Friday, December 5, 2008

What's Bad for GM...

Many years ago the Chairman of General Motors stated that "what is good for GM is good for America." The veracity of that statement is debatable. But what isn't debatable is that one idea voiced in Tuesday's LA Times is bad for GM and bad for America. Dan Neil thinks that we should nationalize GM.
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.

This is where advocates of government-owned businesses demonstrate their disconnect with reality. If GM is such a good investment, why is it losing so much money? Why is its stock in the toilet? The market--the millions of individuals and institutions--has judged GM to be a bad investment. If Mr. Neil thinks that GM is such a good investment, he is free to invest his money. But I prefer to make my investment decisions myself, and I don't want some newspaper columnist making such dictates to me or anyone else. And do we really want Harry Reid and Nancy Pelosi running GM?
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.

When I was a kid I would often tell my mother that "everyone else is doing it" as my justification for some idea. Her response was typical-- "Would you want to jump off a bridge if everyone else were doing it?" The same holds true here. Just because other nations take money from their citizens to subsidize auto makers does not mean America should do so. And when did China become a nation we should emulate? The last I checked they limit families to one baby, stifle free speech, and murder political dissidents.
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.

So it is unprofitable to build "green" cars, but we should force GM to do so anyway. That is not a particularly sound business strategy. Generally, profitability comes from offering products desired by consumers at a price that is higher than the cost to produce it. But I guess this is some kind of "new math" that I don't understand.

And how about getting rid of the clean air and safety rules, rather than imposing these burdens on auto makers? That would be unthinkable. Instead, we'll just force tax payers to invest billions into a failing company.

I am always dismayed when someone ventures an opinion far outside the realm of their expertise. Mr. Neil is the automotive critic for the LA Times, and so I suppose he thinks that makes him an expert on all issues related to the industry. Mr. Neil may know automobiles, but he certainly doesn't know economics or political philosophy. He would be appalled if I wrote about the newest offerings from Detroit, because I do not know the proper principles for evaluating automobiles. Mr. Neil has made it clear that he doesn't know the proper principles for evaluating socio-political issues.

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