GM Again

Here is the text of an e-mail I sent this morning the TPM’s editor Josh Marshall. He is having genuine trouble with the notion of a GM bankruptcy.

Josh:

We have to let GM go! The entire company: management, unions, and shareholders have become so horribly out of step with the market for cars that there is no way of helping them. It is a dead company. The notion that we should bail out GM to protect the American ‘strategic’ manufacturing base is also wrongheaded: there are plenty of cars being made here in other parts of America far more efficiently, so we have that base secured; and doesn’t the idea of maintaining a manifestly rotten manufacturing base in GM sound as though it would actually weaken our strategic capability? Surely we want a better base than our erstwhile competitors, not a less efficient one.

There is no doubt that the world needs non-oil based cars. I have no doubt America will be in the forefront of that new wave of technology: the local market here is what drove GM to greatness and it will have the same effect for someone else. There is equally no doubt that GM is not capable of being that manufacturer, not in its current form. That is a matter of historical fact. For us to nationalize GM the way you suggest is merely to postpone, at vast cost, the final recognition of its financial and intellectual bankruptcy. Were the government to take over GM’s assets and get rid of its dysfunctional management and labor contracts, who would we install to run it? Toyota? Nissan? Ford or Chrysler? Why would they do that without owning the assets? Even with the enormous credit problems the country has, were the GM assets to be worth anything like the amounts of money being discussed for the bailout someone like a Toyota would have come forward to make an offer. The opportunity to consolidate the market is so massive for a healthy car maker, and the payoff so rich that were it viable it would be done.

Given this grim economic outlook for GM there are only two ways forward: the way you suggest, which is essentially a social service where the taxpayers cover the cost of GM’s ineptitude for some period until it finally passes away; or the bankruptcy route, which is ugly immediately, but allows us to clean out the industry and leave space for those new technologies to emerge more quickly.

One final thought: if the government is to get into the manufacturing business as you suggest, why doesn’t it invest in the new companies, like Tesla, who seem to have the technologies? It was government money and support that developed the Internet, so why not energy efficient cars? Why waste that money on patching up the 20th century rather than staking out the 21st?