Editorial: General Motors Death Watch 224: Catch You On The Flip Side

Last week. President Bush sacrificed his free market principles on the altar of expediency. Apparently, under “ordinary circumstances,” the Commander-in-Chief wouldn’t have expropriated $17.4b of taxpayers’ money to bailout General Motors and Chrysler. But someone somewhere screwed-up the U.S. economy; leaving him without the option that cannot be named (a.k.a. doing nothing). I guess Bush was channeling Flip Wilson: “The Devil made me do it!” Actually, that would have been a welcome excuse. The pretext Bush deployed is deeply worrying: “My economic advisors believe that bankruptcy could now lead to its disorderly collapse.” So we’re propping-up two dead dinosaurs walking because we fear “disorder?” When did the United States become Germany?

Seriously. I’ve seen Germans standing at an empty pedestrian crossing at 2am, waiting for the light to change. Don’t get me wrong. The German desire for order is both their weakness and their strength. Alois Ruf doesn’t build the world’s best supercars by allowing his mechanics to plop a schmutz-oozing bratwurst sandwich onto a toolbox. But a tightly confined system of rigidly enforced rules and regulations is not the American way.

As a nation, we’re supposed to have a system of government– and a corporate culture– that allows individuals and companies to engage in the art, science and business of innovation. To paraphrase Joseph Stalin, you can’t make an innovative omelet maker without putting a few omelet makers out of business.

I’m sure I don’t need to lecture anyone about the importance of creative destruction to the health and vitality of our entire economic system. Unless it’s President Bush. Does the Chief Executive honestly believe that the American economy will be stronger if our tax money props-up two, perhaps three failed not-to-say doomed carmakers?

Even if GM could be “saved” by a temporary reprieve from Adam Smith’s “invisible hand,” the overall effect on the automotive market will be stultifying. GM and Chrysler will suck-up sales/money that could have rewarded and strengthened more efficient and market-sensitive automakers, during a time when every sale counts.

Those of you schooled in realpolitik will counter that the Motown bailout buffet is like everything else that emanates from the political sphere: it’s about pragmatism, not principle. The President believed that protecting his political legacy (such as it will be) depends on making GM’s implosion Barack Obama’s problem.

Fair enough. Or, in this case, completely unfair to the car companies who deserve to survive. But the real irony here is that President Bush’s failure to embrace his inner cowboy, his failure to stand back and let the chips fall where they may, will make things far more “disorderly” than if he’d left not well enough alone.

During this pre-C11 interregnum– for that is what it is– The President and his cronies expect GM’s stakeholders to not drive that stake into the automaker’s black heart. For some reason, Bush expects the company’s executives, unions, bondholders, dealers and suppliers to fashion an agreement whereby everyone takes a hit for the team so that the team may survive.

For GM’s longtime observers, the idea triggers a simple, inescapable thought: why the Hell would they do that?

For one thing, they haven’t done it so far, even though GM has been technically bankrupt, heading for its day in bankruptcy court, for years. In fact, you could make an excellent case that the bailout is a reward for NOT having negotiated a viable business plan. And anyone with dogs knows what happens when you reward a behavior. See you on March 31 for more of the same? Count on it.

For another, there is no power within the bailout “agreement” to force anyone to do anything– other than file for Chapter 11 (which they’re going to do anyway). The idea of a bailout “Car Czar”– once the linchpin of the whole deal– has quietly disappeared. And no wonder. He or she would have been a de facto bankruptcy judge. And you can’t have that while you’re busy jockeying for position in the real bankruptcy.

If Bush and the federal teat-suckers he’s supplying think a GM/Chrysler bankruptcy now would be disorderly, just wait. GM’s various “stakeholders” will spend the next 90 days or so fighting over the meat thrown to the wolves by Uncle Sam, and then begin the real business of internecine warfare. Without a bankruptcy judge’s staying hand, all Hell is about to break loose. I fully expect the whole house of cards to collapse before the time comes to re-up. And if not then, later.

But no matter how long it takes, every day that GM (and Chrysler) stay in business will sap precious strength and vitality from the American automobile industry. Energy is never lost; it merely changes form. America’s Founding Fathers knew that some forms are better than others. But when it came to commericial ventures, as long as they stayed within broad boundaries, it was not for them to decide which.