Corporate Motors Failed - Can Government Succeed?

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David Brooks, in my view, is a respectable writer and part-time talking head who I find myself agreeing with only about 30% of time.

In his OP-ED titled The Quagmire Ahead, Brooks believes President Obama's bureaucratically smart and financially tough plan to help resurrect GM is not built to overcome the corporate culture that sits at the core of G.M.’s woes. He lays out six points explaining why he thinks the plan will only make things worse. I respectfully disagree on all counts except one.

Brooks Excerpt:
First, the Obama plan will reduce the influence of commercial outsiders. The best place for fresh thinking could come from outside private investors. But the Obama plan rides roughshod over the current private investors and so discourages future investors. G.M. is now a pariah on Wall Street. Say farewell to a potentially powerful source of external commercial pressure.

But outside investors generally bring with them a small army of number crunching efficiency experts whose primary activity is boosting profits by cutting corners on product. Sometime down the road perhaps, but that is the last thing GM needs right now.

Brooks Excerpt:
Second, the Obama plan entrenches the ancien régime. The old C.E.O. is gone, but he’s been replaced by a veteran insider and similar executive coterie. Meanwhile, the U.A.W. has been given a bigger leadership role. This is the union that fought for job banks, where employees get paid for doing nothing. This is the organization that championed retirement with full benefits at around age 50. This is not an organization that represents fundamental cultural change.

Ahh - but this is the beauty to the so-called Obama plan. The UAW will no longer be just a “worker” entity with risk-free contractual obligations from GM, they will now have a genuine risk taking role in GM as an “investor.” If you want to change the mindset of any worker, give them an actual share in the profits and losses of what they produce. The only problem I have with this is why should labor make any concessions at all? If they are to be held responsible for the failures of GM and Chrysler – why is Ford surviving? Wall Street collapsed and burned through nearly $600 billion in six months without any union management to blame. How was that possible?

Brooks Excerpt:
Third, the Obama approach reduces the fear that impels change. The U.S. government will own most of G.M. It would be politically suicidal for the Democrats, or whoever is in power, to pull the plug on the company — now or ever. Therefore, the current managers can rest assured that they never need to fear liquidation again. There will always be federal subsidies for their own mediocrity.

I really don't believe Obama or Congress, any congress, wants to own General Motors for any duration beyond this crisis. It’s impossible to predict the future, but if GM can't compete under these terms, no amount of Federal subsidies will save them. People are already fed up and only days have passed by.

Brooks Excerpt:
Fourth, the Obama plan dilutes the company’s focus. Instead of thinking obsessively about profitability and quality, G.M. will also have to meet the administration’s environmental goals. There is no evidence G.M. is good at building the sort of small cars the administration demands. There is no evidence that there is a large American market for these cars. But G.M. now has to serve two masters, the market and the administration’s policy goals.

This point is complicated to rebut. Like most corporations, GM has always had several masters to serve including stockholders. ALL automakers will have to meet the government's environmental goals. And we can't forget about the "two fleets" rule, which requires domestic automakers to meet EPA average fuel mileage standards. Smaller cars play a huge role in meeting those goals. Even without that, there is a market for high fuel economy cars and there's plenty of evidence that demand is about to explode. We are only just another oil crisis or gas tax away from it.

Brooks Excerpt:
Fifth, G.M.’s executives and unions now have an incentive to see Washington as a prime revenue center. Already, the union has successfully lobbied to move production centers back from overseas. Already, the company has successfully sought to restrict the import of cars that might compete with G.M. brands. In the years ahead, G.M.’s management will have a strong incentive to spend time in Washington, urging the company’s owner, the federal government, to issue laws to help it against Ford and Honda.

What’s wrong with lobbying to move production back to the states? Are we on some kind of a suicide mission? Isn’t the whole point to this exercise about job creation and redeveloping a sustainable manufacturing sector once again in America? We still have trade agreements to honor and I just can’t believe Congress would enact laws to discriminate against brands. Besides, that window of opportunity closed years ago when government could have had an impact against the foreign invasion over 40 years ago. Instead, the U.S. government led the way knocking down competitive barriers and trade restrictions.

Brooks Excerpt:
Sixth, the new plan will create an ever-thickening set of relationships between G.M.’s new owners — in government, management and unions. These thickening bonds between public and private bureaucrats will fundamentally alter the corporate culture, and not for the better. Members of Congress are also getting more involved in the company they own, and will have their own quaint impact.

This is one I truly worry about. On the local scale here in Janesville, it has become fully acceptable to mix private ventures with public money. In fact, the city administration rarely makes a move for private economic development without meeting behind closed doors to negotiate some kind of a TIF District or a TIF bridge loan, resource hand-out, land give away, soft leases, or impossibly unrepayable forgivable loans. On the state level, the handing out of mobile and portable business tax credits are assumed to be the only thing standing in the way of economic prosperity for all. The problem is it's always the same no matter what form a public/private partnership takes - the losses are always socialized.

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