Monday, June 1, 2009

"Our company goes with the welfare of the country"

In 1953 “Engine Charlie” Wilson, President of GM, was tapped by US President Eisenhower to become secretary of defence. At his Senate confirmation hearing he was asked whether he could make a decision in the interest of the US that was adverse to the interest of GM.

He said he could and then reassured the Senate that such a conflict would never arise. “I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa. Our company is too big. It goes with the welfare of the country.”

In 1953, GM was the world’s biggest manufacturer. It generated 3% of US gross national product. It was also America’s largest employer, paying its workers solidly middle-class wages with generous benefits.

Today it will declare bankruptcy and before the sun sets the US taxpayer will own this once mighty corporation.

But why would US taxpayers want to own today’s GM?

Robert Reich, the US labor secretary under President Clinton, asks that very question in a Financial Times article.

Now Reich is just about the last person one might expect to criticize the Obama Administration bailout of GM. He is a unapologetic liberal, yet criticize he does.

And his logic is similar to the arguments made about the bank rescue operations.

Unlike some other commentators, who would be happy to see Big Auto fail. Why? Because Reich believes the social cost will be too great (if nothing else, for the hit it will deliver to GDP). Reich strongly disagrees with the bailout program, which he sees as wasteful and intellectually dishonest.

So... it a very public column Reich asks, why would US taxpayers want to own today’s GM?

"Surely not because the shares promise a high return when the economy turns up. GM has been on a downward slide for years," wrote Reich. "In the 1960s, consumer advocate Ralph Nader revealed its cars were unsafe. In the 1970s, Middle East oil producers showed its cars were uneconomic. In the 1980s, Japanese carmakers exposed them as unreliable and costly. Many younger Americans have never bought a GM car and would not think of doing so. Given this record, it seems doubtful that taxpayers will even be repaid our $60 billionn. But getting repaid cannot be the main goal of the bail-out. Presumably, the reason is to serve some larger public purpose. But the goal is not obvious."

"It cannot be to preserve GM jobs, because the US Treasury has signalled GM must slim to get the cash. It plans to shut half-a-dozen factories and sack at least 20,000 more workers. It has already culled its dealership network."

"The purpose cannot be to create a new, lean, debt-free company that might one day turn a profit. That is what the private sector is supposed to achieve on its own and what a reorganisation under bankruptcy would do."

"Nor is the purpose of the bail-out to create a new generation of fuel-efficient cars. Congress has already given carmakers money to do this. Besides, the Treasury has said it has no interest in being an active investor or telling the industry what cars to make."

"The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise. Yet if this is the goal, surely there are better ways to allocate $60 billion than to buy GM? The funds would be better spent helping the Midwest diversify away from cars. Cash could be used to retrain car workers, giving them extended unemployment insurance as they retrain."

In Canada it is now estimated the total bailout to GM and Chrysler will reach $13 billion from the federal and Ontario governments alone (excluding the Americans). That means most of the additional federal deficit this year is directly attributable to the auto bailout.

Today is a sad day and my thoughts go out to all the families affected in factories, dealerships and parts manufacturers.

But like Reich I have to ask, Why?

At $1.5 million per job saved, it isn't worth it.


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