GM Deal Builds, Then Destroys Driving Excitement Like a 1985 Pontiac Fiero

Nick Gillespie | June 3, 2009

Jacob Sullum runs through many of the reasons why the feds running GM is an awful idea, but like the oilpan in my old 1970 Chevy Impala, you can never fully catch all the leaks with a single fix.

Indeed, Alan Vanneman points to more reasons to be skeptical of the GM takeover that isn't really a takeover because President Obama has told us he doesn't want to be running GM but if you don't move those donuts to the other side of the dealership, I'm going to kick your ass all the way across the showroom...

Anyhoo, here's Phil Levy writing in Foreign Policy about the international dimension to the whole debacle:

GM had recently informed Congress that it planned to produce roughly 50,000 subcompacts per year in China to sell in the U.S market in the near future. However, on Thursday, UAW President Ron Gettelfinger said that GM had agreed not to import the cars from China and to produce them in the United States instead as part of its deal with the UAW.

This change opens up an enormous set of problems for the United States that will stretch well beyond the automotive sector. The United States has commitments under the World Trade Organization for its tariffs on cars; it's supposed to avoid quantitative restrictions altogether. This latest policy switch looks very much like a government-mandated reduction in auto imports from China. A particularly sophistic trade lawyer might try to argue that this is just part of a labor deal, not an explicit U.S. government policy. But the UAW is currently receiving only what the Treasury Department decides it should get. Further, under current plans, the U.S. government will soon be a majority owner of GM. That will make it difficult for the government to dissociate itself from GM policies.

And then, of course, there's this economic hairball clogging the carburetor:

The likelihood of recouping the enormous infusion of funds into GM...was going to be a problem in any case. In 2004, GM earned a net $2.7 billion. That was the only year of the last five in which they made profits. Even if the new GM were entirely devoted to repaying U.S. taxpayers, if every year is as good as 2004, and if the government charged GM a concessional interest rate, it would still take the new GM more than 25 years to repay.

But that all happened when GM was trying to make a profit. Now, GM will be trying to satisfy political demands for domestic employment, alongside demands for meeting environmental goals. It's more difficult to make money when you're not even allowed to try. 

Whole thing here.

Pontiac builds excitement, delivers some less than that here:

Comments

|6.3.09 @ 9:38AM|#

It's simple...the govt can simply tell Toyota, Honda, and Nissan that they must pay union wages + benefits to sell cars in this country...or find some other 'legal' intimidation to limit furrener's ability to sell cars in the USofA. Tough times demand tough talk!

Tomcat1066|6.3.09 @ 9:40AM|#

And just how much of this is surprising? Any government involvement in business like this is bound to be a disaster. The government couldn't even successfully run a brothel, and that's after screwing the tax payers for YEARS!

Charles Montgomery|6.3.09 @ 9:45AM|#

LOL at Galtsters using Japanese car companies as weapons to poke at US car companies...

Cause we all know... the Japanese (Korean, Chinese) economic system is all about free enterprise and the role of individual genius. And that is why they have the win.

And nothing.. nothing I tell you.. about Confucian or semi-collectivist government support of industries.

It wouldn't be right, don't you know?

|6.3.09 @ 9:47AM|#

Wait- when the government does stuff, it doesn't always play out as they expect?

This comes as a complete surprise.

kinnath|6.3.09 @ 9:49AM|#

Every year I get to fill out a conflict-of-interest form. I can only imagine what the form would look like for a business that is heavily regulated by the federal government is also majority-owned by the federal government.

I hope that Ford is busy hiring lawyers to sue the federal government over every new regulation that is placed on the auto industry as an ethics violation (conflict-of-interest) and restraint-of-trade by a business competitor.

EJM|6.3.09 @ 10:03AM|#

GM Deal Builds, Then Destroys Driving Excitement Like a 1985 Pontiac Fiero

(Insert inevitable reference to the '84-85 version of "Name That Tune" [hosted by Jim Lange] here.)

|6.3.09 @ 10:17AM|#

I confidently predict that the new, leaner, meaner and oh so greener Government Motors will turn out to be one giant fuck story.

I propse that any libertarian who purhase a GM or Chrysler product be subject to repeated taint withering sessions in the URKOBOLD® dungeon.

|6.3.09 @ 10:20AM|#

LOL at Galtsters using Japanese car companies as weapons to poke at US car companies...

Sorry you misunderstood the post.

The point wasn't to make fun of the US car companies...it was making fun of the govt...and how it's turning japanese.

Who is John Galt? ;-)

Invisible Finger|6.3.09 @ 11:09AM|#

With anti-American sentiment as it is, I can see GM's overseas units doing even worse sales-wise. And other governments can use GM as a whipping boy to stick it to the US whenever we piss them off about something (justifiably or not).

Amtrak was created for the exact same reason - to save union jobs. And it was created with the same lie - profitability in 3 years. Amtrak has never been profitable and it's 2 or 3 profitable lines are dwarfed by the losses in the rest of the system that are maintained for vanity's sake. GM will suffer the same permanently vegetative fate.

Invisible Finger|6.3.09 @ 11:13AM|#

I hope that Ford is busy hiring lawyers to sue the federal government over every new regulation that is placed on the auto industry as an ethics violation (conflict-of-interest) and restraint-of-trade by a business competitor.

Forget it, they're the Rock Island Line of car companies.

kinnath|6.3.09 @ 11:35AM|#

Forget it, . . .

When you last hopes amount to grasping at straws, then a handful looks pretty damn good . . . . ;-)

|6.3.09 @ 11:43AM|#

I propse that any libertarian who purhase a GM or Chrysler product be subject to repeated taint withering sessions in the URKOBOLD® dungeon.

J sub--I formally recant my desire to purchase a new 2010 Chevy Camaro RS. I still love that car, but I'll never buy one now.

I'll still take the taint withering sessions. Sounds like fun.

hmm|6.3.09 @ 11:53AM|#

I have to say the boys at Ford are looking like geniuses. Of course that isn't hard when standing in a room full of helmet donning drool bib wearing retards.

I still won't buy American again unless there are some vast improvements in quality. (That is unless I need a one ton truck.)

|6.3.09 @ 1:30PM|#

"In 2004, GM earned a net $2.7 billion. That was the only year of the last five in which they made profits. Even if the new GM were entirely devoted to repaying U.S. taxpayers, if every year is as good as 2004, and if the government charged GM a concessional interest rate, it would still take the new GM more than 25 years to repay."

This is not a complete analysis. What is needed to repay debt is cash which is different from "earnings" which is focused on in this comment. It is entirely possible to lose money in "net earnings" and generate positive cash flow. My company is doing that this year through focused working capital (Inventory, receivables, payables, etc.) management. On the other hand, it is also possible to make money from a net income standpoint and burn cash. In fact, looking at GM's cash flow statement from 2004, while the earned $2.7 billion in net income, they had negative free cash flow (cash flow from operations less capital expenditures) of $9 billion. None of the last 5 years have shown positive free cash flow for GM. You need cash, not accounting earnings, to pay down debt.

|6.3.09 @ 2:18PM|#

"Every year I get to fill out a conflict-of-interest form. I can only imagine what the form would look like for a business that is heavily regulated by the federal government is also majority-owned by the federal government."

Pages upon pages.

|6.3.09 @ 2:40PM|#

You need cash, not accounting earnings, to pay down debt.

Good thing their corporate parent owns a printing press.

claudio|6.3.09 @ 2:57PM|#

Come on, did you really think the US was going to pour $50 billion into GM and then immediately outsource most of the jobs to China? Gimme a freaking break.

I think there's a way to support libertarian ideas without embracing flawed corporate law which has screwed most of this country over while enriching the top 1%.

I do agree that Obama's kow-towing to liberal special interests will probably cripple GM. The UAW still has their inflexible work-rules which will prevent improved reliability and environmentalist do-gooders will try and force GM to produce unappealing "green" cars like the crappy Prius.

rawdawg|6.3.09 @ 3:05PM|#

What happened to main street folk?

|6.4.09 @ 8:39PM|#

Since when has Obama been in any kind of position to think that he would know how to fix GM? The way I see it, the person to fix GM would enither need to be an engineer/designer (Harley Earl or Raymond Lowey type) who creates some freaking awesome cars that everyone wants to buy or a businessman (Lee Iacocca type) who can streamline the whole company and make it profitable. Last I checked, Obama went to law school and is a politician by trade. When have those weenies in the Dept. of the Treasury ever been qualified to fix GM either? Never.

As a result of the takeover, GM will be forced to fail. It will be run by environmentalists and politicians: the worst two groups of people to run a company in that industry. Obama and his buddies like to point to the popularity of the Toyota Prius. They don't seem to remember that the Toyota Prius is an overpriced and boring car that Toyota loses money on. Obama wants GM to rely on cars like that to not only survive, but recover. I may not be an economist, but if high-school Consumer Economic taught me anything, a company can't survive when its products do not make money.

But, then again, Obama says he does not want to run GM. We all know, firing he CEO is in no way, shape or form running the company. How could dictating the future direction of GM products be running the company Sure, he may not micromanage, but him and his cronies sure all calling the shots. Bush got us into this mess and Obama is going to keep us in this mess.