Or the New Fannie Motors?

From National Review

Fannie Motors
By the Editors

Government Motors? The name has the proper initials, but the connotation is imprecise. Yes, the federal government now owns a majority stake in General Motors, but the senior administration officials who explained the deal to reporters sounded almost desperate to be rid of the responsibility. (“The government really has no desire to own equity stakes in companies any longer than is absolutely necessary and will actively seek to dispose its ownership interest as soon as it is practical to do that.”) We cannot blame them. GM is a financial basketcase, saddled with uncompetitive labor costs and a mandate to make small cars that it cannot sell profitably. The government will probably seek to move GM into private hands quickly.

What then? Even after the government divests itself of its formal ownership stake, the reality is that GM will remain a government-sponsored enterprise — Fannie Motors might be a better nom de ridicule. All three Detroit automakers now share the same GSE structure (public mission, private ownership) that failed Fannie and Freddie. Going forward, the automakers’ missions are A) to provide health care, benefits, and high-wage employment to the United Auto Workers union, and B) to build the little green cars that President Obama and the Democrats want them to make, and the American people do not want to buy (at least not from Detroit while Japan makes them better for less). In exchange, the Big Three will continue to enjoy implicit and explicit taxpayer support. Even Ford, the only company that did not take bailout money, is expected to help itself to some of the $25 billion in loans that Congress set aside last year to help Detroit retool for its green future.

The administration has emphasized that it will not use its ownership stake to micromanage GM. But we know from watching Fannie and Freddie that the government doesn’t need an ownership stake to push a GSE in the direction it wants it to go. Just ask House Financial Services Committee chairman Barney Frank, who repeatedly made it clear to Fannie and Freddie that their government charters (which exempted them from state taxes, among other things) depended on their willingness serve government ends, i.e., “to make housing more affordable.” Fannie and Freddie proceeded to underwrite America’s adventures in trash mortgages to the tune of $1 trillion. They did what Frank asked them to do. Now we’re on the hook for hundreds of billions, and Frank still has his job.

The government seems determined to repeat this mistake with cars. The consequences probably won’t be as catastrophic or costly, but don’t believe for a second that this is the last bailout for Detroit. The administration stated that it “does not anticipate providing any additional assistance to GM beyond this [new $30.1 billion] commitment.” Note the language. The administration does not “anticipate” providing GM with additional funds, but it hasn’t ruled out the possibility, nor will it. And from a certain point of view, it’s only fair that Washington keep the lifeline open. If D.C. is going to order Detroit to make small, unprofitable cars in high-wage union shops, then Detroit is going to ask D.C. to cover the shortfall.

“Our goal is to get GM back on its feet, take a hands-off approach, and get out quickly,” Obama said. Understandably, he is seeking to reassure a skeptical public that the government will not stay in the auto business for long. But whether the government keeps its shares or sells them, Detroit has been a government project for quite some time. As long as the feds are telling Detroit what kind of cars to make, where to make them, and how to compensate their workers, Detroit will require taxpayer assistance, for the simple reason that the feds are terrible at running businesses. And if you believe otherwise, we’ve got a couple of defunct mortgage companies to sell you.