Thursday, April 2, 2009

Obama's Losing Bet on Detroit

From Reason Magazine:

Obama's Losing Bet on Detroit
Nationalization won't save General Motors
Steve Chapman | April 2, 2009

In its final weeks, the Bush administration lent the automaker $13.4 billion, along with $4 billion for Chrysler. On Monday, President Obama gave GM 60 days to come up with a better plan before deciding whether to sink more cash into it. But he placed a large bet on its survival by promising to guarantee all GM and Chrysler vehicle warranties.

He also held out a shimmering vision of the Big Rock Candy Mountain, expressing faith that his policies can lead to "a 21st-century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us towards an energy-independent future."

Truth is, that industry already exists. The Big Three just don't happen to be a part of it. The United States has robust, job-creating, fuel-efficient automakers, in the form of companies like Toyota, Honda, and Subaru.

But they don't count in the eyes of this president, presumably because their employees don't belong to the United Auto Workers union. So he apparently couldn't care less how much they resemble what he fantasizes GM and Chrysler will soon become.

I sometimes wonder about the constitution and fairness. How can Government pick a winner? How is that legal? If GM goes down the people that will benefit are it's competators. If GM is subsidized the people that stand to lose are it's competators. If you have a job at a GM competator the government is a threat to your job no matter how stable your company is.

My favorite law is the law of unintended consequences.

What if GM goes bankrupt? What happens to Ford? By all accounts Ford is in a much better position that GM. Perhaps they use GM going down as the impetus to renegotiate with the unions and gain concessions that they never could have imagined back in the day. Perhaps Ford then snaps up the most profitable parts of GM from the bankruptcy proceedings. What you could have is a new Ford Motor Company. I have no crystal ball, but it is one possible future.

GM still have over 20% market share that Ford would like to divy up. A lot of people still take pride in buying "American" cars and Ford could look to grab a substantial windfall if GM were to go out of business on that front.

If the government steps in they won't be able to save GM. They also may doom Ford in the process. You never know with the law of unintended consequences.

And this is to say nothing to address the fairness of this plan to Toyota, Honda, or other companies that make cars here in the United States. Sphere: Related Content

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