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  • Throwing It in Reverse

    Government control of General Motors is likely to throw the company into reverse gear rather than forward. By rewarding bad behavior with $50-billion, President Obama has created powerful incentives for even worse performance. In his New York Times column today, David Brooks lays out six reasons why the latest bailout will backfire:

    1. GM has been cut off from innovative thinking. Because Obama wiped out existing bondholders in favor of unions, no outsiders will be willing to bring fresh capital and ideas to GM.
    2. Insiders who sank the company remain in charge. The old CEO is gone, but the new leaders are entrenched insiders—especially the union leaders.
    3. There is now no downside for failure. Having bet $50-billion already, it would be political suicide for politicians ever to pull the plug on the company.
    4. The new GM will focus on the wrong things. As Brooks says, “Instead of thinking obsessively about profitability and quality, GM will also have to meet the administration’s environmental goals. . . . GM now has to serve two masters, the market and the administration’s policy goals.”
    5. New management knows the company is protected by Big Brother. “In the years ahead, GM’s management will have a strong incentive to spend time in Washington, urging the company’s owner, the federal government, to issue laws to help it against Ford and Honda.”
    6. Stronger-than-ever bonds will now be forged between government, management and unions and “will fundamentally alter the corporate culture, and not for the better.”

    As Brooks concludes, “The end result is that GM will not become more like successful car companies. It will become less like them. The federal merger will not accelerate the company’s viability. It will impede it. . . .The result is quagmire. The costs escalate. There is no exit strategy.”

    Or, as summarized by House Republican Leader John Boehner (R, OH), “Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?”

    It will cost taxpayers at least $50-billion to find out.

    Posted in Economics [slideshow_deploy]

    2 Responses to Throwing It in Reverse

    1. Larry, in the Republ says:

      Well I for one can see the forest in the trees! It's just resposible behavour by the forward thinkin', retrospective, "NEW" progressive, moveon.org'ers to simply stock pile the vehicles that "we as a nation" will surely owe to the "constituents" of New Orleans, the next time a wind blows and the water comes up! Y'all remember the massive "bailout" of New Orleans, right? This is also a wonderful shopping opportunity for Miss Winfrey to buy everone in her studio audience a BRAND NEW ObamaMotors LLC car. Talk about catchin' a 9 for 1 sell at an opportune time, wow! She'll save herself thousands of her billions on that deal. # 5 above also scares me, knowing I will never buy a GM, despite my involuntary investment in the company. The possibility does exist, within this administration at least, that such bold illegal activity can and would transpire!

    2. Pingback: » Financial News Update - 06/02/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater

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