Avoiding the bitter pill

Published 10:09 pm Tuesday, June 2, 2009

Congratulations on that savvy investment.

Following the second-largest bankruptcy filing in history — behind only the 2002 Worldcom debacle — U.S. taxpayers became the proud new owners of 60 percent of a failing American automaker.

In a move nearly unprecedented outside of wartime, the U.S. government has taken majority ownership of a private, non-banking enterprise. What could possibly go wrong?

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Under the Chapter 11 reorganization, other owners in the new General Motors also include the United Auto Workers, with a 17.5-percent stake; the Canadian government, with a 12.5-percent share; and unsecured bondholders, who wound up with 10 percent of the company.

Two national bureaucracies and a bloated union now control 90 percent of a company that must rapidly change its business models in order to survive. What’s worse than the government meddling in private industry? Two governments with separate constituencies and potentially conflicting objectives meddling in private industry. Add to the mix the UAW, which has never been known for its flexibility in the face of declining profits, and it all begins to sound like a bad joke, except nobody’s laughing.

With American taxpayers expected to ante up another $30 billion in the bankruptcy bailout, the total they have committed to GM reaches a staggering $50 billion. And there is, of course, no guarantee that they won’t be asked to open their wallets again to help the company stay afloat. GM had $172 billion in debt and just $82 billion in assets coming into bankruptcy court on Monday. The company hasn’t turned a profit since 2004. Are we really to believe the 535 new CEOs with offices at the U.S. Capitol will be able to blot out all the red ink?

The automotive industry can be a messy business. Governments have no place in it, and not just because they don’t have the experience or capacity to run it well. American taxpayers don’t deserve to have their money put at the risk that is part and parcel of any business concern. That’s what the stock market is for.

Allowing GM to fail on its own would have been a bitter pill for thousands of workers across the nation. Sometimes, though, the bitter pill is the best cure for what ails us. It would have been far more statesmanlike for President Obama to have prescribed that unappetizing cure.