By on April 7, 2010

My first day back at the helm of TTAC has been accompanied by an embarrassment of riches, in the form of both a GAO report on GM and Chrysler’s pension obligations, and the release of GM’s first post-bankruptcy, GAAP-approved financial results. We will continue to mine these documents for the most revealing quotes and statistics, but for now let’s take a moment to consider the political tensions caused by the auto industry bailout. TTAC has long held that political conflicts over the government’s stewardship of GM and Chrysler is a pressing concern, nearly on par with the financial ramifications of the auto bailout, and today’s GAO report confirms our concerns. As the following quote reveals, Treasury is under constant pressure to accommodate political concerns over the management of its stakes in GM and Chrysler, and has received no fewer than 300 official letters from congressional representatives, eager to subordinate the long-term health of the bailed-out automakers to their local concerns.

Recognizing the potential for interested parties to perceive conflicts, Treasury has taken several other steps to mitigate its risk. First, to guide its oversight of the investments going forward and limit its involvement in the day-to-day operations of the companies, Treasury developed four core principles: (1) acting as a reluctant shareholder, for example, by not owning equity stakes in companies any longer than necessary; (2) not interfering in the day-to-day management decisions; (3) ensuring a strong board of directors; and (4) exercising limited voting rights. According to Treasury officials, use of these core principles defines the operating boundaries of the federal role within its ownership context by limiting the reach and ability of the government to exert its powerful influence on the business and operational matters of these companies. Officials noted that the core principle of not interfering in day-to-day decisions has been particularly helpful in dealing with political pressures related to business operations. For example, officials said that Treasury’s auto team received about 300 congressional letters in 2009 regarding day-to-day management issues involving GM and Chrysler. Several of these letters asked about company decisions and strategies, or called on Treasury to exert influence on the companies’ business decisions. Some letters lobbied either in favor of or against a certain practice or activity. Other letters have been passed along on behalf of  a particular constituent concern. Treasury officials said that, because of their core principle, most of the time they can simply reply to such letters by reiterating their policy of not getting involved with the companies’ business decisions, and as a result, they have been able to avoid having to respond to these pressures.

What appears to be missing from the last sentence of this quote is the phrase “thus far.” With GM and Chrysler’s profitability, worker benefits, and the health of America’s pension guarantee system hanging in the balance, Treasury can likely expect such political pressure to increase. Though measures are in place through which the Treasury claims to have been able to rebuff such political advances, as these two firms move closer to an IPO, there are too many competing interests to balance to ensure an apolitical outcome. I joked once, in a long-ago podcast, that America’s investment in and partial ownership of GM and Chrysler might make sense if our government were in fact a totalitarian regime, as it would be able to have a clearly defined goal for its intervention. But because of our democratic system, representatives can and should seek to interfere in government policies on behalf of their constituents, creating intense pressure on any attempt to neutrally manage such a massive investment, especially one that can have the power of life and death over local economies. We’ve already seen examples of interference take place, and political exigencies may well have played a role in a number of GM and Chrysler’s business decisions. Until such time as the Treasury divests its stakes in these two automakers, it (and the automakers themselves) will continue to face political consequences for nearly every decision they make going forward.

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10 Comments on “Quote Of The Day: Government Motors By The Numbers Edition...”

  • avatar
    Jack Denver

    As much as I am against the government bailout of GM and Chrysler, I think the days when the auto industry (or any industry) could operate in the US free of politically motivated government interference are long past, unfortunately. Even without stock ownership, a corporate CEO has to govern his actions with strong reference to the political consequences (or face those consequences, which can be very unpleasant). Ask Mr. Toyoda if I am wrong.

  • avatar
    Chicago Dude

    I believe that Mr. Toyoda’s problem has a lot to do with Toyota taking steps to avoid following all of the rules imposed on the auto industry and trying to hide potential problems instead of fixing them in advance. Hiring NHTSA workers who then got investigations ended, etc.

    If Toyota had followed the law exactly, there would be very little that the politicians could do beside blow a lot of hot air in Toyotas direction. Don’t get me wrong – it would still suck for Mr. Toyoda, but his company would not be in the same situation it is in now where it is facing fines and other penalties.

  • avatar

    The treas. is handling this about as well as can be expected and under TARP (and bankruptcy), which all of this falls, there is nothing that congress can do to change that (and congress voted for it to be that way).

  • avatar

    Treasury is a highly professional organization that has been rebuffing politicians since James K. Polk established its quasi-independence. The issue is within the companies themselves, indirect and direct political influence, mission confusion etc., that leads people to do things other than in shareholder and employee interests.

  • avatar

    The choice of a tax cheat as Secretary of the Treasury doesn’t have any effect on the professioinalism of the organzation?

  • avatar
    DC Bruce

    Without disagreeing with Mr. Kessler’s characterization of Treasury employees, or impugning them in the least, I’m afraid that this situation is unprecedented. The size of the taxpayer “investment” in these two companies is huge as are the consequences of a failure. It does not require much political insight to anticipate that, in at least some of the Congressional elections this fall, the “bail-outs” of corporate America will be a political issue. And, before you dismiss the people raising such objections as a gaggle of militia members and mullet-headed rednecks, consider the question as to whether or not we would have been better off letting these companies “fail” (i.e. go through bankruptcy court without the politicians’ fingers on the scales of justice), even if that meant spending large sums of money assuming pension liabilities and providing relief to displaced workers. The advantage would be that the US auto industry would have been re-structured following economic, rather than political, imperatives which would have increased greatly the likelihood of the survivors’ viability. Sure, that would have meant the death of Chrysler, but can anyone say today that Chrysler’s prospects are better than dismal?

    Other political efforts to prop up companies in contracting industries have been notable failures. The Newspaper Preservation Act, which allowed competing daily newspapers to merge their business operations so long as they continued producing separate editorial products has not prevented the closing of competing newspapers in two-newspaper cities. Likewise, the Federal Communications Commission’s policies of allowing multiple TV stations in the same market to be commonly managed and operated and allowing a single company to own multiple radio stations in the same market has not improved the financial strength of either the broadcast television or radio industry.

    Obviously, what has been done cannot be undone. But there may come a time when the government will have to decide whether to commit additional resources to one or both of these companies.

    So, it’s still a question worth asking.

  • avatar

    If you are someone who really thinks that US government involvement in a sick car company like GM can effect positive results, let’s ponder how government involvement with a healthy, robust company like American Honda would improve that firm even further.

    I’m not talking just mpgs and crash standards but overall design and the whole vision thing.

    Do you think Honda’s designs and customer satisfaction would become even better after a car czar and the ‘working group’ from the Treasury had their influence?

    • 0 avatar

      “Do you think Honda’s designs and customer satisfaction would become even better after a car czar and the ‘working group’ from the Treasury had their influence?”

      After seeing some of the latest products from Honda and Acura I think that maybe a car czar and some government apparatchiks would do a better job, especially when it comes to design.

  • avatar

    The positive effect of the US government in GM is to keep the jobs during this deep recession everything else is extra.

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