http://www.latimes.com/news/printedition/opinion/la-oe-neil2-2008dec02,0,5617845.story
December 2, 2008
Los Angeles Times
Nationalize GM
By Dan Neil
The federal government should buy GM. We can run it, then sell it at a
profit once it recovers.
At the moment, D.C. and Detroit are brooding on a Morton's Fork: Watch
the American automakers auger in and take hundreds of thousands of jobs
with them, or bail out these failed and incorrigible companies whose
management so richly deserves whatever hell (flying coach?) awaits
them.
Tops on the critics' list of grievances is Detroit's failure to
anticipate the inevitable. Why didn't these companies sufficiently
invest in next-generation technology -- fuel-efficient small cars,
high-mileage hybrids, plug-ins and all-electric vehicles -- that could
help wean the U.S. off foreign oil and take the automobile out of the
climate-change equation? As the auto executives again bring their
begging bowl to Congress, a consensus is forming: No bailout unless
Detroit builds greener cars.
From my perch, as someone who drives all of the Big Three's North
American product offerings, I think a lot of the anger is reflexive and
misplaced. Detroit makes some amazing cars, and anyone who thinks
otherwise should hold a Corvette ZR1 to his head and pull the trigger.
The Ford F-150 pickup I drove last week flat-out humbles rivals from
Toyota or Nissan. Considering that the domestic carmakers are
shouldering titanic "legacy" costs -- it's estimated that $2,000 in
healthcare, pension and employee post-retirement benefits are baked
into the price of every UAW-built vehicle -- just being competitive in
any segment is a signal achievement.
Nonetheless, the question remains: What to do about the domestic
automakers? My modest proposal: Nationalize GM.
To be clear, I mean that the federal government should buy GM; forget
rathole loans or nonvoting equity shares. The company's stockholder
value has been essentially wiped out. The company's enterprise value --
the lock, stock and forklift price -- is about $32 billion; its total
debt is $45 billion. Let's make GM an offer.
If you feel the gall of free-market ideology rising, consider that the
measures being bruited about as preconditions for a bailout -- firing
GM's top management; forcing a bankruptcy-like renegotiation of
contracts with the UAW, suppliers and dealers (it has too many); and
creating a czar of product development to force the building of green
cars -- are nationalization in all but name. I say embrace it. GM-USA.
Here are the benefits of nationalization:
GM's fundamental problem is that it's too big -- and expecting it to
fix itself in exchange for a $10-billion to $15-billion loan (its share
of the vaunted $25-billion bailout) or magically right-size in Chapter
11 is foolhardy. It would take too long, cost too much and bankruptcy,
should it come, would send customers running for the hills. Time is of
the essence. Congress, writing a GM law and using federal power to
abrogate contracts, could achieve at least some of these goals at a
stroke.
GM is full of talent and potential. The company spent $8.1 billion on
research and development last year, second only to Toyota. Of all the
carmakers, GM is closest to commercializing a full-size, four-door,
plug-in electric vehicle, the Volt, due in the fourth quarter of 2010.
The Volt should travel about 40 miles in all-electric mode before
requiring the services of its onboard, gas-powered generator. Many
owners could go weeks before they used any gasoline. This is precisely
the sort of car that environmental and energy security advocates have
been clamoring for.
GM's business is growing in other parts of the world; it's only the
North American operations that are killing the company. This is a
corporation that had $181 billion in revenue and sold 9.4 million
vehicles in 2007. To put it another way: GM, though distressed, looks
like a good investment. Also, the federal government can sell the
company -- at a profit -- once it's righted and sailing forward again.
GM is competing with companies that are quasi-national now. If you
consider the advantages the government of Japan has bestowed on Toyota,
Nissan and Honda -- in terms of healthcare and retirement benefits for
its employees -- the unevenness of the field is clear. The same goes
for most European companies, and the rising rivals in China will enjoy
similar state-subsidized advantages.
The government can afford long-term planning. Many of GM's strategic
missteps -- such as betting large on trucks and SUVs and not investing
early in hybrid technology -- were the result of willful
shortsightedness at the board level, responding to a financial market
in which shareholders look for the quick return. Putting Uncle Sam in
charge would fundamentally enlarge the return-on-investment horizon.
We need government-sized automotive help anyway. This country should be
putting millions of plug-in hybrid and electric vehicles on the road.
As far as I can tell, without big subsidies, there is no way in the
near term to build these vehicles and make a reasonable profit, due to
the stubbornly high cost of advanced batteries. Besides, if GM were
owned by the government, it wouldn't spend time and money litigating
and lobbying against clean-air and safety rules
Why not pick up Ford and Chrysler too? If Chrysler goes south, it's too
small to drag down the rest of the domestic auto industry. Ford, which
has been pursuing its "Way Forward" cost-cutting plan for more than two
years, will probably survive the moment without government assistance,
though it's going to be close.
To be sure, the yard marks of democratic capitalism have moved under us
in recent months. Last week, the feds announced that the government
would take a $20-billion stake in Citigroup and guarantee hundreds of
billions in risky assets, a move that would have seemed pure socialism
had we not lived through the last few months. Have we not in effect
nationalized the mortgage-loan industry?
I say, let's avoid the euphemisms and have the courage of our
supercharged Keynesian convictions. By nationalizing GM, we can aim the
company's astonishing resources at one of the biggest public-policy
problems we have: oil. Restructured and refocused, GM could build green
vehicles by the millions in a few years and still have the capacity to
build gasoline- and diesel-powered pickups (which we'll still need) ...
and maybe even some Corvettes on the side.
Dan Neil is The Times' automotive critic. [EMAIL PROTECTED]
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