In Defense of Owning GM

More surprising is finding ourselves owning 60 percent of the company. I’m not convinced that younger generations are afraid of the word “socialism” — or even the concept of it — like those who associate it with communist oppression are, but the Obama administration’s actions raise some questions and concerns. From my perspective, there are good, bad and inevitable aspects to what we’ve seen unfold, and what we still shall see. To my surprise, I find myself supporting the way things are turning out, mainly because I know how much worse it could be.

It Could Be Worse
To paraphrase the overwhelming sentiment I’ve heard — and seen in our blog comments — since the announcement: Most American taxpayers don’t want to own a car company, or at least not this one, or they simply don’t trust the government not to screw it up. All of these notions are understandable, but they ignore a critical predicate: that there were no good choices. I believe we’re witnessing the least-bad one.

At the end of 2008, Chrysler and GM were unstable buildings, ready to collapse and wipe out whatever lay in their shadows. Bankruptcy back then would have been like bringing the buildings down in a barely controlled implosion — a safer option, but a violent one that created shockwaves and left little of value when it was done.

What the Obama administration appears to have done, with the help of company management, is to start at the top and strip the buildings piece by piece. Now that the assets and people have been evacuated, a few strategically placed charges will bring down the framework that has no place in a modern skyline.

It’s time for everyone to recognize that the white- and blue-collar job losses we’re seeing — along with the axed brands and discontinued models — aren’t the unavoidable result of Chapter 11. All of these things, and the bankruptcy itself, are the unavoidable consequences of the automakers’ missteps over decades, combined with this year’s automotive market and overall economy.

The Role of Government
What gives the government the right to “fire” a CEO and dictate what a corporation does in our free-market system? It would be a relevant question if the Bush and then Obama administrations hadn’t rushed in and braced the structures. Isn’t this complaint like criticizing a good Samaritan for saving people from a burning building because you don’t like the way he did it, or because he was only able to save some and not all, and because it’s really the role of a firefighter, which he is not? Without government investment, GM had nothing at all. It would be dead, gone, liquidated. The jobs, brands, models and dealers saved could very well be zero. We’re so busy arguing about how to arrange deck chairs on the Titanic that we’re blind to the narrowly avoided iceberg and the luxury of not having to grasp for chunks of buoyant debris. (I know the building just turned into an ocean liner, but work with me here.)

Compare the investment approach to a collapse, or to a never-ending series of taxpayer “loans” with no strings attached — a move that didn’t go over well when We the People threw exponentially more billions of dollars (never in the form of loans) at Wall Street. Ownership equals an unprecedented vested interest in the business of automaking. Isn’t this the best way to ensure that the government keep its demands on GM reasonable and, if needed, support the company through any further edicts, such as regulations and an insistence on stateside manufacturing?

You Bought It, Don’t Break It
Over the decades when Corporate Average Fuel Economy standards were effectively abandoned, lawmakers believed automaker claims that higher mpg standards would bankrupt them. It wasn’t true then. Maybe regulators are close enough to the business now to see whether it’s true or not. This newfound understanding is what brought about the new mileage standard as a single, national plan with revisions that back-load, rather than front-load, the phase-in to work with the long-term nature of automobile development.

As for concerns about micromanagement, about “Government Motors” forcing the manufacture of “cars people don’t want,” the government could force all manufacturers to do the same without holding equity in any of them — and some critics say that’s exactly what the new CAFE standards will do. The most positive signs to the contrary come from GM itself. In spite of the difficult circumstances, people within GM seem enthusiastic about the administration and even the auto task force.

What we see now — the seemingly fast and tidy restructuring — takes the place of what could have been a drawn-out, played-out-in-the-courts Chapter 11 were it not for the buy-in from constituents. More likely, lacking debtor-in-possesion financing, GM would have fallen directly into Chapter 7. It appears that the threat of bankruptcy is a better incentive to compromise than a bankruptcy itself would have been. At least the timing’s good. What better time to put a dent in your sales than when you — and your competitors — don’t have many sales anyway? If the plans succeed, the companies’ recovery should follow the trajectory of the economy itself.

Why Not Sooner?
Anyone who bemoans the bankruptcy’s coming months and billions of taxpayer dollars after the possibility first arose reflects a quintessentially American trait that’s both admirable and pitiable: the refusal to imagine that things could be worse. The formal Chapter 11 might be ending soon for Chrysler and possibly — though improbably — within two or three months for GM. To be clear, this isn’t the end of a painless surgical restructuring; the Novocain just hasn’t worn off yet. It will get worse, and public outcry will only intensify as the ripple effect spreads. The same personalities who couldn’t foresee the pain can be counted on to overreact rather that to recognize, once again, that it could be even worse.

This investment is a gamble for the Obama administration. I think GM underestimates how difficult it will be to lure consumers post-bankruptcy, and how much it will cost them to bribe shoppers with low prices. This could easily become a political quagmire for Obama. Politically speaking, the only safer strategy would have been to let Chrysler collapse. Sacrificing the smaller, privately held company would have been easier to justify. Then, as the dominoes fell, the jobs liquidated, the economy nosedived and Americans experienced the shock we often require before we wake up to reality, the administration could have swept in and saved GM — saved us all — from catastrophe. Maybe they aren’t so Machiavellian. Maybe they didn’t think of it. Fortunately for the administration, they have more than three years for this gamble to sort itself out.

Product is King
At Cars.com, our focus is on the products, and that’s how we know GM has a solid chance. Automakers have a rich history of saying things like “There’s no problem good products can’t solve,” and “Product is king!” — then turning around and devoting resources to everything but. It’s time for you to put our money where your mouth is, GM, and you’d better make it good. It’s not just Cars.com watching. It’s everyone.