Let's nationalize GM

December 08, 2008|By Dan Neil

From my perch as someone who drives all of the Big Three's North American product offerings, I think a lot of the anger at automakers is reflexive and misplaced. Detroit makes some amazing cars. The Ford F-150 pickup I drove recently flat-out humbles rivals from Toyota or Nissan. Considering that the domestic carmakers are shouldering titanic "legacy" costs, 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. Forget rathole loans or nonvoting equity shares. The company's stockholder value has been essentially wiped out. The company's enterprise value 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 United Auto Workers, 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.

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 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.

* 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. 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. It 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 health care 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, because of 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.

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?

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 ... and maybe even some Corvettes on the side.

Dan Neil's automotive columns won the Pulitzer Prize for criticism in 2004. He writes for the Los Angeles Times, where this article originally appeared.

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