Crazy Barack’s Used Car Lot

03Jun09

Marc Leh - June 1, 2009

Editor of the Harvard Law Review, Senator from Illinois, US President, and now…Used Car Salesman. His résumé already commands respect, but with General Motors filing for Chapter 11 bankruptcy Monday morning, Barack Obama can finally add sleazy auto dealer to the top of his career list.

As if the $20 billion bailout GM inhaled earlier this spring wasn’t enough, at least $30 billion more American taxpayer dollars will be injected into the beached automakerover the coming months. Will the absurdity ever end?

If one jogs memory back, say, two months ago, one remembers the vehement political outcry against letting the “iconic” General Motors give way to bankruptcy. “Whatever it takes,” they screamed, “if GM fails, they all fail!” These assertions were part of the economic doomsday hysteria that consumed this country since markets tanked in September.

Well, despite the $20 billion – yes billion, with a B – that was already wasted in this corporate quagmire, GM still found a way to fail. What a surprise…rewarding an outdated, inefficient company with billions of free dollars without demanding any internal restructuring was hopeless from the start.

Today, GM stands where it would be if it had never received the bailout – forced to streamline management and answer to its creditors. The scary thought is that the federal government, famous for doing absolutely nothing efficiently, is now charged with returning GM to its old glory.

Instead of answering to a private bank, as GM would have done if it had filed for bankruptcy before the bailout, GM is now under the sole jurisdiction of Obama, Congress, and the US Treasury. Not only have these parties spent with reckless abandon since the inauguration, neither Obama nor Congress has much incentive to make GM an efficiently run, profitable business again.

Congress’ blank checks are far too accessible for Obama to risk alienating the United Auto Workers and his other protectionist comrades by cracking down on GM. The private sector would have forced GM to streamline its operations and stand up to unions months ago in order to remain competitive in the global auto market.

The end result shows that both GM and the Fed come out of this debacle as losers. Detroit’s former auto titan will likely be worth nothing in a matter of days and the American public is now saddled with this worthless carcass’ $90 billion debt.

Weren’t the bailouts a great call?

Turns out however, history offered fair warning to those who supported Washington’s backing of GM several months ago. The parable goes as such: Britain nationalized two of its own automakers, Rolls Royce and British Leyland, in the early 1970s. As the New York Times aptly pointed out, neither government takeover helped Rolls Royce nor British Leyland regain its dominance in the European auto industry.

According to the Times, Leyland “went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the ’70s and ’80s before going out of business.” Think, GM has already gone out of business and Washington is still dumping cash into it. Unbelievable.

Obama and the Congressmen who backed the bailouts still need to learn what we Free Marketeers have known all along. Don’t throw good money after a bad product.

It seems like a simple concept because it is. American capitalism is built upon the ideas of smart investments, innovation, risk, and reward. Make a savvy investment, make more money. Make an economic faux pas, lose money, learn from your mistake, and do better the next time.

But when the Fed absolves a floundering automaker from the natural
consequences of its own incompetency, it undermines the very free market system it was founded on. Without overhauling management and taming the UAW, the Fed’s continued involvement in GM will only further insulate Detroit from the results of producing highcost, low-quality automobiles. Simply throwing money at a problem never solved one. I decry Obama’s Government Motors on two counts. One, for gashing a raw economic wound in Washington that will hemorrhage taxpayer money for years to come. The other, for fundamentally threatening our nation’s loyalty to free enterprise.

A simple history lesson would’ve taught our civil servants that taxpayer money cannot be used as life support for a dead business. Unfortunately, the damage has alreadybeen done – $50 billion times over.

Washington better put a tourniquet on government spending before our country losesits prosperity, and its principles, in the wake.

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Tags: Auto, GM, Obama