General Motors bankruptcy and nationalisation: exit strategy needed

This is a staggering amount of money for the bailout of any single firm. More harmful than the direct cost, however, may be the cost of government management of this firm. History provides no reason to think anyone in DC knows how to run a car company. A look at the enterprises that Washington already runs - including the Postal Service and Amtrak - does not reassure.

Dangers of political management

But the danger is not just that politicians do not know how to run auto companies. It is that they know what they want to use them for. As Robert Reich, President Clinton's labor secretary, said of bailing out banks, "Is our main objective to make sure [banks] become profitable and we get repaid? Or should we push management to take actions that are in the public interest but not necessarily geared toward higher shareholder returns? ... I'd say we should do the latter. Otherwise, why bother bailing out [the companies] to begin with?"

Politicians will use enterprises they control to advance their own agendas - even if those agendas conflict with the goal of making products consumers want to buy. Case in point: EPA Administrator Lisa Jackson has said (in an interview on All Things Considered, NPR, April 28, 2009), "What this country needs is one single national road map that tells automakers ... what kind of car it is they need to be designing and building." She was referring to fuel-efficient cars, which the President himself has dubbed the "cars of the future". Consumers, of course, may not agree, perhaps preferring the safety of larger vehicles. But with Washington in charge, it may not matter.

Exit strategy needed

Ownership, acquired through a government-dominated bankruptcy process, is the wrong approach. GM and Chrysler should be restructured under established bankruptcy rules - without taxpayer money or the federal control that comes with it. But if government ownership does take effect, President Obama and Congress should outline a clear exit strategy for taxpayers, as well as clear guidelines on how the firm is to be run in the interim. Among the necessary steps:

• Establishing a firm, legally binding deadline - perhaps one year - for the sale of the firm back to the private sector.
• Establishing an expedited schedule for repayment of outstanding federal loans. The repayment should extend no more than 36 months.
• Prohibiting any further taxpayers loans or grants to GM.
• Adopting clear guidance for GM's management and for federal officials overseeing the corporation, making clear that during the period of government ownership, establishing market value and viability, rather than social or political goals, are to be the primary objective.
• Strictly barring GM during the period of government ownership from making any campaign contributions or engaging in policy advocacy of any kind. Due to its ties to government, GM's role in the political arena while nationalised should be strictly circumscribed.

Need to u-turn

Last month, President Obama declared "I don't want to run auto companies. ... I've got more than enough to do." But like it or not, running auto companies is exactly what the federal government is doing. That is the wrong road for Detroit, for consumers, and for US taxpayers. America needs to take the nearest exit.