Tuesday, June 02, 2009

Government Inc.

There is a reason why governments are not businesses. Once they have control of a company, they tend to use it for policy. See Fannie Mae, Freddie Mac, AIG, Lehman, etc. What makes people think that GM will be any different? If it does not turn out to be a disaster I will be incredibly surprised. See "Public Policy; Corporate roles could Blur"

As majority stakeholder in General Motors, the government is straddling two responsibilities that could be awkwardly at odds: corporate ownership and public policy making.

With a $50 billion investment in the once dominant automaker, the administration's objective is to return the company to profitability and recoup as much of the bailout as possible.

But President Barack Obama also has a broad policy agenda that includes creating jobs and a greener economy, goals that may conflict with the corporate bottom line.

What if scaling back production of a fuel-efficient car at a time of low gas prices would save GM money? What if it were cheaper to close a plant and send certain manufacturing jobs overseas?

Administration officials say that they intend to maintain a virtual firewall between its policy initiatives and Obama's task force that has been working with General Motors Corp. and Chrysler LLC to restructure.

"It was made very clear to us that an exercise in which we try to accomplish multiple policy objectives simultaneously was fraught with peril and would very substantially reduce the chance of success," said Steven Rattner, one of the top advisers on the auto task force.

The administration has already walked that high wire. Two months ago, in rejecting Chrysler's and GM's initial restructuring plans, it said GM's underperforming dealers were a drag on the company and that its plug-in Chevrolet Volt was too expensive.

GM still plans to roll out the Volt in 2010 but will reduce its 6,100 dealers by 2,600.

GM itself weighed its corporate needs against public policy needs after the United Auto Workers and members of Congress urged it to abandon plans to build a small, fuel-efficient car in China. GM now says it will build the car in a U.S. plant that was going to be idled.

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