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Elizabeth Sherman
Scholar

Elizabeth Sherman

Assistant professor of American Politics at American University; founder and former director of the Center for Women in Politics and Public Policy at the University of Massachusetts, Boston.

"Hands Off" Has Failed

With huge financial investments, the government is giving General Motors a new lease on life and already has rightfully demanded big changes in corporate leadership and union contracts. And, yes, it must continue to pressure GM to be a smarter, more competitive company, able to move to the forefront rather than lagging behind its competitors.

For too long, GM brought too little in terms of automotive excellence, too late to the market, constantly playing catch up to foreign imports. Its purchase of Saab demonstrated an awareness that the market for reliable, attractive imports offered them an opportunity to compete with Volvo, Audi, BMW, Lexus and Mercedes at a lower cost. On the other hand, GM made too many bad decisions producing unreliable clunkers followed by their costly bet on the Hummer. In recent years, GM has become mainly a truck company and even there, it's had problems.

With such an enormous financial investment in GM, the government must have strong representation in the board room and demand more imaginative plans with a reasonable expectation for financial success. First and foremost, that means a return to engineering excellence, an emphasis on innovation and fuel economy through top level research and development, price competitiveness, attractiveness to consumers and a viable financing arm.

Many governments in Europe and Japan have maintained large stakes in their automotive companies recognizing their centrality to the vibrancy of their economies. The American "hands-off" approach has obviously failed. As Alan Greenspan belatedly noted, the invisible hand of the market does not necessarily work for the benefit of society at large.

In the middle of an economic catastrophe affecting millions now unemployed, uninsured and losing their retirement savings, the government has to salvage and restart the core engines of the economy and insist that America's failing industries get their acts together. That means that board members, including Uncle Sam, must demand major changes and accountability for greatly improved performance from companies that made so many bad decisions in the past bringing workers, families and communities to disaster along with them.

By Elizabeth Sherman

 |  June 1, 2009; 11:51 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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I was in hopes that Professor Sherman's article would hold lofty wisdom and cunning strategy with respect to the government investment of what appear to be a shrinking # of tax payers in this country. Obviously, academia and the lofty ideals of educators who have never run a business, but profess great knowledge of such an endeavor has not changed. They still teach what they know not what they speak of. How about this strategy - now that President Bush and President Obama have seen fit to shovel out billions of our tax dollars, how about sending each of us who actually pay taxes the equal of our shares in these two auto companies? I guarantee - the ship will turn in a heartbeat. Fed up in Atlanta

Posted by: trumpit | June 2, 2009 9:49 PM
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It's hilarious reading amateur automakers like Sherman come up with Fanatsyland observations about an industry they obviously know very little about. Sherman blithely makes claims that anyone familiar with the US auto industry would immediately peg her as an innocent gullible Gerda. She talks about GM "decisions" as if they were made without constraints. ANYTHING of significance that GM tried to do in the past 30 years was subject to UAW approval. And just because it would be good for GM was no reason for the UAW to agree. And they didn't. Brands and assembly lines were not shut down because that would have affected the UAW. GM had limited ability to restyle their cars or improve their engineering to keep pace with their Asian competitiors because of their huge UAW labor costs. Any money they needed they got from selling bonds. Which they have just reneged on. GM can't borrow anymore from the bond market. They are pegged as cheats, which they are. Toyota could afford to redesign their cars twice as often as GM - all because of their lower labor costs, which didn't approach the $125K plus rates that GM was paying for their uneducated, unskilled UAW workers. GM laid off over half of their white collar support personnel, people who were needed to improve product. Everything was sacrificed to pay for their unionized masters. Reading articles published by uinionized companies like the New York Times and Washignton Post that attempt to portray GM's problems as unrelated to their labor cost disadvantage is a hoot. What ctotal liars. Most articles don't even mention labor costs. As such they have about as much credibility as an Obama campaign pledge.
GM's current financial position is due to their stealing over $70 billion from the bondholding and shareholding communities
(with Obama's blessing) while giving Obama
65% of the company and the UAW the rest.
I notice that the supposed observant Post hasn't mentioned this outrage. They only apparently can get outraged if a Wall Street exec spends million. Billions and tens of billions of dollars stolen from pension funds, etc. don't seem to faze the politically-motivated Post. The Post can lay no claim to being news organization - they are, like the NY Times,
reduced to status of propaganda organ and division of the Democratic Party. This is, no doubt, part and parcel of their strategy to stay financially afloat - by making themselves invaluable for the party in power.

Posted by: theBike45 | June 2, 2009 11:40 AM
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I don't get the sense that the federal stake in GM is a long-term position. The idea is to keep the company afloat long enough for it to be divested into a purely private holding. This is similar to the kind of federal intervention that takes place when the FDIC takes over a small or mid-sized private bank.

The purpose of the take-over seems to be more about preserving some jobs in the near-term than it is about re-tooling GM. The idea being that there is a real-world economic impact when a company of GM's size fails -- the worst outcome possible for ordinary workers is flooding an already stressed labor market during an economic downturn. Even if the company ultimately fails, it's better to have the unemployed hit the market at a point where there is at least the prospect of a wider economic recovery, so that these workers and the support industries that rely on them, aren't all nailed in one fell swoop.

As far as GM's current product line goes, they still control something like one quarter of the U.S. auto market; they're a major player in the overseas market, so it's not like there aren't people buying their products. The Chevy Malibu has done well in consumer surveys and the Chevy Volt shows some promise.

When the FDIC takes over a failed bank it's goal isn't to turn a profit -- the purpose of the takeover is to serve as a kind of triage so that the spill-over effects from the failure don't have wider consequences. The GM take-over should be viewed in a similar light.

Posted by: JPRS | June 1, 2009 11:13 PM
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So a government hands-off policy caused GM's current, sorrowful state? Well then, let's nationalize every industry and company in the country. According to the good Professor, the government need merely "demand" success and it shall be so.

It's a good thing the Washington Post affords print space to experts such as Elizabeth Sherman, whose absolutely useful advice will no doubt return us quickly on the road to recovery.

Posted by: whizler | June 1, 2009 11:10 PM
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The buzzword in Washington of is 'CHANGE.'

President Obama tosses the word around without saying what he wants to change too.

It reminds me of an old story from the Marine Corps.
A lieutenant inspected his Marines, (i. e. “The big 3”) and told the 'Gunny' that they smelled bad, (i. e. their business model stinks) & the lieutenant suggested that they change their underwear.
The 'Gunny' (Sergeant Limbaugh) responded, 'Aye,aye, sir. I'll see to it immediately.'
With that, Sergeant Limbaugh went into the tent and said, 'The lieutenant thinks you guys smell bad, and he wants you to change your underwear.
Smith, (GMC) you change with Jones, (Chrysler), McCarthy, (Ford), you change with Witkowskie, (Fiat), & Brown, you change with Schultz . . . 'Change right now, get on with it!'
So you see, President Obama may order change, but in Washington D. C., the whole crew still stinks!
Sincere as hell, Rick W. White
El Cajon, California

Posted by: firecat2 | June 1, 2009 11:04 PM
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How has hands off failed? Is it the local goverments problem that a bakery in Arlington VA closes its doors? Was it bad cakes? horrible service? moldy bread? bad money managment, overall crappy products? sounds familiar.
What vehicle has GM produced worth a damn in the last 5 years? What amazing ground have they broken in the last 5 years? So your fix is to have the Government step in and spend my tax dollars on a bad business with bad business practices and horrible products! What if I wanted to invest my money into something else that will yeild a better product and put money into a company that has better business practices. Why am I being forced into a bad investment, becuase that is what it is.
As for change I thought a little over 50% of the people voted for change in Novemeber...
As for the last comment/poster the goverment should let other manufactures and other people who have ideas for how to build and design a better car come forth. They are out there, but have been stepped upon and over shadowed by the big manufactures.
By the way driving a Biden or Obama anything is pretty ignorant, someone else tried the same thing about 70 years ago and it was called the peoples car.

Posted by: elesteban | June 1, 2009 10:48 PM
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The government should place orders for all new hybrid/electric automobiles from GM to replace the entire fleet of vehicles and gives them a huge down payment to cover retooling. The electric vehicle omits no CO2 and could be called the Electrobama. No kidding. The ones that run on hydrogen gas would be called the Electrobiden.
Then the government should sell its stock into the market when the announcement is made and catch a great profit for the people.

Posted by: mharwick | June 1, 2009 7:01 PM
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