Nationalizing GM

This bailout is beginning to smell more and more like the New Deal. FDR tried to nationalize the electric power industry and partly succeeded with the Tennessee Valley Authority and the Bonneville Power Administration. George Bush has begun nationalizing the banking system buying stock in Citibank while other big banks line up for similar treatment. Now the three remaining US auto makers have their hands out and a columnist at the LA times is suggesting the feds simply buy GM. His reason? Only the feds have deep enough pockets to solve the real problem; building the electric cars we need. You see, the batteries are so expensive nobody will buy them without heavy subsidies and private industry can’t be trusted to produce cars the public might not want. I’m sure the idea is a big hit with the chardonnay and organic tofu crowd.

He’s right about one thing. There is no indication large numbers of people want electric cars unless they are affordable, reliable and functional. They aren’t any of those, at least not yet. For the foreseeable future we will continue to rely on fossil fuels for most of our transportation needs unless the government steps in. Of course the electrics don’t get us away from that. Most of the power will have to come from coal and natural gas. It isn’t likely the end result will be greater fuel efficiency any time soon, though it might help reduce our dependence on imported petroleum. But the larger problem is he is trying to address the wrong issue. GM isn’t in trouble because they don’t have electric cars to sell. They are in trouble because they let their costs get out of control and they have a long history of poor quality. They do have hybrids and nobody is buying them. Right now hardly anybody is buying cars at all. Big ticket items are a tough sell.

I’m sure the big three will get some government money, probably a lot of it, but I doubt they are salvageable in the long term without a lot of restructuring. That would include serious reductions in labor costs and in dealerships. Unions are a major democrat constituency and every congressman has several auto dealerships in his district. I don’t see this happening under government sponsorship. I do see a major handout now, another one next year, and subsidies as far as the eye can see. But I don’t see any of it being much help. New Deal programs didn’t get us out of the Depression. More of the same won’t get us out of this. People are worried about their retirement savings, home values and jobs. We are in a deflationary economy, a very difficult problem to solve. Just ask the Japanese. Who would buy a house if it might be worth a lot less a year from now? What’s the five year warranty on a new Ford worth? Making credit easier isn’t the answer. People with good credit can get loans now. Those who don’t have to borrow don’t want to. Making automobiles more expensive isn’t the answer either, subsidies or no subsidies. The money has to come from somewhere.

We aren’t going to get out of this downturn until confidence is restored. We need predictability. What the government has done so far is create a great deal of uncertainty. Buying GM would just add to that. We need to know what we can expect our taxes to be. We need reassurance our energy bills aren’t going back through the roof. We need to know our export markets aren’t going to suddenly shut down. We need to be comfortable our houses aren’t going to lose half their value. We need secure jobs. We need to expect a reasonable return on our investments. We need a growing economy. We need a pro business government. If we learned anything from the communists the last thing we need is for the government to go into the automobile business.