Editorial: General Motors Death Watch 214: Whose Car Company is This Anyway?

In the legend of Faust, the protagonist sells his soul to the Devil in exchange for knowledge and power. Needless to say, things end badly for one member of the transaction (hint: it’s not the guy with the horns on his head). A “Faustian bargain” has come to mean a deal where you surrender what’s truly important to achieve an ultimately worthless goal. Yes, I’m talking about GM. If the artist once known as the world’s largest automaker avoids Chapter 11 via a bailout deal with Washington (a.k.a. Mephistopheles), the contract will ensure its final, irretrievable doom.

In this case, as in so many others, the road to Hell is paved with good intentions. Ostensibly, bailout supporters want to “protect” Uncle Sam’s “investment” in GM– otherwise known as fighting a rearguard action against those who see a GM bailout as GMAB (Good Money After Bad). To that end, lawmakers crafting the $25b-plus suckle are talking-up the “strings” attached to the cash.

Speaking on yesterday’s Face the Nation, Barney Frank laid out his prophylactic proposals. The Massachusetts representative tasked with writing and proposing the bailout bill says the feds will only tender taxypayers’ money to Motown mismanagers if the beneficiaries agree to end to shareholder dividends, ban bonuses for employees who earn more than $200k a year, and submit to a government oversight board with power to veto corporate decisions.

First, the idea that GM would pay out shareholder dividends when it’s nose-up in the North Atlantic makes no sense at all. Oh wait. They already did that, didn’t they? For years. OK, well, what difference does a dividend payment make when GM is burning through one— make that two billion dollars per month? More to the point, since when does the U.S. federal government have the right to decide if and when a publicly-held company should or should not set a dividend? Frankly, Frank, it’s none of your goddamn business. At least it SHOULDN’T be.

As even a casual reader of this series will know, I consider GM CEO Rick Wagoner’s tenure at the top an utter failure. The GM Board of Bystanders that elevated and supported Red Ink Rick in his Reign of Torpor is criminally liable. In fact, there is but one group of people on planet Earth who could make more of a mess of GM than its current administration: politicians. To wit…

For better or worse (worse), politicians are paid a flat fee. Here in the real world, executives work for a salary and an annual bonus. In the ideal real world, the bonus is tied to something called “performance,” sometimes involving a personal target, sometimes company-wide. Many times, the system works (hence its existence). Other times (i.e. Rick Wagoner), it doesn’t (hence GM’s destruction). Normally, the free market cleans up the mess.

Removing the executive bonus system to satisfy a politician’s idea of class warfare is patently ridiculous. If GM is to recover, it needs [NEW] top executive talent. To attract same, it can either pay-out bonuses for top performance or… what? Inflate the base salary and benefits to skirt the issue? Maybe so. But again, is anyone more uniquely unqualified to make that decision than Washington politicians?

This brings us to the third leg of this inherently unstable federal stool: an oversight committee. With veto powers, no less.

The Wall Street Journal reports that the bailout bill will require the automakers and their unions to draw up plans on “how the companies would return to financial health in the longer term.” Congress will then appoint “guardians” who will tell GM how to implement the Congress-approved plans. Oh, and there could also be a Car Czar to tell the oversight committee what to tell GM executives.

Yeah, I want to buy a car from THAT company.

In truth, I’d rather the feds just GIVE GM the $25b, no strings attached. At least GM would have to come back with their begging bowl after they’ve pissed the cash away, rather than simply slipping an item into next year’s appropriations bill. I mean, when was the last time a federal organization said, right, we’re done. Disband us, close the office and fire the secretaries so we can all go home?

The federal proposal to “save” GM et al. is not a bailout. Not anymore. Now it’s a Faustian bargain between a failed company and a power-mad government. If approved, it will allow your duly elected representatives to gain control of an American carmaker to manipulate it for their own ends. Anyone who thinks those ends will be determined by a desire to create product and customer service excellence is seriously, dangerously deluded.