GM Bankruptcy’s Biggest Losers: Taxpayers, Car Buyers and Ford Motor Company

by Penny Wise

Now that General Motors has entered bankruptcy proceedings, President Obama says he wants politics out of the restructuring of GM, even though taxpayers own over 60 percent of the company. "What we are not doing — what I have no interest in doing — is running GM,” Obama told reporters the day the General Motors bankruptcy was announced.
Steven Rattner, the Obama administration’s lead advisor on the auto industry, clearly defined the administration’s preferred role in the bankruptcy by saying, "No plant decisions. No job decisions. No dealer decisions. No color-of-car decisions. Those are all going to be left for management. We think that getting involved in day-to-day matters, first, is not our core competency, and second, is subject to enormous peril of political interference. And so it is simply easier to draw a very thick, firm black line than to start dealing in shades of gray."
That may be easier said than done. From plant closings, to dropping local car dealers, to setting new mileage standards, Democrats in Congress see the General Motors bankruptcy as an opportunity to use politics, and not common business sense, to reshape the new General Motors. "I think members will express themselves for sure. We should do that," said Rep. Sandy Levin, a Michigan Democrat.
Much like healthcare reform, the Democrats in Congress are eager to take over the debate on General Motors and ignore the administration’s plea to keep politics out of the process. Republican Senator Bob Corker of Tennessee warned about this by saying, “There’s nothing that happens in Washington, nothing, that isn’t tainted by politics. What everybody in America should fear is that there will be undue political involvement.”
Relying on politics instead of market forces will make taxpayers, car buyers, and the Ford Motor Company the three biggest losers if the Democrats in Congress ignore the Obama administration’s hands-off policy with the General Motors bankruptcy and play political favorites.
  • Taxpayers will lose because playing politics instead of letting free market forces work will require continuing taxpayer subsidies to keep the new General Motors alive. If Democrats in Congress force the new company to re-open unneeded factories or to keep unprofitable dealerships, those costs will be paid for by the taxpayers, holding down the value of the taxpayers’ 60 percent share in the company.
  •  Car buyers will lose because the Democrats in Congress, and not the marketplace, will dictate the style and cost of new automobiles produced by the new General Motors.
  •  Ford, the only original “big three” automaker to survive without government assistance, will lose because it will be unable to compete with the advantages that Democrats in Congress give the restructured General Motors, and it will be unable to overcome the barriers created to promote the new GM.
Even worse, economist John Kay believes that active political involvement in business decisions — political involvement that Democrats in Congress seem unable to resist even at the Obama administration’s urging — produce even greater unintended consequences for society. Kay writes that “Any form of selective government support distorts competition. To win such subsidy today, the companies concerned must, like General Motors and Citigroup, be both large and unsuccessful. It is difficult to imagine a policy more damaging to innovation and progress.”
And what makes Congressional Democrats think they can successfully oversee a major automotive company? Joseph B. White, a senior editor of the Wall Street Journal who lives in Detroit and writes frequently about the automotive industry, recently warned about inserting politics into the car business by saying, “As I have tried to suggest, it's hard enough for professional managers and technicians — who have a clear profit motivev— to run an enterprise as complex as a global car company. What will be the fate of a quasi-nationalized enterprise whose ‘board of directors’ will now include 535 members of Congress, plus various agencies of the Executive Branch? As a property owner in suburban Detroit, I can only hope for the best.”
We all get taken for a ride when Democrats in Congress are unable to resist playing politics, especially in an industry where they have no expertise.


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