Michael Moore's Curious Economics: Nationalize the Car Companies

At the Huffington Post, Michael Moore writes:

Of course, the auto magnates used be the Masters who ruled the world. They were the pulsating hub that all other industries -- steel, oil, cement contractors -- served. Fifty-five years ago, the president of GM sat on that same Capitol Hill and bluntly told Congress, what's good for General Motors is good for the country. Because, you see, in their minds, GM WAS the country.

This is the myth that refuses to die. Charles Wilson was the head of General Motors (GM) in the 1950s when President Eisenhower selected him to be the Secretary of Defense. During his confirmation hearings, Wilson was asked if he could make a decision against of the interest of General Motors. He said he could but he could think of such a situation “because for years I thought what was good for the country was good for General Motors and vice versa.”

Ever since, this humble statement of dedication to public service has been twisted into sounding like some statement of Nietzschean corporatism. Moore even has to add “bluntly” to his description.

So what’s Mike’s plan? Nationalize the car companies. I’m serious; he wants the government to buy all the outstanding stock, but he’s quick to add “None of us want government officials running a car company, but there are some very smart transportation geniuses who could be hired to do this.”

I’m a little lost of the logic here. Does he think the problem is simply poor management? If so, why is it dragging down all of the companies at once? His complaint is that the companies’ restructuring plan involves cutting jobs. Although that seems perfectly obvious to me, Moore finds it idiotic.

His plan is to nationalize the companies, turn them over to “very smart transportation geniuses,” force them to build environmentally friend cars and not lay anyone off.

Though I do agree with one part of Moore’s take: “Let me just state the obvious: Every single dollar Congress gives these three companies will be flushed right down the toilet.”

Comments

[User 313338:]

And where is the BAILOUT MONEY FOR WALL STREET GOING?

2008 Dec 05 05:03 AM

[john s. gordon:]

friends of hank get bailouts, no business plan required.

auto co's get nada.
> jack

2008 Dec 05 08:22 AM

[Mowog:]

Michael Moore isn't a total idiot? Now that's a source for optimism.

2008 Dec 05 08:31 AM

[Levar Berry:]

Ok.. This is why I vote as an independent. Perfect example of being too far to the left!

The reason the car companies are getting hit so hard. THEY MAKE UGLY CARS!! I drive a Honda and have for 8 years now. For people under the age of 35... How the car looks is #1. Safety is a distant #2. Besides the F150 all the other autos are way too "uncool" to buy. Who under 60 is buying a Buick these days????

Everyone is getting hit.... but not all car companies are getting hit so hard. The big 3 were losing ground a long time ago.... Now is a good time to ask for a hand out.

Here's a solution... Call Sean P. Diddy Combs and/or Jay-Z and put sexy back into the cars and ppl will start buying them.

2008 Dec 05 08:55 AM

[carey_jim:]

The last time I looked, the world didn't follow the laws of logic.

The American auto industry will fall into even more confusion, several options will be tried and whatever policy works will be adopted (at some time in the future after the maximum amount of pain has been inflicted on the maximum number of people by the loudest, greediest and stupidest people.)

During this time, the President and Congress will stand by looking and sounding dignified to calm everyone's nerves.

2008 Dec 05 10:41 AM

[John Lounsbury:]

Here is the core of the problem:

The auto makers are suffering from an historic collapse in sales. The Big Three were already on a very narrow balance beam trying to transition from the profitable gas guzzler to a mix including highly fuel efficient vehicles and new energy technologies. With vanishing sales, they can not stay on the balance beam and are under extreme pressure. There is high probability of bankruptcy from the burden debt 20-30 times equity and even larger legacy commitments.

Now the prospect is that, not only will there be pressure on The Big Three to continue their planned restructuring and new product mix, but to accelerate that in order to get government bridge loans. The public will look at the prospect for new technology cars in the next 2-3 years and many more will decide not buy current dinasaurs, but wait for the new vehicles. This entire process further reduces revenues for the next several years.

How can this be handled? Following the current bridge loan proposal will require tens of billions more to get through the transition. Because of the low sales volume, autoworker employment (including suppliers and dealers) will continue to decline dramatically. So we avoid losing 3,000,000 jobs (current industry estimates) but lose 1,500,000 to 2,000,000 anyway. If the industry does come out the other side, the bridge loans get repaid, possibly with interest. This outcome is far from certain. The upside is loan repayment with possibly 20-30% gain in interest paid. The downside is failure with no loan repayment, a loss of $100B to $200B (or possibly more?) There are intermediate financial outcomes for the government if there is longer term recovery with more government "investment" over time. Risk reward ratio is tipped toward the risk and not toward the reward.

Now for the Michael Moore idea (at least loosely defined). What if the government were to do a "hostile" take-over. This could be in the form of buying out GM and Ford stock at a 50% - 100% premium to current market and Chrysler at a similar valuation. This would require expenditure of less than half (maybe even 1/3) of the current bridge loan request ($34B). These companies could be set up as GSEs with new management. Candidates for CEOs would be people like Mitt Romney, John Corzine, Meg Whitman, Dan Reicher...... (Commenters please add to the list.)

What is the upside? Re-privatizing the transformed companies when profitable could yield as much as a 10X (1000%) return. This is the government upside. The downside is the same (bankruptcy). Here is a risk reward ratio tipped toward reward.

What is bad about this?

1. It looks like a facist system. It is facist if re-privatization does not occur.
2. It does not allow the maximization of private enterprise profit motive in the GSE status.
3. It exposes government to increased implied risk ala Fannie and Freddie.
4. It is still likely to cost jobs over the GSE period (although possibly less than the bridge loan sequence).
5. It does not ensure the American auto manufacturing industry will ultimately survive in a form to compete with foreign makers.

There are no good solutions. You pick:

1. No government action with Chapter 11 reorganization.
2. Bridge loans.
3. GSEs.

Does anyone see any other choices?

2008 Dec 05 01:35 PM

[Fabonz:]

Simple...no loans and no buying the company.

The government Today offers a 10,000 tax credit to anyone who buys a new Ford, GM, or Chrysler car or truck between today and 12/31/09.

This should DOUBLE annual car sales for the companies and would "Cost" the US $100 billion on sales of 10 million cars. Except, the "boom" caused by the increased demand would increase employment at the car companies, the parts suppliers, the dealerships, etc. which would recoup that tax revenue.

This would give the companies roughly one year to get their act together and restructure thier costs correctly. If they cant survive after that, maybe they shouldn't.

Now the problem: Should the US really be giving "the big three" an unfair advantage over foreign competitors? I don't think so, but apparently it is going to happen.

At least this way the money goes to the taxpayers who i trust more than the government OR the car compaies to do the right thing.

2008 Dec 05 02:36 PM

[speculari:]

Michael Moore? When will we also hear from Britney Spears, Lindsay Lohan, Madonna, etc. & ad nauseam, on this subject? And what, pray tell, is a "transportation genius"? Is the definition something like - "Any person who finds themselves more than 50 miles from home & is also in possesion of a briefcase"?
Dean Kamen gave us the "segway" & the french revolution offered the "tumbril", both are marvelous means of transportation - take your pick! But forget about Detroit finding a solution, the Japanese have been eating their lunch for many years - & will likely continue to do so!

2008 Dec 05 02:38 PM

[300mph:]

Let me clear up a few things. Michael Moore is a clueless idiot and a shill for all of the leftover failed left-wing ideologies. Michael Moore has confused contrarianism with creativity.

2008 Dec 06 01:28 PM

[kotika98:]

I think the obvious thing is that GM made promises decades ago to the workers that proved too expensive to keep. There was plenty of time to correct the promises, but management could not due to the threat of strikes. Its not that they havent tried, they have; but even for subsidiaries they sold, such as Delphi, they were forced to guarantee the pensions and benefits.
GM in its resent state is finished. Pumping money indefinitely to it, so that it can pay its retirees is not an option. So then two options remain -
1) nationalize the obligations only, meaning US govt will pay the pensions and healthcare instead of GM
2) let it break the promise, probably via a bankruptcy filing - and screw the UAW.

Either way, there is likelihood that the company will prosper in the long run. But wait, that is not what Dodd wants... My wrong, senator.

2008 Dec 07 12:34 AM

[Ted Carrisey:]

Michael Moore is a left-wing ideologue who is convinced that the only solution for America is socialism. First, the means of production should be held by the government, then comes the big one. Like all socialist regimes, our civil liberties will be revoked, there will be no freedom of speech, and people will be tortured and carried out of their homes in the middle of the night, just like they do in all socialist/Marxist regimes.

Moore is the most dangerous left wing fanatic to come along in decades. People actually listen to him and think he has a solution. In fact, he is an angry filmmaker with an agenda of hatred and provides nothing for America in terms of real change or innovation.

2008 Dec 08 02:52 PM