Tuesday, April 17, 2012

A different (conservative) perspective on GM and the Volt

Count me among conservatives who had serious misgivings about the (Bush Administration's) bailout of General Motors, and who have routinely criticized the company and the government's role in it ever since. In particular I've been rather, um, opinionated about the Chevy Volt.

So when I read a lengthy article by the Weekly Standard's Fred Barnes this morning that caused me to re-examine some of my impressions and conclusions, I felt obligated to share. Here are a few interesting factoids I learned from the article.

GM management has been pretty resolute in resisting the Obama Administration's efforts to turn the company into a political prop - literally and figuratively.
The folks at General Motors are blessed with more foresight than you might have suspected. They were prepared when Vice President Joe Biden wanted to address a United Auto Workers rally at the GM plant in Toledo, Ohio, that manufactures transmissions. Sorry, they informed the vice president’s office, but we have a corporate policy that prohibits campaign events at any GM facility. So on March 15, Biden spoke to union members in Toledo at the main hall of UAW Local 12.
This episode speaks to a broader apparent truth (at least according to Barnes): GM is not under government control to any appreciable degree.
The Obama administration still owns 26 percent of General Motors’s stock. Yet GM officials weren’t afraid to tell the White House, No, you can’t use our facility. And this reflects a larger truth about GM: It is free from control by the Obama administration.
It’s not Government Motors anymore. Nor is the green-tech Volt—part electric, part gas powered—being produced at the insistence of the administration. The Volt is not an Obamacar or an Obamamobile. It’s been in the GM pipeline since 2006. Back then, Obama was a senator and GM needed an answer to a political environment that frowned on SUVs and trucks, the company’s gas-guzzling mainstays.
In fact, the Obama Administration had an opportunity, in November 2010, to sell the entire government stake in GM at a profit. It declined, preferring to maintain a significant (26 percent) stock ownership interest.
The administration’s 26 percent of GM stock gives it a hook into the company, though it hasn’t exploited its shares to interfere with corporate decisions. But when GM had an initial public offering in November 2010, the Obama team declined to sell all its shares, despite [former CEO Ed] Whitacre’s pleas.
“There was so much interest in that IPO because we were making money,” Whitacre told me. He said he “begged” administration officials to “sell all their stock” and pay back more of the tab for the $50 billion bailout. “The government had the final say,” Whitacre says. It sought merely to give up its position as the majority (61 percent) stockholder.
Now the stock is underwater. The IPO opened at $33 a share. The price rose to $38 before falling to $20. Last week, it hovered between $25 and $26. At that price, the administration probably won’t unload its shares before the election. Selling now would expose how far short—roughly $14 billion—taxpayers are of being paid back in full. The stock price would have to double for taxpayers to achieve full reimbursement.
As for the President's relentless citation of the GM bailout as a signature success of his first term, and his constant plugging of the Volt and other GM vehicles? A lot of people at GM wish he'd stop.
GM officials wince at Obama’s references, fearing he’s politicizing their company and keeping alive the Government Motors stigma. “I hated that name,” Whitacre, now retired, says. “I still hate it. It was very harmful to the company.”
No doubt Obama thinks he’s aiding GM. He’s not. “If you talk to these [GM] guys privately, they can’t get out from under the government fast enough,” says Daniel Howes of the Detroit News. But Obama won’t let go.

There are plenty of reasons for the people who will eventually be judged on GM's post-bailout performance to wish earnestly for an end to the company's relationship with the government. First and foremost is that "Government Motors" stigma. I'm guilty myself of deploying that barb, which is now common enough to have entered the political lexicon, requiring no explanation or context. Think about how damaging that is: in a 50/50 country, a company associated with one half in a way that alienates the other suffers an enormous competitive disadvantage (this is why, by the way, liberal concerns about corporate involvement in elections are so overblown - politics are generally bad for business).

On a more practical level, the government's continued ownership of a large chunk of GM shares (or, put a different way, the government's refusal to sell that chunk) means the company must continue to operate under the significant managerial restrictions imposed by TARP. Among other things this means that executive compensation is effectively capped at levels that make it impossible, according to former CEO Whitacre, for the company to "hire corporate talent from outside the company."

As for the infamous Volt, while the car gets the lion's share of the media, public and presidential attention, its success is only tangentially important to the company's overall prospects, for reasons that have more to do with government policies than market imperatives.
[GM] needs hybrids like the Volt and all-electric cars like the Spark, due to be introduced next year. The fuel efficiency standards imposed by Obama—54.5 miles per gallon in 2025—are so onerous that it needs them to hold down its fleet average. Obama boasts the new standard will save drivers on gas. He neglects to say it will drive up the price of cars.
Meanwhile, "[g]reen vehicles are soon to flood the auto market: the Ford C-Max plug-in, Ford Fusion plug-in, Chevy Spark EV, Toyota Prius plug-in, Volvo C30 EV, and Toyota RAV4 EV." This is all to the good. The sooner market forces reassert themselves in the decades-long competition to bring a viable electric vehicle into being the better. Prices will come down, innovations will multiply, and maybe some time before I retire I'll see a car that isn't obviously a political prop parked at one of the "EV charging stations" popping up all over the place.

Conservatives who are concerned about the government's on-going ownership interest in a major US automaker (and the President's use of that ownership stake as a political cudgel) should stop disparaging the company and start asking why the Administration insists on holding on to its piece of the GM pie. The many rationales for the Bush Administration's initial decision to "save" GM are mostly still true: It is an enormous employer, crucial to the economies of Michigan and several other states. Its suppliers, vendors and other business partners create a web that extends to virtually every corner of the planet. It and many of its iconic products are symbols (tarnished maybe, but still symbols) of our country around the world.

I still have misgivings about the GM bailout, especially the many concessions made to the unions who carry a significant share of the blame for creating the situation that made a bailout necessary in the first place. But continual harping on the bailout only plays into the Democratic caricature of Republicans as people who 'root for failure' or who revel perversely  in the very real and frightening possible scenarios faced just a few years back by GM's many thousands of employees. Instead of running GM down or rejecting its cars on political / ideological grounds, conservatives should be trying (to adopt a bit of lefty agitator language) to take the company back. Or perhaps more accurately: we should be demanding that the government sell it back.

Here's the link again to Barnes' whole piece. There is quite a bit more to it than what I've summarized here. It is worth your time.

2 comments:

  1. GM makes junk cars. The socialist Obama is forcing Americans to buy trash cars.

    ReplyDelete
  2. I guess that's a perspective, Anonymous... But how in your opinion is the president "forcing Americans" to buy GM cars?

    ReplyDelete

No spamming, flaming, cursing, or other such nonsense tolerated. Thanks for engaging on those terms - Greg