Wednesday, June 3, 2009

OBAMA'S GM (Government Motors) WHY GM'S DOOMED TO FAILURE


THE Obama administration has tried to convince tax payers that taking control of General Motors in bankruptcy is essential for saving the economy from catastrophe. While that may be so, auto and legal experts say that the Detroit automaker has likely been consigned to failure, perhaps within the next decade.


The problems began last December when the Bush administration, rather than risking taking GM into Chapter 11 and streamlining its bloated union and corporate structure, blinked in a high-stakes game of chicken with the United Auto Workers union and loaned the company $14 billion. Referring to what would've happened if GM were allowed to go broke, Vice President Dick Cheney reportedly told Senate Republicans: "It'll be Herbert Hoover time."

Well, seven months and a Democratic president later, GM has entered bankruptcy. Guess what? It's on UAW terms and at even greater cost to taxpayers.

GM was one of the richest contributors to Barack Obama's campaign, and to ensure its viability the White House has upped the federal commitment to $50 billion, gutted bankruptcy law and shredded contracts with secured bondholders. It has placed our largest automaker in the hands of Big Labor and Big Government interests, entities whose political priorities clash with the economic priorities necessary to make GM profitable.

President Obama's Treasury Department used a controversial interpretation of Section 363 of the bankruptcy code to groom GM for sale to an artificial "new GM." In the process, it circumvented investor rights to challenge union contracts.

The Treasury also used Section 363 to sell Chrysler, and its treatment of that automaker's investors was ruthless. That lesson was not lost on GM debt-holders, who folded quickly last week, taking just a 10 percent stake in the new GM and vaporizing the retirement income of thousands of individual bondholders. (So much for White House empathy.)

The usurpation of the bankruptcy process is disturbing, says Michael E. Levine, a distinguished research scholar at NYU's School of Law who has long advocated for GM bankruptcy. "This is not what I had in mind," says Levine, who notes that the bankruptcy code requires treatment that is "fair and equitable to all parties" -- a precedent he says is subverted by the government acting as a "third party reorganizing according to its own political preferences."

As always, profitability should be GM's goal, but its majority ownership by Washington and Big Labor guarantees otherwise. Indeed, the administration's political commitments have compromised GM's future.

By imposing drastic new fuel-economy mandates on US automakers, the administration last month displayed a fundamental ignorance of the American auto culture that has made Detroit the world's premier manufacturer of light trucks. The move instantly put GM at a disadvantage to foreign rivals with higher-mpg fleet averages.

Even Communist China understood its domestic automakers' strengths when it drafted mpg rules this year that favor Chinese-made subcompacts over midsize vehicles -- a segment where foreign makes like GM's Buick are strong.

The deal the White House forced on GM also discourages the company from importing small cars it makes overseas. The reason? It would prevent the UAW from building such cars in US plants.

Obama is also pushing GM to make plug-in electric cars, like the Chevy Volt, as part of his green vision of a Detroit that can produce "the fuel-efficient cars of tomorrow that can lead America towards an energy-independent future."

Trouble is, even his own auto task force says the Volt is "projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable."

So while the White House promises a quick federal withdrawal from GM, its demands that the automaker produce untested cars with union labor suggest there's no light at the end of that tunnel.

"This is going to be Obama's Vietnam," automobile historian Bob Elton told the Automotive News. "Every time he turns around, there goes another $20 billion."

Henry Payne is a writer and editorial cartoonist with The Detroit News.
NY Post, 6/3/09

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