General Motors left Chapter 11 bankruptcy protection a few weeks ahead of schedule. Of course the Obama administration hopes to present this as evidence of the success of its bailout agenda. And of course it isn’t.
In the process of converting General Motors into a federal jobs program, the Obama administration ran roughshod over bankruptcy law and contracts, introduced a new element of political uncertainty into the business-lending market, wiped out shareholders, weaseled out of debts at 29 cents on the dollar, and created a new corporation to which it will transfer all of GM’s best assets, leaving the problematic ones behind. Besides setting a precedent of lawless political adventuring in the economy, it’s not clear that any of this is going to save GM — much less save it at a price that is worth paying. That’s because GM will have the same lazy management and the same rotten unions making the same clunky cars at the same old factories for the same buying public that has made clear it doesn’t want them. That is not a recipe for success, even if one mixes in the penetrating financial insights of Barack Obama.
General Motors still has about $50 billion in debts and liabilities, including loans from the U.S. and Canadian governments, debts to foreign lenders, and pension obligations. That number could be $5 billion or $5 and it would be more than GM is now in a position to seriously consider repaying, because the firm is still losing money. Same management, same unions, same products: same money-losing operation. But costs are only half of the equation; GM also has insufficient sales. The restructured GM says it can make money if U.S. vehicle sales hit 10 million cars a year, which may be optimistic — GM has lost money with U.S. sales higher than that. Yet even if 10 million is the magic number, it assumes more sales than GM is seeing today and more than it has a reasonable hope of selling this year or next. Obama can strong-arm bondholders, but he cannot strong-arm Americans into buying GM cars they don’t want, though he may try — the Waxman-Markey cap-and-trade bill would give the president all sorts of new anti-trade powers, and it would be tempting for him to invoke them on GM’s behalf.
Other than abridging its debts, what has GM changed? Friends of the Obama administration are talking a lot about the “culture” at GM, and how that is going to be different. For an indication of exactly how innovative, progressive, and outside-the-box President Obama’s vision for the new GM is, consider that he has installed as chairman of its board the former CEO of AT&T, Ed Whitacre. Yeah, that AT&T, the Death Star — not exactly a radical redoubt of rethinking. The Borg-like approach relied upon by AT&T will not be available to GM. And, as anybody who has spent any time around corporate management consultants can tell you, the word “culture” translates, roughly, as “magic.” Meaning that the folks at GM are not sure exactly how they’re going to become a less dysfunctional company making less defective cars, but by golly they’re going to wave the old Harry Potter wand around and give it a good try, maybe run an obstacle course at a weekend retreat too. Also, they’re going to sell cars on eBay. (Really.) And GM CEO Fritz Henderson has set up a website, “Tell Fritz,” for customer feedback. Hey, Fritz: You want to see customer feedback? Look at your sales numbers.
None of this would matter much except for the embarrassing fact that, thanks to the hubris of the Obama administration, we taxpayers now own the majority of this useless company, and thereby have a stake in every third-rate car coming off its assembly lines. It seems likely that GM will be back for more government help, and of course it will get it. Yet in the unlikely case that GM returns to profitability, the Obama administration has indicated that it wants to dump the public’s share — 60 percent, which makes it tricky — as quickly as possible, with no regard for profit or loss. That means somebody will get the best of the new GM’s assets at a discount. Look for one of Rahm Emanuel’s Wall Street buddies to make a fortune floating an initial public offering of the new GM’s stock. IPO meets the West Wing: Welcome to Barack Obama’s America.
For President Obama, the problem is this: You can reinvent corporatism for the 21st century, but start acting like Mussolini and people will expect the trains to run on time. Like much of the U.S. economy just now, GM is off the tracks, and all the smarmy corporate-speak about “culture” isn’t going to put it back on them.
– Kevin D. Williamson is a deputy managing editor of National Review.
Editor’s note: This article has been corrected since its original posting.GM estimates that it can make money when U.S. auto sales are at 10 million, not when GM sales are at 10 million.