could transfer a huge industry liability to taxpayers as well. In addition, Obama’s weak dollar policy, which is supposed to promote exports by making U.S. goods cheaper abroad (a debatable proposition), will raise the cost of imports. In other words, steps have already been taken to make it easier for Chrysler and GM to compete in future years, while making it more costly for Toyota, Honda, and others. And if all else fails, another stimulus for federal and even state governments to “update their fleets” by purchasing new vehicles from the Big 3 will prop them up even further.
If you are a conservative doubting the efficiency of government-manipulated industry, you are right. But many of the long-term bailout costs will be hidden under the guise of economic stimulus, research incentives, environmentalism, and the like. The survival of GM and Chrysler will not mean that “business-government partnerships” work well, but instead that our government has both the power and audacity to spend enough of our money to keep them afloat. I expect socialists and some moderates to praise Obama’s business acumen when U.S. auto production appears to turnaround some time before the 2012 elections. I also expect to see a Heritage Foundation study that calculates precisely how much we spent—DIRECTLY AND INDIRECTLY—to save the carmakers and the UAW.
So here’s a word to the wise. When others laud the current administration for shaking things up at GM and Chrysler, don’t get caught predicting their demise. I suggest that you forecast their success. I can’t tell you what they will look like in a few years, but the political stakes are simply too high for the Obama administration to allow the perception of failure. Just don’t forget to keep track of what it’s really going to cost us when we’re done.
Hi John
2 questions
1. Why hasn’t Ford sued yet?
2. Do you feel this has more to do with saving the UAW than Chrsyler and GM? The reason for this question is because it seems to me that if GM is going to send jobs to China and Canada what is the real point of saving them?
Obama has $2.6 billion in electric car research money to hand out. If the government has ownership positions with GM and Chrysler, guess who will be most likely to get this taxpayer money?
Rob: Suing the government is not an easy task. Ford will likely suffer from this arrangement, but doesn’t appear to have good options, at least as far as I can tell. Yes, this has EVERYTHING to do with saving the UAW, and organized labor as a whole.
I am listening to you on the Wilkow Majority and thought I would check out your blog. I bought a brand new Ford F-150 XL on Saturday because they have not taken money from the government and I needed a new truck for a job I have taken. I once preferred GMC trucks but after driving this Ford I was sold. I do want to own a Government Motors vehicle when there are better vehicles out there. I did notice that the GM dealership next to the Ford dealership where I bought my truck was like a ghost town. Go Ford!
One reason why General Motors failed was that successful trade unions demanded more all the time, so that a GM car cost about $1,500 more than a similar Japanese car, and that the government tried to protect it from competition rather than forcing it to become more competetive. Now Barack Obama is trying to build a GM future by giving the government and the trade unions ownership and power. Good luck on that one.
This is what The Economist wrote about this horribly expensive Greek tragedy 20 years ago:
“If the once-mighty GM can not find a way to reverse its slide, the next decade might be the company´s last. By the turn of the century, break-up or bankruptcy (and the inevitable government rescue) could well be the fate of a company which was once America´s proudest manufacturer… GM could end its days as a decaying monument to the glory days of American manufacturing.”
http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=9177783&story_id=E1_TPSNQGJR