General Motors Zombie Watch 16: The Russians Are Coming!

Robert Farago
by Robert Farago

Ron Bloom is a Harvard MBA grad, investment banker and former advisor to the U.S. Steel workers. He’s also the head of the Presidential Task Force on Automobiles, now that Steve Rattner is busy defending his investment firm against bribery charges. Over the weekend, the Obama administration added Manufacturing Czar to Car Czar in Ron Bloom’s portfolio of power. “Bloom is to work with government departments including Commerce, Treasury, Energy and Labor to develop new initiatives affecting the manufacturing sector. The White House said Obama is committed to partnering with the private sector to spur innovation, invest in the skills of American workers, and help manufacturers prosper in global markets by promoting exports.” In other words, after nationalizing GM, Obama’s mob are now looking to screw up all the other parts of America’s manufacturing base. A quick joke . . .

As GM headed for oblivion, the executives shielded themselves from responsibility by blaming everyone else. The contention that the American automaker was on the cusp of recovery (again, still)—only to be waylaid by the entirely-out-of-its-control global economic meltdown—was only the final excuse for their epic mismanagement. Before that, GM had an entire litany of alibis for their slide into Chapter 11. Number one on the “it wazzunt me” hit list: Washington.

The carmaker bitched and moaned that it was being strangled by Washington’s safety regulations, fuel economy mandates, health care policy (take our legacy costs, please!) and foreign policy (plagued as it wasn’t by Japanese currency manipulation and import restrictions). But when it was time to face the music, GM’s suits leaped into Uncle Sam’s loving embrace, glad to become America’s first nationalized automaker.

See, now that’s funny.

Only not really. In truth, companies like GM—and there are more than a few of them—love federal regulations. They happily pass the cost of meeting governmental diktat directly to the consumer. Or, better yet, they get the government to pay for the cost of meeting government regulations. Case in point: Section 136 of the Energy Independence and Security Act of 2007. This greenwashed piece of pork directs the Department of Energy (DOE) to hand out $25 billion worth of no- to low-interest 25-year loans to automakers to retool factories to build cars that satisfy new federal corporate average fuel economy (CAFE) regulations.

Note the hidden dynamic: the federal regs provide an enormous barrier of entry to smaller car companies, who can’t afford to pay for meeting the regs, pass on the costs to their customers or lobby Congress for their share of the pie.

What smaller car companies, you ask? Well, exactly. Electric sports car maker Tesla Motors is the exception that proves the rule: a Silicon Valley start-up that managed to secure itself a $465 million mega-suckle on Uncle Sam’s teat. Otherwise, brash automotive independents are a thing of the past. They’re consigned to the industry’s early history, when federal regulations (and related subsidies and tax credits) were notable by their absence.

The counter to the “Uncle Sam killed the creative cluster” contention: if the feds hadn’t stepped in, automobiles would still be gas-guzzling, toxin-belching, rickety baby killers. The government HAD to sort out the chaos of competition for the public good.

But is that true? If so, why did it take Tesla to finally spur GM’s [previous] Car Czar Bob Lutz into action on the EV front? More to the point, do we really believe that car makers would have failed to provide seat belts, crumple zones, air bags, clean-running engines, etc. if Uncle Sam hadn’t spent huge amounts of time and money twisting their arms?

I know the idea that the carmakers would have done the right thing anyway—simply to remain competitive—runs against the commonly held belief that big companies are fundamentally amoral (i.e. “Capitalism: A Love Story”). As a former GM Death Watcher, I’ll admit that there’s more than a little truth to that assertion. But how did these big companies get to have such a stranglehold on the marketplace in the first place?

Again, you have to look at the role of government regulation and oversight in creating the monolithic manufacturers—before Uncle Sam decided they had to be dragooned into saving lives and protecting the planet and other social goals.

Whether you’re talking about making things or providing health care, President Obama’s “public private partnership” is not new, nor will it do anything to help the American economy get back on its feet. American history is littered with examples of the negative effects of excessive government control of/interference with the private sector. In this I refer you to Jonas Goldberg’s rambling rant, Liberal Fascism. And point my finger at GM.

By promoting Bloom to “fix” America’s manufacturing base, the Obama administration would have us believe that his main man has already “fixed” GM. At best, you could say the jury is still out. At worst, you could mention the fact that GM is a headless, nationalized chicken, running around in a vain, mindless attempt to avoid an inexorable fate brought on by its taxpayer-provided protection from accountability. Or, if you will, it’s a zombie.

To let Ron Bloom loose on other parts of our industrial sector, to encourage him to impose the government’s will upon large companies, is madness; regardless of how willing these large companies are to accept government assistance. The intervention ignores Ronald Reagan’s warning that the most dangerous words in the English language are “We’re from the government and we’re here to help.” Or the message behind that message: that America’s true economic strength lies in its free markets, engendered, fostered and protected by a lack of government interference.

Meanwhile, the Germans are pressuring the Americans to convince GM to let the Russians (fronted by the Canadians) buy GM’s German-financed Opel division. Maybe Big Ron should go sort that shit out. Or not.

Robert Farago
Robert Farago

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  • Probert Probert on Sep 11, 2009

    Geeber makes some interesting points on pollution. And I agree on the role of federal regulations. I also agree that in some cases the left can be elitist in their attempts to help others lead a better life. This is implied here: "When people are not worried about food, clothing and shelter (i.e., survival), they turn their attention to quality-of-life matters. Talk to some elderly Pittsburgh residents - in the 1920s and 1930s, smoke belching from the steel mills meant that they were working at full blast. As many working class Pittsburghers said, "Smoke meant jobs." A completely different attitude..." and it's very true. But this is the richest country in the history of mankind and this should no longer be the case. Reagan said:"Where's the Beef?" and I say:"where's the money?" 1% of the population has 25% of the wealth and that's not by chance. The wealth distribution is worse than many of the former Latin American dictatorships. The wealthy pay less in taxes than they have since the days of Carnegie. This certainly was promulgated by increasingly less progressive taxes, coupled by the erosion of the public space. No longer is there a feeling that one should give something back for all the benefits one has gained. And no one "passed a law" that affects wealth distribution. The wealthy pay a HIGHER percentage of total federal income taxes paid than they did when the top rates were set at much higer levels in the 1950s and 1960s. This has been documented by numerous researchers. Why? Because there were more loopholes in those days, and most people who could used them did. Hey - I'm just a punk, here's Warren Buffet - Also known as the 2nd richest man in the world: "Buffett told lawmakers that because of the cuts to the capital gains tax passed under former President George W. Bush, he pays taxes at a lower rate than some of his company’s employees. It is an argument the investor has made before. Buffett said he paid a 16.5 percent tax rate on all his income because the tax rate on investment dividends and long-term capital gains is only 15 percent. By contrast, a single employee at Buffet’s firm, Berkshire Hathaway, who earns between $33,000 and $83,000 must pay a 25 percent federal income tax rate." And payroll tax on someone earning minimum wage is also 25%. On the spot - no chance to collect a little interest.

  • 97escort 97escort on Sep 11, 2009

    While I agree Ron Bloom is totally unqualified to save manufacturing, faith in unfettered free markets has proved time and again not to work. The latest failure being 30 years of Reaganism and the collapse of 2008. It has long been the Federal policy in banking, manufacturing and other areas to facilitate the amalgamation of smaller enterprises into ever larger units in the hopes of creating efficiencies of scale. That is why we have monster banks, corporate farming and GM. The problem is that when these large institutions reach a certain size they in effect become like the government itself and are too big to fail since failure is a threat to the economy and thus to politicians looking ahead to the next election. Small business failures are no problem since other successful small firms can take their place quickly, but not so with large firms. The policy failure in banking and other areas is that when small firms get in trouble they are not bailed out but are encouraged to combine into larger, hopefully more viable, entities. But when these larger entities get in trouble, then they are bailed out. Then these large bailed out firms become economic zombies sucking blood from the rest of the economy.

  • Foo Eh. Net present value is in the red, once you add in rapidly rising insurance, late by months basic repairs-and-no availability, battery replacement, future hazmat recycling fees, and even faster depreciation. Wait until litigants win for "too heavy" in accidents... The math is brutal but if you value virtue signalling, some will pay anything.
  • Lynchenstein @EBFlex - All ICEs are zero-emission until you start them up. Except my mom's old 95 Accord, that used to emit oil onto the ground quite a lot.
  • Charles The UAW makes me the opposite of patriotic
  • El scotto Wranglers are like good work boots, you can't make them any better. Rugged four wheel drive vehicles which ironically make great urban vehicles. Wagoneers were like handbags desired by affluent women. They've gone out of vogue. I can a Belgian company selling Jeep and Ram Trucks to a Chinese company.
  • El scotto So now would be a good time to buy an EV as a commuter car?