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Wednesday, May 20, 2009

Mr. President: If You Didn't Want to Run The Automakers...

...you sure have a funny way of showing it.

It's been about six weeks since the president pronounced, rather emphatically, that he had no intention of running the automobiles. Since then, the administration got deeply involved in both Chrysler's merger with Fiat and its disbursement of debt to its creditors. Furthermore, this plan would make the U.S. government a minority owner in the new corporation. In fact, the president went so far as to demonize the creditors that didn't go along with the program that he outlined. In fact, the president is so deeply involved in Chrysler's day to day operations that his administration is making decisions on advertising.

Then, yesterday, the president unveiled a plan to increase CAFE standards so that in the next 8 years cars sold in America will have to have fuel efficiency that is 40% higher than it is now. At the same time, the president is now planning on taking over General Motors.

General Motors Corp's (GM.N) plan for a bankruptcy filing involves a quick sale of the company's healthy assets to a new company initially owned by the U.S. government, a source familiar with the situation said on Tuesday.

The source, who would not be named because he was not cleared to speak with the media, did not specify a purchase price. The new company is expected to honor the claims of secured lenders, possibly in full, according to the source.


Make no mistake, the president wants to lessen our country's dependence on foreign oil and to reduce our dependence on carbon dioxide. These are all good intentions. The political road to destruction is littered with good intentions. The president sees an opportunity to realize his vision for an automobile industry that produces smaller fuel efficient cars and one that gives his allies in the unions far more power. The president is taking this opportunity to realize both visions simultaneously.

This is of course a very dangerous and dicey proposition. For one, this becomes very expensive. Both this president and his predecessors have committed about $25 billion to Chrysler and GM. GM will need at least $10 billion more to get themselves through the year. Once the government becomes a stakeholder in each their commitment financially becomes open ended. Presidents are not CEO's. They shouldn't pretend to be ones. It's worse still when this president gets on television and claims that he has no intention of doing exactly what he is now doing, running the automakers.

3 comments:

Anonymous said...

There's just no way either of these two companies will ever be profitable again, certainly not profitable enough to make any semblance of paying the government back.

mike volpe said...

Ever is a long time, however I agree that it will be a long time at least.

Anonymous said...

This is the same path British Leyland followed into dissolution at a tremendous cost to the British taxpayers.

This is not going to end good.