- The Washington Times - Friday, February 20, 2009

ANALYSIS/OPINION:

ANALYSIS/OPINION:

The restructuring plans that General Motors and Chrysler submitted this week to the U.S. Treasury Department as a condition of getting loans under the Troubled Asset Relief Program are supposed to demonstrate how the companies will restore their profitability. But presumably auto manufacturers have been trying to restore profitability for several years, so it is unclear why plans drawn up under extreme pressure and intended to please government minders will be any more effective than the strategies that brought them to the verge of bankruptcy in the first place.

The car companies have asked for more than double the initial amount of loan money - and why not? The $39 billion loan total is picayune compared to the hundreds of billions given away in the stimulus bill, and a pittance next to the trillions of dollars in public largesse doled out to the banking industry under the same TARP. GM further warned that a bankruptcy scenario could cost the government upwards of $100 billion. Strange how it would cost more for them to go under than not.

Government loans may keep the automakers alive, but in return the government is asking the impossible. It wants to see plans that guarantee the future viability of the auto companies. But there are no such guarantees in business. And the auto industry will not rebound by reaching a more favorable union agreement on health benefits; it has to build affordable, efficient and stylish cars that consumers want to buy. No government task force or auto company strategic plan can guarantee that.

We are reminded of the Partnership for a New Generation of Vehicles, a quixotic project championed in the 1990s by then-Vice President Al Gore, who had previously called the automobile “a mortal threat to the security of every nation.” The PNGV supercar was to get 80 miles to the gallon and cost no more to operate than standard cars. President Clinton stated at the outset, with no worry about understatement, that the PNGV was “a technological venture as ambitious as any our nation has ever attempted.” But the program never delivered the promised supercar, though according to the PNGV web site (which only Al Gore could have written), it is “directly and indirectly responsible for almost all of the new technologies we see today.” An amazing claim for a government program few even remember. Industry analysts contend that the only significant impact was to frighten the Japanese into developing affordable hybrid vehicles.

There is no reason to expect that the government can successfully evaluate or manage the restructuring of two of the big three automakers. The government’s own restructuring attempts of far simpler entities have traditionally been slow and cumbersome, resulting in high-cost bureaucratizing rather than low-cost streamlining. And since government is immune from market mechanisms like having to turn a profit or balance a budget, it brings little to the discussion other than a checkbook and an attitude.

Supporters of the government intervention say that it is justified because “things couldn’t be worse.” That may be true. GM stock is down 90 percent in the last year. The once feisty and independent Chrysler was dumped by Daimler and now looks to Fiat for salvation.

Ford has wisely chosen not to seek federal loan money and the attached strings. This establishes a useful control group for this latest experiment in big government intrusion into the marketplace. Will GM and Chrysler benefit from government help managing their businesses, or will Ford surge ahead as Washington starts to bring all the benefits of central planning to their competitors? It will be like watching East versus West Germany, or North versus South Korea. But it is pathetic to see the automakers who have so decisively failed the American consumer and their stockholders go hat in hand to the government. Things worked differently in FDR’s time. When GM founder William Durant’s later venture, Durant Motors, went bankrupt during the Great Depression, he career-shifted to managing a bowling alley in Flint, Mich. Maybe that is the kind of incentivization the auto executives need to do their jobs better.

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