Nationalize the Automakers? On Tom Friedman's Op-Ed

The November 12 New York Times has an editorial by Tom Friedman which includes the following:

But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.

“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”

I would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.

Lastly, somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.

I have been contemplating a similar idea and am astounded to find I have decided that it has merit compared to some of the alternatives. I look back to the Chrysler rescue of the early 1980s and find that to be a good model for the current situation. We did essentially most of the nationalization process there, but kept the management in private hands because of the $1 a year man, Lee Iacoca.

Some may object to the confiscation of stockholder equity for some nominal figure, but any value would be more than the recent Wall Street analyst projected value for GM (GM) stock of $0. If the nationalization were accomplished out of bankruptcy, the nominal purchase price would actually be $0.

Friedman proposes that an objective of this process would be the creation of an electric hybrid that would use flex fuels such as cellulosic ethanol. Why not have the fuel portion use an engine readily convertible from liquid fuels to compressed natural gas?

Finally, why not have this business plan also focus on the development of improved battery systems so that the fuel portion of the hybrid becomes only an on-board generator for an otherwise plug-in electric car?

The entire process Friedman proposes also includes the abandonment of existing and past contract provisions for autoworkers' pensions and health care. Obviously, this can only be done with some sort of government assumption of these liabilities, at least partially. This issue dovetails with the entire question of how our future health and retirement systems will operate for all citizens.

What Friedman has proposed walks a fine line between socialism and capitalism. To succeed, implementation of these proposals would have to straddle that line or return to privately held Big Three corporations in the future would not happen. Where is Lee Iacoca when we need him again?

Comments

[Paul Killinger:]

Friedman and Ingrassia are right about one thing. They know as much about vehicle manufacturing as the idiots in Congress. Not to mention the executives and unions running those companies now.

Anyone who believes this proposed government intervention can end up succeeding should look at the mess they've made of Social Security, Medicare, our financial system, energy policy, the post office, and etc., etc. ad infinitum first.

2008 Nov 13 09:24 AM

[lar2go:]

Nothing I've seen for the last 30 plus years indicates to me that current management of the company or the union is capable of saving GM. $25B to our auto industry w/o Friedman's nationalization would keep them going for 1 year then they'd be back again asking for more. I can't conceive of them doing anything in 1 yr tht they have failed to do for the last 30 yrs. -- or they could reorganize under charter 11 Larry

2008 Nov 13 08:34 PM

[Stockguy456:]

www.wired.com/wired/ar...

The hydrogen car has been a long time coming. GM is betting $1 billion that the end of internal combustion is near.

2008 Nov 14 11:40 AM

[rh13:]

paulk8756 invites us to look at how well the government has managed other things including social security, the post office, and energy policy. On those matters, the government has performed extremely well. Energy costs in the U.S. are low and have been since John D. Rockefeller was young. Social Security provides an annuity and insurance service at a cost so low it makes the whole medical industry look sick. The Postal Service allows anybody in the U.S. to send a message to anybody else for 42 cents or less, which is far less than it costs in other developed countries. There are other things the government does quite well, too. They include military functions, tax collection, and federal roads.

2008 Nov 17 09:53 AM

[rh13:]

I hate to say this because I do have a soft spot for the American Three. But if we are to subsidize the auto industry, the investment would be better made in the upstarts and interlopers. The American Three are behind in delivering quality cars at low cost. Toyota, Honda, Nissan, Mazda, and Subaru all manufacture cars in the U.S. and make a profit. Why subsidize the unsuccessful at the expense of the successful? That will increase the cost of automobiles.
There is also the basic question of fairness. The American Three pay salaries and benefits that are outside the limits of the market. Why should the government, that is, the rest of us, subsidize companies that overpay the favored few?
Finally, there is just no way the government can put up enough money to pay all the people in comparable jobs wages comparable to what the American Three make. Our economy does not produce that much money.
I think there is a fair chance one or two of the American Three will survive in some form without government subsidies. They have done a remarkable job of producing vehicles over the last hundred years and recently they are showing signs of adapting to current conditions.

2008 Nov 17 10:08 AM