Government Motors and the Law of Unintended Consequences

If anyone still reads this blog, you probably know GM is bankrupt, and after [another] 30 billion dollars down the drain, Obama has made sure that the federal government will be the majority shareholder when all is said and done. So what will the future hold? Here's a sneak peak. . .

Now that the government has its sought-after mechanism to coerce us into smaller, more fuel efficient hybrid cars, despite their weak demand and high prices, expect to be called 'unpatriotic' if you have the nerve to get behind the wheel of a gas-guzzling truck or SUV. Forgive the pun, but is there a better vehicle to kick-start the government's "enlightened" green energy policies than to nationalize the country's largest auto company? How will the government protect "our" investment (aka bailouts)? Here comes the parade of inevitables . . .

Declining sales of Chevy's and Hemi's will prompt tax breaks for their buyers and higher taxes for those who buy other brands. Then tariffs on imports will go up, and foreign factories in the U.S. will be subject to Value Added Taxes to subsidize unsold government cars, leading to a trade war. And because the federal government has no clue how to operate anything for a profit, the taxpayers will continue to subsidize the losses of Government Motors: tens of billions more coming in bailouts. And because the money supply is finite, the only way for GM to succeed in the long run will be if the government substantially reduces competition from foreign brands and jacks up gas taxes. Higher gas prices will then push Ford into bankruptcy (its profitable truck and SUV sales are keeping it afloat). Michael Moore is already on the war path, pushing for an additional $2 per gallon gas tax, and I'm not even kidding - check his website.

So can the Obama administration assume that GM consumers will remain loyal after the government takeover? Don't hold your breath. When your favorite restaurant comes under new ownership, and that ownership is notorious for serving bad food elsewhere, do you keep eating there? Maybe if you want food poisoning. I predict that many consumers have bought their last GM product. Why?

Austrian economist Ludwig von Mises put it this way: "The real bosses in the capitalist system are the consumers. By their buying and abstention of buying, they decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction."

Which cars will better "satisfy" consumers - those produced by a government-owned and operated company, or those cars produced by a privately-owned company? As long as there are better alternatives to what the government puts out (bet on it!), GM will never be profitable. Therefore, Obama will have to monopolize most of the U.S. auto fleet to truly succeed with GM. Half-way measures won't do. Just ask USPS about their competitive disadvantages in operating against FedEx, UPS, etc. Either get out now, or go all in! I think you already know which option I prefer :)

Government Motors and the Obama Power Grab

Rick Wagoner was axed last week as the CEO of General Motors by our new auto-warranties-guarantor-in-chief. Here is Obama's direct quote from the press conference: "If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe. In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warranty."

Why this troubling intervention, you ask? Well, the administration apparently didn't like GM's latest restructuring plan, so Wagoner got the boot as the sacrificial lamb. The clock is now ticking on GM (60 days) and Chrysler (30 days) to get things turned around or they may be looking at a Ch. 11 bankruptcy. To me, this power grab smacks more of mob extortion than of proper governmental action, even in these turbulent times.

So now, the life support cord for these two auto giants is in the President's hands. And because these companies have already eaten from the taxpayer bailout trough and are hungry for more, the man who has less than 3 months of any meaningful executive experience gets to now dictate how these companies are run and how much their execs get paid. This also means that government bureaucrats, NOT free market forces, will be telling GM and Chrysler to supply the kinds of cars they can only hope consumers will demand. Oh boy.

These are the strings - no, the chains - that come attached with bailout money. Businesses beware! Is it any wonder that Ford (wisely) wants to avoid bailout cash like the plague? Are you surprised that the banks who have already received funds are dying to pay them back? These companies learned the hard way that when you get in bed with the government, you'll never have a good night's sleep. Do you guys feel comfortable with this development? Why or why not? Here are 3 more questions to ponder:

1.) Why didn't the under-performing union boss at UAW lose his cushy job along with Wagoner? If Obama is going to be the HR-director-in-chief, then why not axe both sides of the bargaining table to be fair and consistent?

2.) If you were a rising, talented executive with a promising future, would you be less likely or more likely to go work for a company where politicians can fire you?

3.) Do you honestly believe Obama will let these companies fail now, after investing so much in them and stamping his presidential promise on every car's warranty? I have my doubts. His image would take too big a hit, unemployment would balloon, and the populist outrage would explode - i.e. you bail out the bankers on Wall St. but not us blue collar auto workers on Main St.? The question then becomes: When and where does the bailout slippery slope end?