On Running GM

It strikes me GM has at least four problems that led to its bankruptcy:

  • Tendency to give too much away to the UAW, both in $ and work rules concessions
  • Uninspired design largely out of contact with consumers
  • Operational processes that produce way too many errors
  • Bloated, expensive, and slow bureaucracy

It is astoundingly hard to see how federal government ownership of GM will fix any of these.   The Obama intervention in the bankruptcy has been one long giveaway to the UAW, and it is already clear that any radical or painful restructuring steps will be muddled in the political process.  What we really needed were innovative radicals swooping in a picking up assets in bankruptcy, to be run in totally new ways.  What we get instead are 31-year-old grad students with no experience in automobiles or any other business enterprise calling the shots:

It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism.

But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry."¦

But now, according to those who joined him in the middle of his crash course about the automakers' downward spiral, he has emerged as one of the most influential voices in what may become President Obama's biggest experiment yet in federal economic intervention.

While far more prominent members of the administration are making the big decisions about Detroit, it is Mr. Deese who is often narrowing their options.

I can say this will end poorly with some confidence, as I too at 31 found myself to be a smart but inexperienced guy advising Fortune 50 CEOs for McKinsey & Co.  I am embarrassed to this day at the solutions we used to push that blinded us with their elegance but turned out to make no sense in the real world.

The Obama administration reminds me of nothing so much as a grad school policy seminar suddenly finding itself running a government.   All that naive technocratic hubris we once kept safely bottled away in Cambridge and New Haven has been released to wreck havok on the real world.

For more, read my previous work on why GM should fail, and try to see if anything proposed to day gets at the issues discussed.  At the end of the day, what those in the Obama Administration and their many supporters fail to understand is the very basic concept of how wealth and value get created, and how this relates to the deployment of assets.  I won't go into depth on this topic today, but suffice it to say that pumping a trillion dollars or so of government borrowing into the least well-managed institutions in the country is not a recipe for growth.

Update: George Will has more.

But one reason Amtrak runs on red ink is that legislators treat it as their toy train set, preventing it from cutting egregiously unprofitable routes. Will Congress passively accept auto plant-closing decisions? Rattner says that Washington's demure vow is: "No plant decisions, no dealer decisions, no color-of-the-car decisions." He is one-third right. Last week, under the headline "Senators Blast Automakers Over Dealer Closings," The Post reported, "Because the federal government is slated to own most of General Motors and 8 percent of Chrysler, some of the senators said they have a responsibility, as major shareholders do, to review company decisions."

With the help of the California legislature, we can make it three out of three, as California is mulling legislation to ban certain car colors to stop global warming (lol).

Update #2:  More on the Chrysler shotgun wedding with Fiat.

  • Dr. T

    "California is mulling legislation to ban certain car colors to stop global warming..."

    They should also ban the use of dry ice to create fog and mist effects in movie studios and rock concerts. Think of it: carbon dioxide sublimating directly into the atmosphere!!! One can almost feel the planet warming as the dry ice disappears.

  • K

    “California is mulling legislation to ban certain car colors to stop global warming…”

    The way CA government works they will decide to ban every car color just to be sure.

  • gmsc

    "It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism."

    Well, it's not every 48-year-old who, for their first-ever job in running any type of organization, gets to be President of the United States, either.

  • BCM

    "The Obama administration reminds me of nothing so much as a grad school policy seminar suddenly finding itself running a government. All that naive technocratic hubris we once kept safely bottled away in Cambridge and New Haven has been released to wreck havok on the real world."

    This is the greatest truism I've ever read. Thank you.