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What’s Good for America is Good For GM

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Is this the future of the Big Three?

Is this the future of the Big Three?

David Brooks in today’s NYT suggests that bailing out the Big Three US car companies is a bad idea. While I have some doubts about his ideologically driven “creative destruction” thesis, the notion that some US Government Car Czar is going to be able to prevent these monoliths from going over the precipice is absurd. They are beyond recall in their current form. I come from the UK and back in the seventies we experimented with nationalizing the once glorious British car industry. British Leyland was the result and it was a national joke.

There are many well documented reasons that the Big Three can’t be saved; ranging from massive legacy costs, onerous union agreements, byzantine, slow moving management, being enslaved by short term stock prices, outmoded technology, and of course bad, boring cars. These companies as they are now are from another era. They are inherently dysfunctional, and need to go.

It’s sobering to realize that despite having market capitalizations of around two to three billion dollars, neither GM and Ford have been snapped up by domestic or international buyers. Even asset strippers aren’t interested. The reason is simple. The sheer weight of their outstanding costs.

If the government should do anything it should take on these costs as an agreed stage in a sale of the companies. It’s absurdly territorial for Hank Paulson to suggest that saving the Auto Industry is not what the bailout money is for. The end of that program is to revive the US economy, not just fluff up the pillows for the financial system. His blinkered approach is a smokescreen for the failed free market ideology of his failed boss. Salvaging the mess that is the Big Three would be politically popular and economically sensible.

Health care and pension promises made by the companies must be honored. The pensions should be paid for current and past workers out of the Government’s pension fund, and current and past workers should be placed on the government health care system until the new system kicks in nationwide. Freed up from these costs, the companies could be sold to the highest bidder, and there would be many. The Big Three could be consolidated into one company or sold off in parcels, with specific specializations to encourage competition.

In return for reworking their debt, the government would receive preferential stock (like they recently purchased in the banks) with strict recoupment and interest requirements, and would insist on legislatively backed assurances from the new management that the vehicle range have gas mileage minimums of say 35 mpg, and that a given proportion of the range be hybrid, electric, and alternative fuel driven. There would also need to be assurances that new plant conform to alternative energy requirements. Finally, new owners would have to assure the government that they would not strip the assets of the companies, and continue the majority of their operations in the United States.

Under new management, and with a powerful infusion of foreign and domestic capital, plants could be retooled, workers retrained, and union agreements replaced. The UAW would have no role in the new system. Over time the US car market would be rebuilt and would be able to compete with its competitors. US workers would have jobs with a transformed system and sectors relying on the car industry would be able to thrive – after a leaner period.

This approach would enable professional auto people to remain at the helm of management, while freeing them up from constant financial concerns. In a decade or so, we’d be proud of GM and Ford once more – whatever banner they’re flying over their headquarters in Detroit.

Bailing out the Big Three without fundamental change and doing nothing would both end up the same way. Massive human wreckage, and a profound dent in what’s left of America’s manufacturing economy. Something has to be done.

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Written by coolrebel

November 14, 2008 at 2:26 am

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