Friday, May 29, 2009

GM and Chrysler

A Different Model?

I've criticized Washington Post columnist Steven Pearlstein in the past (check out "Letter to the Washington Post, #7" and "No Bailout"), so it's probably only fair to acknowledge when Pearlstein may have gotten it right. In particular, the federal investment in GM could turn out to be a very positive intervention in the long run.

In his Post column today (read it here), Pearlstein argues, as he has in the past, that GM and Chrysler and their suppliers are too big to fail. This could be just a rationale for a bad bailout. But I think Pearlstein is correct when he says that the government's investments in Chrysler and GM aren't bailouts, at all, but a massive intervention aimed at protecting jobs and pensions and manufacturing capacity.

Pearlstein points out that the intervention wasn't mandated, the Obama administration elected to intervene. In the process, original shareholders have been wiped out, or nearly so. The management teams that presided over the collapse of the two companies have been dismissed. "Bankers and bondholders who had the bad judgement, or the bad luck, to lend money to these companies" will get only pennies on the dollar.

But Pearlstein points out "any fair analysis would also show that the net present value of wage, benefit and job-security concessions agreed to by the United Auto Workers amounts to tens of billions of dollars." In exchange, some autoworkers will keep their jobs. Pensions will be cut, but will survive. And the union, its members and related organizations will own about one-eighth of GM and, I suppose, a similar share of Chrysler. The UAW will have to find a way to make this ownership share pay off, not a sure thing, but maybe a way to pressure the still giant auto companies to operate in the interests of all stakeholders in the future rather than in the interests of a privileged few.

And though I wish to give Pearlstein as strong an "attaboy" as possible for his column, his closing sentence opens up a whole new can of worms. "If President Obama can get most of our troops out of Iraq by the end of 2010, he ought to be able to get our money out of Detroit by then, as well," Pearlstein wrote.

I don't know about that analogy, Steven. First of all, I'm hoping that the U.S. investment in GM is not based on the same lies and deceptions that framed and covered the U.S. attack on Iraq. Second, we ought to be looking for some actual success story as a result of the GM investment, not a laying waste to the company. Finally, the troops in Iraq are, in significant numbers, moving to Afghanistan. Here's hoping that there are far better uses for the GM cash when we finally get it back.

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