World View on US Nationalization of GM

The world understands the move made by President Obama’s administration with General Motors is a gamble and a shift from Capitalism to Nationalism. Below are a few quotes run in Die Spiegel. Die Spiegel warns, in their June 2nd article titled GM Insolvency ‘Proves America’s Global Power is Waning’, “the insolvency of General Motors shows America’s weakening industrial clout and poses major risks not just for the economy but for Barack Obama.”

Although President Obama promised a “hands-off” approach to assisting GM emergence from bankruptcy, many see conflict between business and political aspirations cropping up. The Financial Times Deutschland reports, “The restructuring of the group will turn into a political drama. That creates considerable risk for the entire US economy, but also for international competitors operating in the American auto market. The restructuring of GM will be extremely expensive for the American taxpayer; $50 billion could disappear into a black hole. But in the long run, the fact that it will be impossible to run this company in line with market principles will weight far more heavily than the financial burden. It’s already clear that job cuts and plant closures will soon be discussed in a similar way as the closure of military bases: regional politics will be at least as important as productivity figures.”

Even the Center-left Suddeutsche Zeitung writes, “If Obama fails in his attempt to save America’s automobile industry, his economic policy will lie in ruins. But politicians make poor business managers and the economic crisis hasn’t altered this fundamental truth. This isn’t because elected politicians aren’t as competent as private sector managers, but because they have other interests. This has to be so – politicians are committed to the common good and have to organize electoral majorities to achieve their goals. In the nationalized General Motors, serious conflicts of interest are unavoidable.”

A prime example of politicians making bad business managers is the notion of GM to sell the Hummer product line to a Chinese automaker. One of our primary on the ground military vehicle is the Hummer. President Obama has touted that we need to become energy independent but now we will rely on a foreign power for one of our critical on the ground military vehicle. The domestic front is not much better.

The Frankfurter Allgemeine Zeitung warns, “The insolvency of General Motors is a historic moment for America. June 1 also marks the day on which Barack Obama rewrote the rules of American capitalism. It’s an alarming development.” The alarming development is the passive role that President Obama will take with GM but, as the Frankfurter Allgemeine Zeitung observes, “In fact Barack Obama has shown in the case of General Motors and Chrysler that he’s prepared to play a very active role. He dictated very unattractive debt reduction terms for creditors and then labeled them as speculators.”

The nationalization of GM and Chrysler are rewards President Obama is giving to the Labor Unions that helped get him elected. As Ford continues to lead the way, it will be interesting to see how the Government leads the way to assist GM and Chrysler. With $50B of taxpayer money being poured rewarded to the Union led GM, how can free market principles exist without the temptation of anti-trust actions on behalf of the Government under the guise of “in the best interest of the taxpayers”. Face it American’s, GM will never be a public company again. To payback the $50B plus interest, GM will need to be worth $69B and that has happened only once; 2000.