Our government lacks business sense

I just read in the Economist that General Motors is seeking an additional $ 11.6 billion in government funding in addition to the $ 15.4 billion it has already received. This is the latest in the effort to keep GM out of bankruptcy court. The argument has always been that we, America, should save our largest car manufacturer because it would be foolish in times like these to let so much capital (human & machine) to just do nothing while the bankruptcy court did its thing. That argument makes sense, if and only if, GM’s capital is producing something that has an economic benefit, and people are willing to buy what they make. However, GM has been losing money for years. GM’s uninspiring cars are reactions to prior year’s trends.

Now the government finds itself in a pickle because it is not only GM’s largest single creditor, it is also its largest shareholder, and protector of autoworkers union interests. It has way too much at stake to let everything fail. I believe that by propping up GM, the government is actually blocking the way forward for the entire auto industry.

The Whitehouse says it does not plan to run GM. Pretty soon, someone is going to need to design some new cars. By leaving that most crucial portion of the equation up in the air, the government is in effect letting GM’s failed production management continue to run its course (into the ground). With potentially $ 30 billion on the line that is way too careless. There needs to be some serious overhaul, and an about face if America is going to even have a viable auto industry in the future. I think the Whitehouse should at least roll out an Obama-mobile.

My point is that things need to change, and that means ditching GM in favor of something else. Essentially, the government is putting its money on a horse that has already lost the race. At the very least, it must exercise its rights as a share holder. Oh wait, this may never happen because bond holders can still force the company to go to court! As the economist writes, “Bondholders face the prospect of a small stake in a clapped out car company run by a union-friendly government with a zeal for green cars that may not have much of a market. With that as an alternative, a gamble in a bankruptcy court may seem quite appealing.”