Three Examples of Washington Managing GM (and it's only June 2)

Keeping GM's headquarters in Detroit
A genuinely disinterested investor would say he has no opinion on the matter.

Rent seeking dealers
Local dealerships mean jobs, sales taxes and more, the preservation of which is irresistible to individual members of Congress. Congressional pressure to sustain those dealerships will continue without regard for the individual dealership's impact on, or contribution to, GM.

As with dealers, parts and finished goods will continue to be subject to Congressional demands for local production and assembly.

Maybe GM should be HQ'd in Detroit. Maybe it should have a wide, diverse distributor base. Maybe its production should be domiciled in the United States. The point is I don't know what's right for GM and individual members of Congress don't know either.

Think I'm wrong? Here's Sen. Sherrod Brown:
If taxpayers commit more resources to GM, they deserve to know those funds will be used to build cars at home rather than abroad . . . More government assistance to GM is about supporting domestic manufacturing, rather than just upholding a brand.
Here's Sen. Debbie Stabenow:
If we have learned one thing from the global economic crisis it is that in order for our economy to thrive we must build things in this country. Now is the time for America to recommit to a strong manufacturing strategy that will rebuild our middle class.
Or this letter from Sens. Rockefeller and Hutchison:
With nearly 2,000 dealerships closing and over 100,000 jobs at risk combined, I believe it is imperative for Chrysler and General Motors to immediately address the insufficient transition period, help dealerships recoup full inventory costs, minimize job loss, and provide consumers with access to quality service.
Brown, Hutchison, Rockefeller, Stabenow, and their 531 colleagues all have their own opinions about what's good for GM, the country and their constituents. They also all have their own opinions about what constitutes an appropriate management prerogative. A genuinely passive owner would express no opinion on almost every topic, especially in public. There's no possible way Congress will keep its collective mouth shut during Treasury's ownership of GM. Over time, management will start shaping decisions to please what it thinks ownership wants. Ownership in this case has very different ideas about what makes for a successful car company. Profit and quality are irrelevant considerations for Washington, no matter what they say.


Anonymous said...

Why do you thing Washington has no interest in profits? Do you think that congressmen are anxious to 1) vote for more money, or 2) vote for (or even have occur) more job cuts before they face the voters? Any sane congressman has an interest in GM becoming profitable ASAP.

On the other hand, Brown & Stabenow have seen their constituents and communities get screwed by the Wall Street Third Worldization of American Management plan for long enough. They seem to want the restructuring to work for working people, as well as for investors.

Now 'passive' investing, that is for AIG and the banks.

The Daily Pander said...

I don't think Congress wants to vote for more money but I think it eventually will. Now that GM is subject to political control, the political process will force management to make decisions in the political interest of its new master. If GM wants to change a supplier, one not necessarily cheaper but better, will a Senator make a phone call on behalf of a supplier in his state? How much horse-trading will sweep up GM (I'll vote for your bill if you'll vote for mine requiring all automotive companies 59.9% owned by the U.S. Gov't to use blah blah blah). It's inconceivable such an exchange won't happen every single day.

Because Wall St. only cares about the next quarter, public companies manage accordingly. Congress is popularity contest, so GM will be constantly fighting off Congress' entreaties to do what's popular, instead of what's profitable (if a choice is both, all the better but over time expect popular to prevail). What's more, the rules and the rulemakers will be forever in flux.

Anonymous said...

1) Anonymous: Please see Amtrak

2) Stabenow: Really? If we've learned ONE THING it is that goods should be made in the US? Not that excessive borrowing is bad for us? Not that unchecked greed is not conducive to the interest of the nation as a whole? Which goods, ma'am? All goods? How does this dovetail with "college for all"? Do you think a nation of college educated individuals want to work in factories?