On “Government Motors”
The US Treasury now owns 60% of General Motors, which the pundits quickly dubbed “Government Motors.” It seems to have become a sort of joke for some peoples as seen in clips on Youtube, going further by called it “Pelosi motors” while others called for a boycott of GM. It’s time to think about it.
Conrail emerged from bankrupt companies who made a profit after some regulated freedom. But there was other cases like Amtrak and British Leyland; the latter didn’t turn out as well as they wished.
Renault’s nationalization happened at the end of WWII. The French government nationalized Renault because they suspected the president of Renault (Louis Renault) to have collaborated with the enemy during the occupation.
I’m glad to see Penske owning now Saturn, if only he had bought Pontiac as well….
To be fair, the Freep’s Mark Phelan pointed out that BMW, Nissan, Renault, and Ferrari have all been bailed out. Renault was “in a shambles” 15 years ago when the French government caused the CEO to be fired, according to Phelan. Nissan was going to have their electric power cut. BMW was saved by the Quandt family (prompted by the government) just before the car business was to be closed in the 1950s. Within the U.S., near-failures include Buick (turned around by Walter P. Chrysler while part of GM) and 1960s Pontiac (John DeLorean). Fiat was near bankrupt when the Agnelli family and GM saved it. Studebaker did declare bankruptcy in 1933 but survived past World War II, and would have been a large part of American Motors had Studebaker-Packard merged (as planned) with the new company.
While failed British companies are often pointed to as evidence that government interventions can fail, their story is very different; in general, they did not make many changes to survive. Rootes tried, but being run by a faraway Chrysler with SIMCA holdings did not bear much short-term fruit, and Chrysler’s domestic problems cut the story short.
»crosslinked«
I hope this “boycott” of GM doesn’t gain much steam. I understand that people aren’t happy about their tax money being spent on a company (or companies when you include Chrysler) that they’d rather see fail and liquidated. I, on the other hand, while not particularly liking thse bailouts, now find myself as an investor in GM and Chrysler….not to mention a few banks, investment firms, and insurance companies. Why would I want to boycott a company that I am invested in, unwillfully as it may be? If I….we….ever hope to get a return on our investment in these companies, we better think about buying their products.
Agree with Scott. Regardless of opinion of the bailout, it’s in our best interest to have GM healthy and back to a non-government entity as quickly as possible (which likely won’t be too quick, unfortunately).
A couple of quick observations:
1. Lee Iacocca remarked that both GM and Chrysler needed to pay off the loans ASAP. Back in the ’80′s, Chrysler re-paid their loan in 3 years.
2. This is relates to the above observation. Chrysler was a very successful company until Chrysler “merged” with its equal, DaimlerBenz. (Please note this last part drips with sarcasm.)
3. People saying government loans to private entities won’t work ignore the successful loan to Chrysler in the 1980′s.
4. GM may be a much tougher case because of the size of GM. Chrysler had already undergone some painful restructuring prior to bankruptcy.
5. I’m still struggling with GM selling Saturn to the Penske Group. What are they thinking? The thought never occurred to them that Penske will bring back Saturn to compete with GM with Chinese/Korean built cars?
“People saying government loans to private entities won’t work ignore the successful loan to Chrysler in the 1980’s.”
A common misconception. The US government did not loan any money to Chrysler in the 1980s. The loan money came from lending institutions. The US government only cosigned and guaranteed the loans.
As unpopular this will be to some here, the government’s involvement in financing private enterprise is not as rosy as many would believe, and count me as one of those who believes it is wholly unconstitutional as well (and yes, I’m including banks). Those points aside, there could be dangers in having so much of a government influence on the automobile industry. Could some government czar dictate that Chrysler and GM make only Aveos and Fiat 500 clones and stop making Rams, Suburbans, and other politically unpalatable models? This could have a major impact on choice for the American automobile consumer.
Guarantees… a silly way to do it. The taxpayer takes the risk, the bank takes the profit. Welfare for banks.
As for the constitutionality, well, you can make arguments both ways. It’s certainly interstate trade.
Could a government czar dictate product policy? At GM, yes; at Chrysler, no. (Based on ownership.) As I recall, banks can’t tell companies what to do with loans already made. If Chrysler had borrowed all the money from Bank of America, would Bank of America be able to dictate products?
I agree, the tax payer should never take the risk and I would be against government loan guarantees as well. As to the constitutional argument, if you are referring to the Commerce Clause (article 1, section 8) it would be a monumental stretch that the constitution supports funding private enterprise. Loaning taxpayer money to private corporations or companies is not “regulating commerce.” Where in the history of the Commerce Clause has the Supreme Court upheld the use of taxpayer money to finance private enterprise? As noted in current American jurisprudence, the unlimited advancement of the Commerce Clause by the New Deal era has been checked by the Rational Basis Doctrine, and best demonstrated in U.S. v. Lopez. Even liberal jurists admit that without limits on the Commerce Clause the government could excercise complete and total defacto police power over any other law and subvert the power of federal legislatures.
As to the effects of government involvement in Chrysler’s case, I am not so sure the answer is an automatic “no.” It seems that Chrysler’s last CEO was invited to leave by somebody in the government.
“It seems that Chrysler’s last CEO was invited to leave by somebody in the government.”
Invited, yes; forced, well, it seems not. I believe it was part of the Fiat deal. Soft landing, to be sure. Now, at GM – yes, and it’s hard to argue that Rick Wagoner getting kicked out will hurt GM. But the government is the new owner there.
Is this an abuse of government power? Maybe, but frankly, I have other priorities. The complete cessation of civil rights if terrorism could be invoked as a possibility, no evidence needed; widespread wiretapping without warrants or permission; summoning the search histories of every American (and getting them from two of the three big players); exporting people for torture; the list goes on for rather a long time. And, of course, in the past, there was slavery (albeit constitutional), mass murders, appropriation of huge tracts of land from Indians and Canada, etc., etc. In short, at least this time it seems to be in a good cause – to prevent the kind of economic disaster we haven’t seen since 1930.
If one decries great [moral] wrongs as a result of the usurpation of legislative power or law, and then embraces it when self determind values judges it to feel good, by default the practice of violating legal principal and law perpetuates arbitrary outcomes that will eventually reappear again as great wrongs.
In varying capacities I have worked in the automobile industry and I’ve generally had great respect and great affection for Chrysler, its history, and many of its products. However, counting on the government to come to the direct rescue of private enterprise at citizens’ expense is counterproductive to having well-managed and intelligently run companies. It’s analogous to doing your child’s homework for them when they start to fail. Rewarding failure by providing taxpayer money to companies that have made mistakes will only make the concept of unreasonable risk and accepting mistakes more ingrained.
I’m aware of the current stressful nature the industry is going through, and a good portion of the current problem is not the industry’s fault. They being said, the industry – the company management and the unions, must be prepared to take their share of the responsibility that allowed some companies to be financially insecure.
As an aside, your concern for civil rights is more than admirable. It must be pointed out that people’s civil rights have been violated, not because of a lack of law or constitutional protections, but because there was always a popular notion leading to toleration and acceptance by a large population of people. These violations received support and contained advocates across the political spectrum and are not the monopoly of any specific political party, like slavery or Executive Order number 9066.
Your reference to slavery being constitutionally legal is incorrect. Colonial charters did not authorize slavery. The 1778 Articles of Confederation contain no recognition of slavery. No state government ever authorized slavery. The U.S. constitution did not, of itself, create or establish slavery as a new institution, nor did it give any authority to the state governments to establish it. In an unfortunate compromise for ratification, it merely permitted preexisting states to continue a practice until 1808, and recognized the extradition powers of slaveholding states. But even at the time of ratification, the concept of slavery was held repugnant, and decreed to be unconstitutional in most states as it was demonstratably in direct conflict with the individual rights guaranteed in the federal constitution. But the slaveholding states had powerful allies. Because it was economically expedient to keep the price of cotton and other southern goods at a low price, many of those charged with upholding the Constitution either passively or aggressively accepted this violation.
I think differentiating between government loans and government-backed loans is splitting hairs. Without a government government guarantee, Chrysler would have failed nearly 30 years ago.
As far as policy and individual’s selection of vehicles, I believe the Obama administration risks losing a significant amount of support if the administration’s policy becomes to heavy handed.
“If one decries great [moral] wrongs as a result of the usurpation of legislative power or law, and then embraces it when self determind values judges it to feel good, by default the practice of violating legal principal and law perpetuates arbitrary outcomes that will eventually reappear again as great wrongs.”
It’s more a matter of which battle one chooses to fight. If a Nazi parade and a veterans’ parade are both banned illegally, the sensible person chooses to protest the banning of the veterans’ parade. If you have a government where some groups are illegally barred from voting, or where voting fraud appears rampant, that seems more damaging than overstepping boundaries in a good cause.
The Articles of Confederation may not have recognized slavery, and the Constitution may not have created it, but it allowed it to exist. So what’s your point exactly? Slavery was constitutionally legal at the time of the nation’s founding. Find the spot where it’s explicitly outlawed.
Yes, I think they know that and have tried to keep their hands off, for the most part (ejecting Wagoner, which should have been done long ago, being an exception).
However, now any time Chrysler or GM produces a car that gets more than 20 mpg, someone’s sure to insist that it’s because of Obama’s pressure. Never mind that the Volt was announced a year ago or that Fiat’s bringing its ABCs over.
Mike, the signficant difference between Chrysler’s first foray into an unsustained business model was the funds were not offered from taxpayer money and the government did not expect to own any part of the company, either with or without a Chrysler default. I agree that despite the source of the loan the risk to the tax payer was the same.
As to how much the government will become involved in product planning is a yet-to-be-determined thing. I do know that there are politicians and special interest groups that have publically announced a support for limiting automobile designs. As I type this message I am within a few feet of an individual who would outlaw the possession of anything called an SUV, and once referred to my Dakota as an “example of personal greed” and “excessive consumption,” and ban the sale of pickup trucks to anyone not in a commercial enterprize.
So it’s okay if the government undertakes the risk (loan guarantees) but unconstitutional if the government actually makes the loan. Hmmm. The differentiating factor escapes me. This is not unlike the old student loan system vs the new one – paying banks to write loans and taking on the risk, vs just making the loans.
“I do know that there are politicians and special interest groups that have publically announced a support for limiting automobile designs.”
Yes, there are politicians with all sorts of crazy ideas. That’s why you need a majority to pass legislation. Lots of individual politicians are fruit cases. (Lots seem to be getting prosecuted lately, too.) Some think the government should pay for their offshore affairs. Others think their mistress should live in the mayor’s mansion on the taxpayer dollar. So what? You can justify anything with the slippery slope argument.
Slavery was never constitutionally legal in the United States.
The U.S. Constitution, as originally drafted, is an instrument whose primary purpose is to establish rules of government and limitations on the federal power. It establishes political principal, structure, function and guarantees individual rights; specific rights enumerated in Amendments 1 through 8, and all other rights in Amendments 9 and 10. Slavery was not explicitly outlawed at the federal level because slavery had no legal existence under the federal constitution! The fact that the constitution does not explicitly outlaw something does not mean it is sanctioned by its absence. Likewise, the fact that a right is not enumerated in the constitution does not mean that the right does not exist. As already stated, none of the slaveholding states recognized the legal status of slavery.
At the moment of adoption, the federal constitution made citizens of all “the people of the United States,” who were not slaves under the State constitutions. However, no State constitution then existing authorized slavery at all, hence making all people of the United States citizens without discrimination and possessing all rights and the full benefit of protection as individuals. At the moment of its adoption it became unconstitutional for any State government to reduce any people (persons) to the status of slave. They became recognized as citizens of a higher government, under a constitution that was “the supreme law of the land,” “anything in the constitution or laws of the States to the contrary notwithstanding.” In fact, at the time of the constitution’s ratification, black men could vote in 10 of the 13 states.
Support for this legal position lies bluntly and clearly in the Federalist Papers and other pertinent documents from the framers, many of them who fully understood that without some concession to the slaveholding states a federal constitution would not be ratified. The drafters were very smart. The mere fact that the outcomes of slavery were mentioned in the federal constitution is in no way is a formal or legal recognition that the federal constitution authorized it. The “legality” of slavery, if you will, was never protected by the federal constitution. It had a defacto legal status in 15 states eminating from 18th century colonial local laws, but never even attained state constitutional recognition at the time of founding.
To say that slavery was constitutionally protected at the federal level is totally false. To be sure, some states offered its sanction by continuing colonial precedent, but this never was adopted by the federal constitution, nor for that matter, any state constitution. Slavery in the United States persisted because of powerful political interests and an unconcerned population who believed they had no civil or legal investment in maintaining the rights of African-American citizens. This is a glaring example of the truest form of democracy: tyranny by the majority.
“So it’s okay if the government undertakes the risk (loan guarantees) but unconstitutional if the government actually makes the loan.”
No, Dave, I didn’t say that. In my opinion it would be unconstitutional to do either.
“You can justify anything with the slippery slope argument.”
And what great abhorent event didn’t start with little steps in the wrong direction, only to be later recognized as clear indications? It seems that everybody’s got a slippery-slope denial and a slippery-slope example. You can attempt to invalidate any argument with a slippery-slope denial.
Problem is, our government’s been doing unconstitutional things for a long, long time now. The question is, which do you pick to fight? My argument before remains – I think you pick the most egregious cases.
Spoken as a single person I understand that one’s individual resources are incapable of taking on each and every government wrongdoing. However, I find that sentiment carried forward incapacitating and self-defeating. The full breadth of governmental misdeeds can be dealt with in the collective sense, as we are joined by hundreds and thousands of others who desire a government that always conducts itself within the law.
But let’s be honest here. In this forum we have come together because of our interest in automobiles, the industry, and Chrysler specifically. I think it’s fair to say that the majority maintain great sympathies, emotional attachments, and maybe some selfish self-interest that would allow us to accept the concept of direct governmental assistance. Yet, I note that there were a number of complaints that banks and other financial institutions were getting bailed out, with hints that it was quite illegal.
If we like the idea that taxpayer monies are being used to bailout Chrysler, I think its hypocrisy to deny the same to any other private enterprise. There are many businesses across the country, many, if not most, small businesses that have less than 100 employees that have been hurt by the downturn as much as Chrysler or GM. These people pay taxes, too. Yet the federal government isn’t there to hand over some cash to them. Hence, the government is not treating all people equally, and this leads to the continued concept of political privilege and the corresponding erosion of law and credibility of representative government.
I think the primary complaint with regard to the bank bailouts was that they were done under secrecy (the first groups), the executives were retained and paid huge bonuses, a lot of the money appeared to be grants rather than loans, etc. In other words, I think most of the objections were operational rather than based on principle.
A hands-off government seems to only be practical when tariff walls are erected to protect domestic industry from the various governments that support their industry.
The creation of “Government Motors” also has to do with trade policies, government monetary policy, and merger policy. Our open auto market in the US has done a lot of good in some ways and it has hurt us in other. The quality of cars has improved a great deal and the foreign cars have given us more choice thorigu competition. Detroit has made cars were the profit is. If you cna build a Grand Cherokee and make $9000 on it or $1000 profit on a Neon which are you going to build when gas prices are low? We also have allowed cars to come in from Korea or other places where it is impossible in that car’s home country to buy an “American” made car. If you send an American made car to Japan or Korea, the tariffs would be so high that no one would buy them. Trade should be fair trade. Now with all the talk of importing cars from China, we are losing more fair trade. Government policy also easy credit and merger mania. The “merger of equals” that Chrysler was in left a stripped company once Daimler was done. It would be interesting to see a comparison of a 1997 pre merger Chrysler with a 2007 one in terms of engineers, plants, capital, etc. The government approved the merger between a Chrysler that was at one of it’s most successful points in its history then it was torn to shreds by Daimler. We need to watch the merger mania and keep competiton going. If the government can stay out of micromanaging GM, then it has a chance to work. GM needs a chance as does the new Chrysler. The way the bankruptcies were done hopefully leaves a good set of companies that will preserve American and Canadian jobs and makes good products that people will buy. We also need to encourage fair trade policies that allow the US to manufacture stuff. Hopefully Chrysler, GM, and Ford survive. They have a lot to overcome with people’s past perceptions of them and now that it is entrenched in many people’s minds that Toyotas, Nissans, and Subarus are supposedly better cars. If we can change these things, then GM and the new Chrysler have a chance of surviving and prospering.
George, you’re correct, Chrysler Ford and GM will be successful IF they build cars that people want.
I happen to be one of those that believe while Chrysler’s product offerings aren’t very deep, most of what they have are good products. But I believe Chrysler is still hampered by the perception of poor quality. Whether real or overblown, Chrysler’s future success is more tied to increased quality than it will be for design.
Despite the fact I think they’re ugly, I see a lot of Calibers around. My Dodge salesman says the Cailbers “move pretty fairly.” Assuming my tastes for beauty are in the minority, if Chrysler had a better reputation for quality I think they’d sell more.