In 1953, when "Engine Charlie" Wilson was nominated for secretary of defense, the GM CEO famously told a Senate committee, "For years I thought what was good for the country was good for General Motors — and vice versa." His statement was misremembered as, "What's good for General Motors is good for America."Even quoted correctly, it was a sloppy thought. Today, who would even think it?
This week, President Barack Obama effectively fired GM's boss. Some defenders of private capitalism have objected to this, but they are thinking of government as, well, government, and not as GM's primarily lender. As lender, Obama was simply exercising his prerogative by saying, in effect, "If you want any more money from us, you have to throw your CEO overboard."
Out the CEO went — and, it is reported, much of the board of directors will soon follow.
"Pet rocks," Forbes magazine's Jerry Flint calls the GM directors. The booted CEO, Rick Wagoner, was also stonelike in his performance. Since he became GM's head of North American operations in 1994, Wagoner has presided over the shrinkage of GM's market share by nearly half, from 33 percent to 18 percent.
Back when "Engine Charlie" made his famous comment, GM's market share had been 54 percent. It was still over half in the late 1960s, when my business professor argued that GM, Ford and Chrysler had oligopoly power, and might stay on top of the market forever.
Volkswagen had been buzzing around, and a company called Toyota had introduced a little made-in-Japan thing called the Corona, but Detroit would be able to defend itself. Already GM and Ford were introducing their import killers, the Vega and the Pinto, which turned out to be the two worst U.S. cars of the era.
Most of the moves by the U.S. companies were better than that. In my lifetime, they have phased out the chrome, the spongy suspensions, the feather-light power steering and plastic bench seats. Their cars are less thirsty and better built.
Trouble is, their rivals stayed ahead of them with fuel injection, disc brakes, hybrid technology, etc. Now the Japanese companies have 30 assembly plants in the United States. They are suffering right now, but they are not in the intensive-care unit.
The new boss of GM, Fred Henderson, says the company may have to file for Chapter 11 bankruptcy, which probably means it will file unless the U.S. Treasury agrees to more support. The question then arises: Should the Treasury do it?
It looks like a poor bet. GM is an old company, with old workers, and old union and old-thinking management. It has been in decline for most of 50 years. As of Dec. 31, its liabilities were double its assets, giving it a book value of negative $86 billion. Tuesday, its stock was selling at $1.94 a share.
The more the Treasury lends, the more GM will come to be Government Motors. In Obama's America, that will mean becoming a development project for electric cars, plug-in hybrids, or whatever it is the politicians want. The result might be wonderful, but the history of state-controlled companies suggests boondoggles are more likely.
The best thing is to let GM do what failing companies have always done: reorganize if possible, liquidate if necessary. The GM of "Engine Charlie" is no more. Let it go, and let investors put their money where the odds are better.
