Illegal. Illiberal. Ill-Fated.

Why Washington shouldn't run Detroit

Jacob Sullum, Matt Welch & Ronald Bailey from the August/September 2009 issue

(Page 5 of 5)

Once again, all other things being equal, higher costs mean that the energy industry will raise the prices of its goods and services to consumer and producer alike. Consumers will buy fewer goods, and producers will either pass along the price hikes or take a deeper hit on their profits. Considering that G.M. lost more than $1,000 per every vehicle sold in the U.S. during 2007 (compared to Toyota, which earned more than $2,000), this new cost could make a bad situation untenable.

Though the president and his supporters continue to pretend that the solution to man-made global warming will cost virtually nothing while producing more jobs than it destroys, members of his own administration were singing a different tune as recently as last year. In testimony before the Senate Energy and Natural Resources Committee in 2008, Peter Orszag, now Obama’s director of the Office of Management and Budget, admitted that a 15 percent cut in carbon dioxide emissions would reduce American incomes. According to Orszag, the lowest quintile of households would pay an average of $680 more each year for goods and services (3.3 percent of their incomes), and the highest quintile would pay $2,180 more (1.7 percent of their incomes) than they would have in the absence of carbon rationing.

In July 2007 Orszag, then head of the Congressional Budget Office, noted that a “cap-and-trade program would lead to price increases for energy and energy-intensive goods. Such price increases would occur regardless of whether the government sold the allowances or gave them away.” Orszag added, “Those price increases are essential to the success of a cap-and-trade program because they are the most important mechanism through which businesses and households are encouraged to make investments and behavioral changes that reduce CO2 emissions.”

An era of permanently higher fuel prices would produce far-reaching changes in the ways companies do business, hitting consumers hard at the pump. And as we learned definitively in 2008, Americans respond with alacrity to higher fuel prices: As gasoline soared to over $4 per gallon, total auto sales declined, transit ridership increased, and consumer demand for smaller cars rose by 37 percent over the previous year. There is no reason to expect higher gas prices to result in increased car sales.

Both Chrysler and General Motors are down more than 50 percent in sales this year from 2008. For the first time ever, Toyota—with its healthy, bailout-free factories in the South—is projected to surpass G.M. as the domestic market leader in 2009.

At press time, the U.S. government had just taken 60 percent ownership of G.M., giving 17.5 percent to the United Auto Workers (UAW) and issuing $30 billion in new loanswhile steering the once-proud company through Chapter 11 bankruptcy. Pending various court actions, Chrysler, after an iron-fisted bankruptcy process in which the government favored the UAW over bonded creditors, will be owned 55 percent by the union, 20 percent by the Italian automaker Fiat, 8 percent by the U.S. government, and 2 percent by the governments of Canada and Ontario.

“We cannot,” Obama said in March, “make the survival of our auto industry dependent on an unending flow of tax dollars. These companies—and this industry—must ultimately stand on their own, not as wards of the state.” Yet now that the state owns the auto industry, is guaranteeing its warranties, and is bailing out its parts suppliers, it will be easier than ever to use Detroit as a submissive vehicle for imposing costly new climate change rules. When those rules lead inevitably to reduced sales, pressure will intensify on Obama to fulfill his other promise from that same March speech: “We cannot, we must not, and we will not let our auto industry simply vanish.”

The president now has the power to prevent the Big Three automakers from vanishing. Whether he can force consumers to buy their products is another story.

Ronald Bailey ([e-mail]) is reason’s science correspondent.

Comments

|7.13.09 @ 5:11PM|#

And why Al Gore shouldn't run the world:

Gore: U.S. Climate Bill Will Help Bring About 'Global Governance'

http://www.climatedepot.com/a/1893/Gore-US-Climate-Bill-Will-Help-Bring-About-Global-Governance

THE CAT IS OUTTA THE BAG!

Paul|7.13.09 @ 5:20PM|#

a company created and owned by Fiat, the United Auto Workers, and the U.S. and Canadian governments.

Could there be a combination of words put into one sentence that would be more laughable and inspire less confidence than the ones quoted above?

MNG|7.13.09 @ 5:20PM|#

Because only the private sector could run car companies well!

Er, that is...

MNG|7.13.09 @ 5:22PM|#

Paul
How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...

Timmy|7.13.09 @ 5:28PM|#

MNG, don't you ever get tired of sucking union dick?

MNG|7.13.09 @ 5:30PM|#

Timmy
Your mom and I have the same color eyes, but please don't confuse us!

|7.13.09 @ 5:35PM|#

How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...

Sure. Thousands of businesses fail every year.

Your point, MNG?

|7.13.09 @ 5:38PM|#

Because only the private sector could run car companies well!

Government doesn't do anything "well" ya moron.

Yeah, like MNG says, the only possible way to run a car company is with a "Five Year Plan" designed by people who's main success in life is similar to "American Idol", that will work.

How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...

A typical absurdity, Toyota, Honda and Kia seem to be doing OK, in spite of government subsidies to their competition. Probably something to do with their freedom not to be owned by their employees?

And Timmy, in answer to your question, no.

Timmy|7.13.09 @ 5:40PM|#

MNG, you have miles to go before you come close to equally joe's in regards to mother/sister jokes.

Don't bother.

kinnath|7.13.09 @ 5:44PM|#

After decades of watching the US government pressure European companies to divest their interests in car and airplane companies to allow free and fair competition, we know have the US government taking major ownership positions in two of the three American brands.

Even if you assumed that the government could actually make GM and Chrysler run better, the conflicts of interest between owner and regulator of a major industry like manufacturing cars will poison the entire US, if not global, market.

God Fearing Atheist|7.13.09 @ 5:48PM|#

Scores:

Sullum: A
Welch: C-
Bailey: B

for their attempts to effectively make their respective points.

For the record I agree with all 3 points but some were better illustrated than others.

LibertarianBlue|7.13.09 @ 6:01PM|#

Im glad I drive a Ford now.

Tricky Prickears|7.13.09 @ 6:09PM|#

...Toyota, Honda and Kia seem to be doing OK,...

I was under the impression Toyota and Honda are not doing OK, and are receiving subsidies from their government. But here we are. In essence, defending companies of foreign countries, that come into the US to set up their own factories, to directly compete with American manufacturers. Is there an irony in this? It seems most of the hoopla is coming from the states that allowed these foreign manufacturers into their states. So, here we have American politicians, defending these companies, and their governments, against American companies. Is this what manufacturing in general, in this country, destined to become? Really. What other car manufacturers are there? It's not like government intervention into GM and Chrystler is going to have any adverse effects on any other small or medium size car manufacturers, because there aren't any (unless you include DeLorean). And Ford isn't exactly clear yet either. Now, when you start talking about propping up big banks, to the detriment of smaller community banks, that's a different story. I despise Corporatism and Neo-Corporatism, but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.

kinnath|7.13.09 @ 6:41PM|#

. . . . but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.

I remember when Zenith died. I didn't shed a tear for them then, I won't for GM or Chrysler.

The US government should give a rat's ass for whether or not a poorly run company goes under.

GM sucks union dick too|7.13.09 @ 6:56PM|#

What's "American" about GM, other than the location of their central corporate office? America's parasites are nothing to be proud of! If "foreign" car companies are setting up shop here in America, bringing more efficient and more affordable cars to our shores along with more manufacturing jobs (that don't come attached to anti-American unions like the UAW), I'd say those are the truly American companies, not the home-grown union dick suckers who leech off our nation's credit and credibility to try to push their crappy bailout plan to us.

Speaking of those crappy bailout plans, this recent spoof of one of GM's more retarded recent ads says pretty much all you need to know about parasitic "American" car companies:

http://www.youtube.com/watch?v=ts_fZStHYbA

Jordan|7.13.09 @ 7:00PM|#

So, here we have American politicians, defending these companies, and their governments, against American companies.

Tough shit. You don't seem to mind the government getting involved and propping up companies in the marketplace. Sometimes they pick companies you don't want them to pick. Perhaps they shouldn't be involved at all?

What other car manufacturers are there? It's not like government intervention into GM and Chrystler is going to have any adverse effects on any other small or medium size car manufacturers, because there aren't any (unless you include DeLorean).

And of course propping up these gargantuan losers will only serve to prevent new companies from entering the market.

I despise Corporatism and Neo-Corporatism, but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.

So really what you meant to say was "I don't have a problem with Corporatism and Neo-Corporatism."

General Motors: For Reals This|7.13.09 @ 7:12PM|#

Let's be completely honest... You're an asshole for not buying our cars.

I'm sorry, I didn't mean that.

The American taxpayers gave us 50 billion dollars... and we spent a lot of it on this ad: that shot required a helicopter; cha-ching!

But don't worry about General Motors. From now on, we're going to be so super-good at all that car stuff...

How? Well, here's the game plan in clear, plain English:

Horses.
Space.
Amputees.
Lightning.
Windmills.
Baseball.
Solar panels.
A sad black guy.
Dogs.
Foam hands.
Joe Louis.
And butterflies.

Still concerned? Don't be. Because the only chapter we're focused on... is Chapter 1.

Excuse me, I misread that. I meant Chapter 11.

Y'know... on account of the bankruptcy.

|7.13.09 @ 7:29PM|#

... because the government take over of the auto industry worked so well in England during the late 60s and early 70s.

Tricky Prickears|7.13.09 @ 7:39PM|#

And of course propping up these gargantuan losers will only serve to prevent new companies from entering the market.

Are you kidding? What possible prospects are there for any car manufacturer entering the market?

Perhaps they shouldn't be involved at all?

No, they shouldn't be. Especially when it comes to foreign companies. And OK, I have a soft spot for GM. Call me a sentimental fool.

So really what you meant to say was "I don't have a problem with Corporatism and Neo-Corporatism."

No, I'm calling exception.

Damn, I knew I was going to get into trouble on this one. I let my emotions get the better of me.

Paul|7.13.09 @ 7:41PM|#

How about a company created and owned by profit motivated individuals and rational self-interested investors?

Oops, MNG, you fucked up. You stepped in it, and I'm sorry, but I'ma gonna hafta kick ya while you're down.

You see, in this here libertarian world of ours, the profit motivated individuals and rational self interested investors take a bath when their operation isn't run well. See where I'm going with this? See?

*pausing to make sure you fully grasp where I'm going with this*

Amtrak.

What's that you say? What does that random word have to do with any of this? Amtrak? Wha?

Yes, Amtrak. GM is the next Amtrak. Oooh lookey! Someone else thought of this analogy too!

So your snarky retort, MNG, only serves to bolster the libertarian position. GM is supposed to fail. Chrysler, fail. All of them, FAIL. But the Party of Corporate Welfare just can't seem to let them do it. So in reality, you've offered a non-sequitir as a solution. "Well, if Big Al can't succeed in running a bowling alley properly, then by god, the Obama administration will have to do it."

In case you haven't figured out The Point(tm), the Obama administration has No Fucking Business Running Big Al's Bowling Alley.

|7.13.09 @ 7:56PM|#

Welcome to Italy, 1925.

Attmay|7.13.09 @ 8:23PM|#

Can't wait to drive a GM Trabant.

MNG|7.13.09 @ 9:03PM|#

"A typical absurdity, Toyota, Honda and Kia seem to be doing OK, in spite of government subsidies to their competition."

Yeah, Japan never provided any support for those companies!

|7.13.09 @ 9:35PM|#

Tricky Prick-

But here we are. In essence, defending companies of foreign countries, that come into the US to set up their own factories, to directly compete with American manufacturers. Is there an irony in this?

Given that Ohio is the home of both Wendy's and White Castle, we should obviously prevent McDonald's from ever opening a restaurant here to compete with our "home-grown" businesses...

|7.13.09 @ 9:55PM|#

Could there be a combination of words put into one sentence that would be more laughable and inspire less confidence than the ones quoted above?

I only need two words, British Leyland

B|7.13.09 @ 10:32PM|#

"Why Washington shouldn't run Detroit."

This piece of shit president has shown he isn't fit to run for dog catcher.

johnny john john|7.13.09 @ 10:41PM|#

B:

I bet Obama would make a far better dog catcher than you. Probably whoops your ass in B-ball too.

|7.14.09 @ 3:47AM|#

http://briandeutsch.blogspot.com/2009/07/kia-saves-small-georgia-town.html

Good God, it's yellow fever all over again! UAW protect American automobile industry! You heroes!

Abner MacGillicuddy|7.14.09 @ 6:02AM|#

Really, MNG tell me about how the Japanese Government took over Toyota and screwed its secured creditors to pay off one of its biggest political constributors after they ran it into the ground.

Or did the South Koreans do it to Hyundai?

There are subsidies and subsidies. Reason ran stuff back in the eighties that pretty much showed that Japan's MITI really didn't do much good. In fact Honda grew and thrived in spite of the fact that it got no help from MITI at all in its beginning. It wasn't part of Japan's industrial "legacy". It was started by an upstart outsider.

They should just name it American Leyland. That's what it resembles, not the mildly subsidized Asian companies.

MNG|7.14.09 @ 7:54AM|#

Abner
The Japanese government gave their companies support throughout, though of course never rising to the level of taking them over late in the game, but that's kind of the point...

Barry Loberfeld|7.14.09 @ 10:22AM|#

On Nov. 22 '08, I had an article published on LewRockwell.com in which I wrote: "But the fundamental failing of Buchanan's manufacturers-good/consumers-bad [protectionism] is that it contravenes the primary dictate of sound economics: Focus not on one party in the short run, but on all parties in the long run. We are not all the CEO of GM, but we are all consumers - including GM's CEO."

Well, now "We" really are "all the CEO of GM"!

Then again, maybe Washington isn't really "We" ...

Neu Mejican|7.14.09 @ 10:43AM|#

Government incentives are an important part of the market. Always have been. Always will be. So the question is...is the GM investment different in any significant way from:

Free land for factories
Tax breaks
Partnerships in building factories

Or any of the other incentives that state and local governments use to attract companies to their location?

Is stock ownership more of a problem?
Why?

Is the conflation of ownership and regulation any different than the conflation of regulation with "attracting business to our city."

|7.14.09 @ 11:08AM|#

I don't buy the argument at all. The reason being is that multinational corporations, banks, and insurance companies are so ethically and morally challenged that congress has to legislate laws to keep them from stealing from us. They are so corrupt that we have to have laws to keep them from pilfering our money. It's what we euphemistically call regulation. I would have fired the CEO of GM as well, he was obviously not up to the job. Now if we can just get the President to end corporate personhood, and dissolve the Fed.

|7.14.09 @ 12:24PM|#

Government incentives are an important part of the market. Always have been. Always will be. So the question is...is the GM investment different in any significant way from:

Free land for factories
Tax breaks
Partnerships in building factories

Or any of the other incentives that state and local governments use to attract companies to their location?

Massive direct capital infusions that exceed the market cap of the companies involved and bankruptcies structured and sponsored by the government are different both in kind and in scale than these limited supports for specific projects.

Is stock ownership more of a problem?
Why?

Yes, for two reasons. First, if it is ownership of voting stock (as I believe it is in the restructured GM and Chrysler), then it gives a measure of control over corporate affairs. Second, by giving the government a direct stake in the market value of the stock, it places the government, as the impartial regulator of these companies and their competitors, in a massive conflict of interest.

Is the conflation of ownership and regulation any different than the conflation of regulation with "attracting business to our city."

Yes, it is. The conflict of interest in owning a company and regulating that company and its competitors is different in kind and in scale from the kinds of specific project support that attracting business to a specific location might entail.

Neu Mejican|7.15.09 @ 1:54AM|#

RC Dean,

I don't buy a single one of your counter arguments.

You usually have more to offer.

|7.15.09 @ 4:37AM|#

I currently have one Chrysler Mini Van and one Tahoe, these will be the last cars I purchase from GM or Chrysler.

I refuse to give them even more of my hard earned money. They have had enough. Sorry UAW auto workers, I'm done, next car I buy: anything but you and your compulsory tax payer funded companies.

Geotpf|7.22.09 @ 10:52AM|#

I personally believe that Obama doesn't actually want to run the auto companies-he just doesn't want them to fail now with the economy so bad. He knows they will probably fail later, but he wants to postpone that failure until after the economy in general has recovered.