Governments sorry history of running business

David Sanger:

As an assertion of government control over a huge swath of the industrial landscape, President Obama’s decision to reshape the automobile industry has few precedents.

In essentially taking command of General Motors and telling Chrysler to merge with a foreign competitor or cease to exist, Mr. Obama was saying that economic conditions were sufficiently dire to justify a new level of government involvement in the management of corporate America.

His message amounted to an inversion of the relationship that had helped define the rise of American manufacturing might in the 20th century; now, Mr. Obama seemed to be saying, what is good for America will have to be good enough for General Motors.

In the past, the United States government had briefly nationalized steel makers and tried to run the railroads, with little success. In the last nine months it has taken control of the American International Group insurance firm and Fannie Mae and Freddie Mac, firing their management as well, at a cost that dwarfs what is unfolding in Detroit.

But directing the fate of a vast manufacturing company, one that still looms over the Midwest, is an entirely different kind of enterprise. And at a time when economists are debating the merits of nationalizing sick banks and pouring more taxpayer money into the economy, it raised the question of whether deteriorating circumstances were leading the administration down a path to deeper intervention in the private sector.

In presenting the automobile plan on Monday, Mr. Obama suggested just how tricky it can be for Washington to wade into the marketplace: He declared that the government would back up warranties on Pontiacs and Buicks and the rest of the G.M. and Chrysler product lines, so that consumers would have no fear of buying those cars.

It may have been a necessary step, but it means that the government now is not only the ultimate guarantor of savings accounts and insurance policies — it will also cover that blown transmission.

When he stood in the White House to unveil his approach, Mr. Obama took pains to assure the country — twice — that “the United States government has no interest in running G.M.”

No interest, perhaps, but also no choice.

...

And with no edge to his voice, he left hanging the threat that he might yet force G.M. into a quick, managed bankruptcy, if it was the fastest way to remake the company. That message was directed at G.M.’s reluctant bondholders, an unsubtle warning that they must negotiate to get 16 or 20 cents on the dollar — or risk getting far less.

...

He argued that without action, production would cease — and the country would be left with no domestic carmakers. (He sidestepped the question of whether Japanese, German and Korean transplants in the South constitute an American industry, but clearly their model is what he is hoping to replicate and best.)

...

It is strange that Sanger forgot about Ford which is not asking for a bailout and is continuing production running triple shifts at its F-150 plant. Perhaps that is why it was not mentioned since liberals think they now can force people to buy cars they don't want.

Bankruptcy would probably still be a better option for GM than what the Obama administration is pushing. The bondholders could push them into it if they think they can get a better deal. That would also force the hand of the UAW which has been the real prick in the side of the industry. One reason why the UAW has refused to offer GM the terms they agreed to with Ford is they think they can get a better deal from Obama. If they were forced into bankruptcy it is likely they would get a worse deal.

I don't think Obama's assurances on warranties is going to save sales at Chrysler and GM. Government guarantees on deposits are a simple thing, but on things like warranties, not so much. I would rather have a Ford, Honda or Toyota warranty. I suspect others would too.