In Finance Business

President Obama didn’t ask my opinion about the government takeover of General Motors. Neither did you. Not to worry. I’ve decided to share my views anyway.

I’m going to start by now referring to General Motors as “Obama Motors.”  I have a good reason. Whatever your thoughts on the deal or on politics, the outcome of the GM takeover is going to play a prominent role in defining Obama’s political legacy.  The event is so unprecedented in U.S.  history, the textbooks and biographies cannot ignore what has happened and how it will turn out. I predict it will not turn out well.

In no particular order, this is what I dislike about the federal control of General Obama Motors.

1. Fundamental decisions that should be based on business will now be based on politics. It started with the firing of Rick Wagoner. Wagoner was considered unfriendly to Obama’s vision of what the car industry should look like. I’m not defending Wagoner but it’s a sign of what is to come.  Egged on by the UAW, members of Congress are already expressing opinions about which GM plants should be closed and whether dealers should be shed. These opinions are based on what is best for their own constituents, not on what is best for GM. Industry executives have been summoned to hearings beginning tomorrow to “explain” these decisions. This will become a non-stop pattern. Even if he wanted to, Obama is powerless to stop the Congressional meddling.

2. GM will be forced to make cars and trucks that Obama wants, not what consumers want. Obama has positioned the takeover of GM to become an instrument of his new energy policies. Eventually, GM will be told what cars to make. You can be sure they will be smaller, slower, lighter, and more expensive. (The planned Chevy Volt is expected to cost $40,000.) It won’t matter that we don’t want to buy those cars. Obama will make us buy them by taking steps to increase the retail price of gasoline. The upward creep in gas prices has returned. There’s no stopping it now. It’s all part of the grand plan. Look for the FrankMobile, Doddger, and PeloSUV as future GM models.

3. Federal control of GM creates unfair competition. Ford elected not to accept bailout money. It will be punished for this. The government can and will maneuver GM’s finances and federal law to favor sales of GM products. Tax credits, more federal money injected into GM, “cash for clunkers”, CAFE standards, you name it. All will be manipulated in a futile attempt to have GM “succeed” even at the expense of Ford, which will try to do what is best for its shareholders. It’s not just Ford that will be treated unfairly by Obama Motors. The government cut a deal with the UAW to restrict the import of fuel efficient cars from overseas.

4.  There is no realistic plan for a profitable GM. Some people seem to forget that GM hasn’t made a profit since 2004. It has been on a death spiral. The demand for new cars has fallen dramatically even since then. Many economists think the drop in demand is permanent. As baby boomers retire, they will purchase fewer cars. Younger generations hopefully have learned that having a car payment is not a sign of financial maturity. It could take many years for GM to find a place in our economy where it can successfully confront competition from Nissan, Toyota, Honda, and Hyundai. Do you think these companies will ease off while GM struggles to recover? Not a chance. They will be going for the kill and I don’t blame them.

5. The government is incapable of effectively running businesses. If the government had any skills in operating a successful business enterprise, it would be making its own tanks, warships, and fighter planes. Instead, it contracts those out and generally does a lousy job at that. What should make us believe that it will do a better job with GM? As you ponder this question, use this mantra: “Amtrak.”

6. There is no exit strategy for the taxpayers. The billions in taxpayer dollars dumped into GM will be converted to stock. This essentially was a new government welfare plan designed specifically for the UAW. We own stock in a dead company that the government “hopes” will return to profitability. When will that happen exactly? What is the time deadline? When will we “get out”, using a phrase applied to failed plans of prior administrations?  Meanwhile, our own money will be used to churn out cars that we don’t want to buy. This could turn out to be like agricultural subsidies that never seem to go away. Maybe the government will use our stimulus tax dollars to build enormous storage areas to keep the unsold GM vehicles, right next to the government butter stocks. (Say, can you make an engine that runs on butter?)

What are your thoughts about the future of Obama Motors?

This is an article from Tough Money Love
Copyright 2009 Tough Money Love. All Rights Reserved

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