% The Flaming Right by paul murphy

What's good for GM

When Charles Wilson, then President of General Motors and up for confirmation as Eisenhower's Secretary of Defence, said he saw no conflict between his expected role in government and his loyalty to GM because "what's good for GM, is good for America", even GM's enemies, people who saw the company as symbolic of everything they hated about American capitalism, agreed.

Like any other big company GM had its problems; but the worst of them: its inability to make money selling CAFE compliant vehicles, was created by Congress - not the market and not the company's management.

The board level picture at GM was pretty simple: by the mid 1980s the company's early market success, some poor product choices, foreign and non union competition coupled with ever increasing union demands in Detroit, the recovery at Chrysler, and constant product litigation had left the company a behemoth shambling its way to the economic slaughterhouse known as bankruptcy court. Rather than give up, however, a few people decided to fight and GM slowly evolved a new strategy: commit to quality while moving the product line upscale, reduce worldwide dependency on the traditional unionized workforce, leverage financial markets to move product, and embark on a long term plan to reduce the impact health care and pension obligations have on day to day financial operations. Some of this worked, some of it didn't, but by the spring of 2004 GM was on course to make three billion for the year and most thought the company would muddle through.

But then a Bush deal to trade arms export permits to the Saudis for stable oil prices somehow became a plot against humanity and that triggered a four year run up in oil prices, Detroit's profitable SUV lines became symbols of profligate resource consumption on lifeboat earth, Congress imposed new CAFE standards that could not be met with existing cost structures, something triggered a confidence destroying credit crisis that crashed vehicle sales, and Obama's meteoric ascent in the media prophesized the end of low energy prices in America.

Had Mr. McCain become president the bridge financing offered the automakers by the Bush administration might well have saved both GM and Chrysler, because a McCain/Palin administration would have encouraged low cost American energy production, not abrogated the rule of law in credit markets, and not allowed Congress to incur a trillion dollar social debt in its first ninty days.

Instead Mr. Obama took office, the Pelosi ideologues idolize Michel Moore, and we are where we are - everybody loses:

• Michigan traditionally votes Democrat - and at 15.2% now has the highest unemployment rate in the country and one of the highest in its history;

• California tranditionally votes Democrat, has the second highest unemployment in the nation, and has now lost the Saturn business;

• The estimated total cost of the GM bailout so far is in the $50 billion range - had the government simply written a check for half a million dollars to each directly affected UAW member at GM and its largest suppliers on condition they retire immediately after a successfull vote to vote to deunionize their employers, the total would have been around $10 billion less, GM would be profitable, Michigan would be booming, and the taxpayer would have been repaid in less than seven years on taxpayer income gains alone.

• Because what happened to GM's equity holders: everything from property confiscation to having their representatives personally threatened with the vitruperative capabilities of the Whitehouse press corp, can be counted on to happen again, public financing may have become prohibitively risky and expensive for all but a small number of issuers with politically bullet proof agendas - and both too risky and too directly costly for major American companies from Sears to Boeing.

  There will be lawsuits triggered by the administration's behavior, and if the republicans can first stop the democrats from packing the courts and then win big in 2010 and 2012, the eventual settlements should restore market confidence; but until then, the increase in uncertainty -and the absolute demonstration that ideology trumps law for the Obama administration - will do significant damage to American equity markets and every company that relies on them.

• In the long term the economy will survive, and someone will do something with GM's assets - but the UAW cannot be in charge at GM without triggering forces that will tear it apart. If workers at Ford, for example, aren't already organizing to take down the UAW they're simply not looking out for themselves - and, because the key reason GM can't make money making CAFE compliant vehicles is that it takes about the same amount of labor to make a cheap small car as an expensive big one, the UAW will soon find itself laying off its own members and then cutting the hourly rates and benefits earned by the remainder to non union levels.

• There are perverse opportunities created by this meltdown. For example, most of the 3,200 dealers threatened with closure across North America made money for their manfacturers and have everything they need to succeed: including local political clout, inventory, bank loans, loyal customers, and skilled staff - as sales agents for Chinese car makers eager to make inroads into North American markets.

  When these deals happen - and preventing them through legislation or Whitehouse fiat could trigger both a trade war and a run on Treasuries - the result will be to weaken both the dollar and the nation while increasing worldwide pollution and reducing both customer choice and vehicle safety by exporting more American manufacturing jobs to environmentally unregulated communist China.

So ultimately, what's the real bottom line here? if the actions taken by the Democrats in control in Congress and the Whitehouse are so utterly and obviously damaging to America why commit to them? It could just be incredible incompetence, but my money's on Wilson: because what's bad for GM is bad for America and thus irristible to the weatherman in the Whitehouse.