[lbo-talk] LAT Auto critic: Nationalize GM

Michael Pollak mpollak at panix.com
Tue Dec 2 05:42:44 PST 2008


http://www.latimes.com/news/printedition/opinion/la-oe-neil2-2008dec02,0,5617845.story

December 2, 2008

Los Angeles Times

Nationalize GM

By Dan Neil

The federal government should buy GM. We can run it, then sell it at a

profit once it recovers.

At the moment, D.C. and Detroit are brooding on a Morton's Fork: Watch

the American automakers auger in and take hundreds of thousands of jobs

with them, or bail out these failed and incorrigible companies whose

management so richly deserves whatever hell (flying coach?) awaits

them.

Tops on the critics' list of grievances is Detroit's failure to

anticipate the inevitable. Why didn't these companies sufficiently

invest in next-generation technology -- fuel-efficient small cars,

high-mileage hybrids, plug-ins and all-electric vehicles -- that could

help wean the U.S. off foreign oil and take the automobile out of the

climate-change equation? As the auto executives again bring their

begging bowl to Congress, a consensus is forming: No bailout unless

Detroit builds greener cars.

From my perch, as someone who drives all of the Big Three's North

American product offerings, I think a lot of the anger is reflexive and

misplaced. Detroit makes some amazing cars, and anyone who thinks

otherwise should hold a Corvette ZR1 to his head and pull the trigger.

The Ford F-150 pickup I drove last week flat-out humbles rivals from

Toyota or Nissan. Considering that the domestic carmakers are

shouldering titanic "legacy" costs -- it's estimated that $2,000 in

healthcare, pension and employee post-retirement benefits are baked

into the price of every UAW-built vehicle -- just being competitive in

any segment is a signal achievement.

Nonetheless, the question remains: What to do about the domestic

automakers? My modest proposal: Nationalize GM.

To be clear, I mean that the federal government should buy GM; forget

rathole loans or nonvoting equity shares. The company's stockholder

value has been essentially wiped out. The company's enterprise value --

the lock, stock and forklift price -- is about $32 billion; its total

debt is $45 billion. Let's make GM an offer.

If you feel the gall of free-market ideology rising, consider that the

measures being bruited about as preconditions for a bailout -- firing

GM's top management; forcing a bankruptcy-like renegotiation of

contracts with the UAW, suppliers and dealers (it has too many); and

creating a czar of product development to force the building of green

cars -- are nationalization in all but name. I say embrace it. GM-USA.

Here are the benefits of nationalization:

GM's fundamental problem is that it's too big -- and expecting it to

fix itself in exchange for a $10-billion to $15-billion loan (its share

of the vaunted $25-billion bailout) or magically right-size in Chapter

11 is foolhardy. It would take too long, cost too much and bankruptcy,

should it come, would send customers running for the hills. Time is of

the essence. Congress, writing a GM law and using federal power to

abrogate contracts, could achieve at least some of these goals at a

stroke.

GM is full of talent and potential. The company spent $8.1 billion on

research and development last year, second only to Toyota. Of all the

carmakers, GM is closest to commercializing a full-size, four-door,

plug-in electric vehicle, the Volt, due in the fourth quarter of 2010.

The Volt should travel about 40 miles in all-electric mode before

requiring the services of its onboard, gas-powered generator. Many

owners could go weeks before they used any gasoline. This is precisely

the sort of car that environmental and energy security advocates have

been clamoring for.

GM's business is growing in other parts of the world; it's only the

North American operations that are killing the company. This is a

corporation that had $181 billion in revenue and sold 9.4 million

vehicles in 2007. To put it another way: GM, though distressed, looks

like a good investment. Also, the federal government can sell the

company -- at a profit -- once it's righted and sailing forward again.

GM is competing with companies that are quasi-national now. If you

consider the advantages the government of Japan has bestowed on Toyota,

Nissan and Honda -- in terms of healthcare and retirement benefits for

its employees -- the unevenness of the field is clear. The same goes

for most European companies, and the rising rivals in China will enjoy

similar state-subsidized advantages.

The government can afford long-term planning. Many of GM's strategic

missteps -- such as betting large on trucks and SUVs and not investing

early in hybrid technology -- were the result of willful

shortsightedness at the board level, responding to a financial market

in which shareholders look for the quick return. Putting Uncle Sam in

charge would fundamentally enlarge the return-on-investment horizon.

We need government-sized automotive help anyway. This country should be

putting millions of plug-in hybrid and electric vehicles on the road.

As far as I can tell, without big subsidies, there is no way in the

near term to build these vehicles and make a reasonable profit, due to

the stubbornly high cost of advanced batteries. Besides, if GM were

owned by the government, it wouldn't spend time and money litigating

and lobbying against clean-air and safety rules

Why not pick up Ford and Chrysler too? If Chrysler goes south, it's too

small to drag down the rest of the domestic auto industry. Ford, which

has been pursuing its "Way Forward" cost-cutting plan for more than two

years, will probably survive the moment without government assistance,

though it's going to be close.

To be sure, the yard marks of democratic capitalism have moved under us

in recent months. Last week, the feds announced that the government

would take a $20-billion stake in Citigroup and guarantee hundreds of

billions in risky assets, a move that would have seemed pure socialism

had we not lived through the last few months. Have we not in effect

nationalized the mortgage-loan industry?

I say, let's avoid the euphemisms and have the courage of our

supercharged Keynesian convictions. By nationalizing GM, we can aim the

company's astonishing resources at one of the biggest public-policy

problems we have: oil. Restructured and refocused, GM could build green

vehicles by the millions in a few years and still have the capacity to

build gasoline- and diesel-powered pickups (which we'll still need) ...

and maybe even some Corvettes on the side.

Dan Neil is The Times' automotive critic. dan.neil at latimes.com



More information about the lbo-talk mailing list