NOTES FROM A WORLD GONE MAD: The American Trabant?
The president of the United States has fired the head of General Motors, taking a giant step towards the transformation of a once-great industrial enterprise into a state-controlled captive company that will provide jobs for unionized workers and produce cars that few people will want to buy. No doubt they will be sensible, fuel-efficient vehicles, many of them hybrids or electric cars. Only heavy subsidies will make the Obamamobiles attractive to buyers otherwise beguiled by horsepower, size, capacity, and styling.
After canning the CEO, the government will apparently move on to replacing the board of directors with nominees more to its liking, drawing perhaps from Obama's automotive task force. This group is led by three investment bankers and a political hotshot, none of whom have any expertise in automobiles. Nevertheless, the task force is letting it be known that its strategy is to take GM into bankruptcy (with Uncle Sugar providing DIP financing), dump Saturn, Hummer, and other dogs, stiff the bondholders, and re-emerge with Chevrolet and Cadillac as the car brands and a big fat debt to the federal government on the balance sheet. The big question is what will become of the UAW and the company's incredibly expensive health-care burden.
Chrysler, meanwhile, will be thrown to the wolves. Why Fiat thinks it can succeed where Daimler failed is one of the mysteries of the Italian mind.
Restructuring could have been acccomplished in bankruptcy court without the federal intervention and without the commitment of taxpayer funds that may never be repaid. GM will have to sell an awful lot of cars to pay off its debt. It will be especially difficult since the "new GM" will probably move away from its big but profitable trucks and SUVs and focus on small, fuel-efficent vehicles -- very nice but not very profitable, and not very attractive. (Just look at the size of the vehicles in the average suburban shopping center parking lot -- huge and huger.) So the government will have to sink more money into purchase incentives so that GM can make some money and pay the government back for the rescue package. This cycle could go on forever.
What GM really needs is relief from CAFE standards, relief from the health-care burden it foolishly took on when times were good, and the ability to furlough workers and close plants when times are tough. The United States automotive market is still enormous; GM makes some excellent vehicles; the recession will end some day, and GM will thrive again. But not if it becomes a captive making politically accceptable cars. East Germany did that for years with the "Trabant," a little plastic-bodied people's car; production ended when East Germany did. Amazing to think the United States might go in the same direction.