Not Your Father’s Bankruptcy

The president has launched us into the brave new world of car nationalization while disclaiming any intention to actually run the company he has taken over. As the Wall Street Journal editors note, this in all likelihood will be a long and expensive folly:

Back in December, in an economy far, far away, then-CEO Rick Wagoner tossed out the scary cost to taxpayers of $100 billion if General Motors wasn’t saved by the government. Well, GM was saved in December and again in March, and as early as today the feds will rescue it a third time in a prepackaged bankruptcy that is already costing at least $50 billion, and that’s for starters. Welcome to Obama Motors, and what is likely to be a long, expensive and unhappy exercise in political car making.

The idea that the Obama administration will be a hands-off shareholder is belied by the fact the Obama team has in meaningful ways already begun to do what governments do when they take over commercial concerns: run them as political operations. First, allies must be aided:

There’s also the labor agreement that the UAW approved last week, which goes some way toward reducing costs but probably not enough to make the new, smaller GM competitive. The new agreement simplifies some work rules and job descriptions but makes no reductions in hourly pay, pensions or health care for active workers. The agreement must also be renegotiated in two years by an Obama Administration running for re-election and weighing the need to keep Big Labor happy against the risks to taxpayer-shareholders. Who do you think wins that White House debate?

This is not your father’s bankruptcy, after all. The UAW is suffering no grievous redesign of its collective bargaining agreement as one normally sees in Chapter 11.

The government has not just taken over labor relations and directed where products are to be made; it has also told GM what type of products to make and who is to lead the company. None of this bodes well, as David Brooks explains:

[T]he Obama plan dilutes the company’s focus. Instead of thinking obsessively about profitability and quality, G.M. will also have to meet the administration’s environmental goals. There is no evidence G.M. is good at building the sort of small cars the administration demands. There is no evidence that there is a large American market for these cars. But G.M. now has to serve two masters, the market and the administration’s policy goals.

Even if we are to believe that the government would do nothing else for the remainder of its ownership tenure (that’s forever or until the company collapses again) it would still have exercised as much control as any board of directors. And it has done so in a way that makes it more likely the entire endeavor will collapse.

This horrid waste of money and destruction of the line between the public and private sector will, I suspect, prove an economic and political disaster. And while George W. Bush gets a measure of blame (for not ending the gravy train while he had a chance), taking the failing car company under government’s wing and directing its operation are solely Obama’s doing. And he will be left to explain GM’s continual dependency and ongoing failure.

One final note: the administration sold the stimulus plan on its ability to keep unemployment below 8%. He is selling the GM takeover as justified to keep unemployment below 10%. Let’s see if the latter prediction proves as faulty as the former.