Saturday, May 30, 2009
IN MARCH, we cheered President Obama when he extended a federal lifeline to General Motors and Chrysler. He was risking a fair bit of tax dollars -- $6 billion, on top of $17.5 billion in emergency loans tendered since December -- but he said he was setting tough conditions for anything beyond that. "We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars," he said. "These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."
So how did we get from there to here? Here, according to media accounts this week, is an imminent transformation of General Motors into a government-owned company, infused with upward of $50 billion in federal money. The United States will accept stock in lieu of the cash the company owes, and Washington -- that is, you, the taxpayer -- will become the owner of 70 percent of the new GM. When might the company stand on its own, to paraphrase Mr. Obama? When would the government exit the stage? The Post reports today that administration officials hope to depart within five years, but the truth is that nobody knows when or whether taxpayers would recover their investment. If you think the federal government is well equipped to manage a failing automobile manufacturer into profitability, you should jump at this deal.
The bailouts were distasteful from the beginning, in December, but with the economy so fragile, a GM implosion might have been calamitous. Dealerships and auto-parts suppliers would have followed the once-mighty manufacturer into bankruptcy, taking a huge toll on employment. Even today, with the economy looking less shaky, that logic may still hold. Economists have warned against assuming too soon that the recession is waning. It could be too dangerous even now to leave GM to its own devices.
But is a massive, unbounded federal commitment to a company that evidently still can attract no private capital really the only option? It doesn't take much imagination to forecast the political pressures that will buffet the government-as-auto-executive. We've seen one effect already in the preferential treatment of the autoworkers' union at the expense of private creditors. The government sweetened its offer to creditors in the past couple of days, but they're still getting less return on their debt than the union is. Meanwhile, the union can boast that it has been promised no loss in "base hourly pay, no reduction in . . . health care, and no reduction in pensions." Influential members of Congress will insist on jobs in their districts; environmentalists will want electric cars; overseas sourcing will be frowned upon. How such decisions affect profits could become secondary.
In an essay this week on http://theatlantic.com, federal Judge Richard A. Posner argued that a further bailout may be justified -- if GM's failure to attract private investment stems from continuing problems in the overall credit market and not its own inefficiencies. If so, he wrote, the aid should take the form of additional loans, not ownership. "We should be concerned lest GM become a kind of economic Vietnam, where the federal government throws good money after bad, year after year, in a vain quest for victory."
When the Bush administration first assessed its unpalatable options, Congress played an active and constructive role. Where are the legislators now? They should at least be pressing the administration to explain why nationalization is the best option.