GM, Chapters 1 to 10
The whole story of why GM failed has yet to be told.
By HOLMAN W. JENKINS, JR
A pallid celebration of the General Motors bailout is being ginned up in time for the elections. Steve Rattner, the retired car czar, has a book out on how he saved GM from its own stupidity. The company is preparing an IPO to put itself on a slow road to privatization.
The bailout certainly proved that government, using bankruptcy, can wipe out a failing company's debts and then inject public money to keep it afloat—a power not in doubt. But call us an economic determinist—we still don't believe large, long-lived businesses like GM fail in the first place because an improbable series of CEOs defied the odds by making one dumb decision after another.
Technological and legal, political and institutional factors prevail over time—which is why it was not poetically lacking that GM ended up owned by the United Auto Workers (UAW) union and the government.
We've said enough about the UAW's labor monopoly over the years. But Mr. Obama was supposed to "surprise" us by being a smart regulator. That was the word from his future regulatory czar and then-colleague at the University of Chicago, Cass Sunstein. What a misguided call that turned out to be. Had Mr. Obama represented anything new under the sun, he would have said what economists and engineers have said for a generation—that the fuel economy mandate known as CAFE is a failure, producing only perverse results.
It undermined the homegrown, UAW-staffed auto makers by forcing them to throw capital at cars they couldn't deliver profitably, and that undermined their reputation for quality.
It subsidized Americans to drive more miles, live farther from work, travel farther for shopping, thereby contributing to the misallocation of capital to large houses far from town.
Reuters
The president tries on a Chevy Volt.
The bailout certainly proved that government, using bankruptcy, can wipe out a failing company's debts and then inject public money to keep it afloat—a power not in doubt. But call us an economic determinist—we still don't believe large, long-lived businesses like GM fail in the first place because an improbable series of CEOs defied the odds by making one dumb decision after another.
Technological and legal, political and institutional factors prevail over time—which is why it was not poetically lacking that GM ended up owned by the United Auto Workers (UAW) union and the government.
We've said enough about the UAW's labor monopoly over the years. But Mr. Obama was supposed to "surprise" us by being a smart regulator. That was the word from his future regulatory czar and then-colleague at the University of Chicago, Cass Sunstein. What a misguided call that turned out to be. Had Mr. Obama represented anything new under the sun, he would have said what economists and engineers have said for a generation—that the fuel economy mandate known as CAFE is a failure, producing only perverse results.
It undermined the homegrown, UAW-staffed auto makers by forcing them to throw capital at cars they couldn't deliver profitably, and that undermined their reputation for quality.
It subsidized Americans to drive more miles, live farther from work, travel farther for shopping, thereby contributing to the misallocation of capital to large houses far from town.
Reuters
The president tries on a Chevy Volt.Properly seen, the GM bailout is but a Rube Goldbergian necessity conditioned by previous Rube Goldbergism inflicted on the car makers for 35 years.
CAFE may be small in the scheme of things, but it is symbolic of a nation that digs itself into a hole with bad policy, then elects a young, smart, supposedly free-thinking politician who ends up being the human equivalent of a see-through building.
From Mr. Obama we've gotten only a metastization of Rube Goldbergism, a doubling down on fuel economy, with consequences already visible on the horizon. Oil prices have been sinking, not rising as Mr. Obama's auto czars predicted—which means the auto companies he just bailed out now will lose even more money trying to sell the fuel-efficient cars that the public doesn't want.
At least an unadvertised upside for Detroit was supposed to be delayed arrival of upstart Chinese auto makers in the U.S. market because they lack the requisite fuel-saving technology. Oops, not so fast. As the Journal reported Friday, China has discovered a quick and easy way to get the necessary technology—extort it from Western auto makers in return for access to China's booming car market.
For years CAFE winked at the German luxury car makers, letting them dodge the rules by paying the negligible fines prescribed by law.
Why didn't the Big Three do the same and just pay the fines and build the cars they could sell profitably? As a 2007 study by the Government Accountability Office put it, they feared being slammed for "unlawful conduct" in a way politicians wouldn't find it worth slamming the German auto makers.
Now, under Mr. Obama's new rules, the fines are larger and the politics trickier, so the administration is considering a partial waiver for those auto makers selling fewer than 400,000 cars here annually. Politicians, in short, still see no upside in making the U.S. market untenable for the luxury cars that wealthier Americans want to buy. We're not looking to cause trouble for BMW and Mercedes, but is there a better illustration of how weirdly politicized the U.S. auto market has become after 35 years of CAFE?
In a world where politicians did not surrender to pre-existing idiocy simply because it exists, Mr. Obama would have been the leader Mr. Sunstein foresaw. He would have asked Americans if they want to pay slightly higher gas prices to create demand for higher-mileage vehicles. Then he would have lived with the answer.
That's not going to happen, so put aside the slashing rhetoric aimed at GM under its previous management, especially the unjustly vilified Rick Wagoner.
Business leaders come and go, some more mediocre than others. In Alan Mulally, Ford is widely judged to have recruited a winner. But even Mr. Mulally, after arriving from Boeing, confessed surprise at how "CAFE regulations distort the market," requiring Ford to make and sell small cars at a loss "so we could also make and sell cars customers really wanted."
Making and selling products that customers really want? What business would do otherwise? Answer: Detroit, thanks to the new and stricter CAFE rules that are Mr. Obama's other auto legacy.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
CAFE may be small in the scheme of things, but it is symbolic of a nation that digs itself into a hole with bad policy, then elects a young, smart, supposedly free-thinking politician who ends up being the human equivalent of a see-through building.
From Mr. Obama we've gotten only a metastization of Rube Goldbergism, a doubling down on fuel economy, with consequences already visible on the horizon. Oil prices have been sinking, not rising as Mr. Obama's auto czars predicted—which means the auto companies he just bailed out now will lose even more money trying to sell the fuel-efficient cars that the public doesn't want.
At least an unadvertised upside for Detroit was supposed to be delayed arrival of upstart Chinese auto makers in the U.S. market because they lack the requisite fuel-saving technology. Oops, not so fast. As the Journal reported Friday, China has discovered a quick and easy way to get the necessary technology—extort it from Western auto makers in return for access to China's booming car market.
For years CAFE winked at the German luxury car makers, letting them dodge the rules by paying the negligible fines prescribed by law.
Why didn't the Big Three do the same and just pay the fines and build the cars they could sell profitably? As a 2007 study by the Government Accountability Office put it, they feared being slammed for "unlawful conduct" in a way politicians wouldn't find it worth slamming the German auto makers.
Now, under Mr. Obama's new rules, the fines are larger and the politics trickier, so the administration is considering a partial waiver for those auto makers selling fewer than 400,000 cars here annually. Politicians, in short, still see no upside in making the U.S. market untenable for the luxury cars that wealthier Americans want to buy. We're not looking to cause trouble for BMW and Mercedes, but is there a better illustration of how weirdly politicized the U.S. auto market has become after 35 years of CAFE?
In a world where politicians did not surrender to pre-existing idiocy simply because it exists, Mr. Obama would have been the leader Mr. Sunstein foresaw. He would have asked Americans if they want to pay slightly higher gas prices to create demand for higher-mileage vehicles. Then he would have lived with the answer.
That's not going to happen, so put aside the slashing rhetoric aimed at GM under its previous management, especially the unjustly vilified Rick Wagoner.
Business leaders come and go, some more mediocre than others. In Alan Mulally, Ford is widely judged to have recruited a winner. But even Mr. Mulally, after arriving from Boeing, confessed surprise at how "CAFE regulations distort the market," requiring Ford to make and sell small cars at a loss "so we could also make and sell cars customers really wanted."
Making and selling products that customers really want? What business would do otherwise? Answer: Detroit, thanks to the new and stricter CAFE rules that are Mr. Obama's other auto legacy.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
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