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June 02, 2009

Goverment Motors: Bailouts Forever, with Government Making All "Fundamental Corporate Decisions" (i.e., Every Decision of Consequence)

Issue One: Is $50 Billion the end of the bailout pie? A: No.

“We don’t think that after this next $30 billion, they will need more money,” one administration official said. “But the fact is there are things you don’t know — like when the car market will come back, and how much Toyota and Honda and Volkswagen will benefit from the chaos.”

That official isn't saying 'We gave them $50 billion. If that's not enough they're on their own. Maybe the UAW will even have to take a wage cut.' The official is saying "We gave them fifty billion but if that's not enough to let them compete with Honda then 'they will need more money.'"

Kaus also points out that our memes are wrong on this. If we want to win the issue, we have to stop framing this as bondholders vs. the unions. The general public are not bondholders in GM or Chrysler nor are they members of the UAW. They may have purely intellectual opinions on this, but, not actually having any skin in the game, they're not going to be moved by such debates.

The proper way to phrase it, Kaus advises, the UAW vs. all the other working stiffs who now are forced to subsidize UAW workers' salaries -- and the UAW workers were already making more money than the other working stiffs to begin with.

Byron York wonders if this will be Obama's "tipping point" -- the point at which the unpopularity of his policies actually starts dragging down his personal popularity rating. Thusfar the two have been largely independent of each other.

I'd say the answer to that is "no," and that the tipping point will actually come in six months to a year, as the economy continues to falter.

But note that GM will in fact be Government Motors:

Those numbers might worsen in coming weeks. Obama knows the public doesn't want the government to run GM and Chrysler, which is why he has said hundreds of times that the government has "no interest" in running the automakers. But on Monday, at a White House event to hail the GM bankruptcy, he gave away the game when he said the feds will stay out of running GM "in all but the most fundamental corporate decisions."

It didn't take any parsing to realize that in Obama's vision, the government will let GM management handle the small stuff, but when something really, really matters, the new owner -- the United States government -- will do the deciding.
During a telephone briefing with reporters the night before Obama's speech, a senior administration official made the point even more explicitly. "The government will not interfere with or exert control over day-to-day company operations," the official said. "As a shareholder, the government will limit what it votes on to core governance issues, particularly the selection of the company's board of directors; major corporate events or transactions."

The bottom line: No government interference with the automakers, unless it involves a "fundamental corporate decision," or the selection of the companies' boards, or a "major corporate event" or some important transaction. Obama has placed a giant asterisk next to his pledge not to run GM and Chrysler.

Does anyone believe that the government will be able to run GM better than its executives did? Granted, GM's executives didn't do a very good job. But the government will be worse. While the executives were cowed by the UAW, Obama's confederacy of dunces actively courts them.

And whereas the executives made their decisions based on what the public actually wanted in a car, Obama's brigade of retards will make decisions based on what they believe the public should want in a car.

This doesn't work, of course. If GM could just impose its ideas of what the public should want in a car, they wouldn't be in bankruptcy, as all their models would be selling like hotcakes. (The public should want these cars, after all.)

In addition, Government Motors will be playing not to its own strengths but to the strengths of its competitors. SUVs have been one of the few profitable types of cars because labor costs for such cars are relatively low compared to the price of the vehicle; for such cars, then, the high costs the UAW imposed on each car they made were a smaller fraction of the vehicles' total costs, and thus more hidden and more palatable.

Government Motors is gong to try to beat the Japanese and Koreans at their own game in smaller, lighter, more gas-efficient cars -- where labor costs are a bigger part of the total cost. (Less steel and other material costs in such vehicles means that labor is a greater fraction of overall cost.) So Obama will continue pandering to the UAW while focusing on those cars where the UAW's outsized demands make American cars even less competitive.

Eh, no problem: Obama will begin talking up the number of automobile sales he's "created or saved" with his bailout. Sure, GM's sales will tank, but you know what? Obama has secret data proving that even fewer cars would have been sold without his brilliant intervention.



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posted by Ace at 03:43 PM

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