D.C. Doesn't Know How to Run a Car Company

Heritage Foundation's James Gattuso Says Auto Cos. Belong in Bankruptcy Courts

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NEW YORK (AdAge.com) -- Ad Age reported last week that the government's automotive task force, appointed by President Barack Obama, cut by half the budget Chrysler planned to spend on advertising during bankruptcy. Specifically, the task force allowed the company some $68 million instead of the $134 million it sought to spend in the nine weeks it is expected to remain in Chapter 11.

Should Obama Be Capping Chrysler's Marketing Budget?:

Turnaround Investors Always Call the Shots
Counterpoint by Jonathan C. Lipson
The story inspired an editorial this week and a poll, and it generated lots of chatter and some heated commentary on our website about whether the government should be exerting such force over Detroit's marketing. In an effort to get both points of view, we decided to ask two experts outside the ad business to weigh in with their opinions: Jonathan C. Lipson, professor of law at Temple University's Beasley School of Law, and James Gattuso, a senior research fellow in regulatory policy at the Heritage Foundation.

James Gattuso
James Gattuso

Last month, President Obama declared, "I don't want to run auto companies. ... I've got more than enough to do." But like it or not, running auto companies is exactly what he's been doing. And that's bad news for Detroit, for consumers and for U.S. taxpayers.

The magnitude of D.C.'s involvement has startled even veteran Washington watchers. To make sure there was no doubt about who's in charge, Obama forced GM CEO Rick Wagoner -- and most of the GM board -- to resign.

And Washington's control looks to continue for some time. A reorganization plan floated by the company pencils in the feds for half-ownership, leaving current bondholders with only a 10% share. Asked why he didn't offer investors more, CEO Fritz Henderson said, "We went to the maximum that they [Treasury] permitted us."

Tellingly, the reorganization plan Chrysler took into bankruptcy was announced not from Detroit HQ or the courthouse but from the White House. And creditors who opposed that deal were personally lambasted by the president for their failure to pursue what White House spokesman Robert Gibbs called the "common good."

Washington's calling more than just the big strategic shots. It's making tactical decisions, too -- including the decision to halve Chrysler's ad budget. True, the decision was approved by the company's bankruptcy court. But the degree of government involvement in such an issue is remarkable.

ABOUT THE AUTHOR
James Gattuso is a senior research fellow in regulatory policy at the Heritage Foundation.
No tears need be shed, of course, for the managers of these companies. After mishandling their enterprises, they begged the government to bail them out. But there is no reason to think anyone in D.C. knows how to run a car company either. A look at the enterprises that Washington already runs -- including the Postal Service and Amtrak -- does not reassure.

But the danger is not just that politicians don't know how to run auto companies. It's that they know what they want to use them for. As Robert Reich, President Clinton's labor secretary, said of bailing out banks: "Is our main objective to make sure [they] become profitable and we get repaid? Or should we push management to take actions that are in the public interest but not necessarily geared toward higher shareholder returns ...? I'd say we should do the latter. Otherwise, why bother bailing out [the companies] to begin with?"

Politicians will use enterprises they control to advance their own agendas -- even if those agendas conflict with the goal of making products consumers want to buy. Case in point: EPA Administrator Lisa Jackson has said, "What this country needs is one single national road map that tells automakers ... what kind of car it is they need to be designing and building." She was referring to fuel-efficient cars, which the president himself has dubbed the "cars of the future." Consumers, of course, may not agree, perhaps preferring the safety of larger vehicles. But with Washington in charge, it may not matter.

Detroit and Washington are on the wrong road. GM and Chrysler should be restructured under established bankruptcy rules -- without taxpayer money or the federal control that comes with it.

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