NCPA - National Center for Policy Analysis


June 1, 2009

Back in December, in an economy far, far away, then-CEO Rick Wagoner tossed out the scary cost to taxpayers of $100 billion if General Motors wasn't saved by the government.  Well, GM was saved in December and again in March, and as early as today the feds will rescue it a third time in a prepackaged bankruptcy that is already costing at least $50 billion, and that's for starters.  Welcome to Obama Motors, and what is likely to be a long, expensive and unhappy exercise in political car making, says the Wall Street Journal.

  • Taxpayers have so far put up nearly $20 billion, which was supposed to be a loan at market rates but under Treasury's forced restructuring will mostly be converted into equity in the new GM.
  • The feds are also putting up $30.1 billion in "debtor in possession" financing and will effectively nationalize the once-mighty auto maker by taking roughly 60 percent ownership.
  • That's not counting $12.5 billion to save GMAC, the company's financing arm.
  • The Canadian government will go along for the ride for 12 percent of the new GM, the UAW will get about 17.5 percent, and the hapless bond holders have to settle for 10 percent.

The Obama Treasury is portraying this as the best solution to the mess it inherited, leaving GM with much-reduced legacy costs for health care, a cleaned-up balance sheet, a humbler UAW that has forgone some performance pay, and a more efficient dealer network and product line.  GM, we are told, will now be able to make a profit and some day even return money to taxpayers.  If you close your eyes and imagine that GM's private managers would be able to make decisions based solely on business judgment, you can even start to believe. 

But then you snap out of it.  Every decision the feds have made since December suggests that nonpolitical management will be impossible, says the Journal. 

President Obama likes to say he's a pragmatist who only prefers a government solution when it will work.  But in resurrecting an industrial auto policy that even the French long ago abandoned, the President has made himself GM's de facto CEO.   According to the Journal, he'll come to regret it as much as taxpayers will.

Source: Editorial, "The Obama Motor Co.," Wall Street Journal, June 1, 2009.


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