Chrysler, GM, and the Law of Unintended Consequences

Entirely predictable, the unintended consequences of  nationalization of GM and Chrysler will still come as a surprise to Obama partisans and the media.

Some of the acronyms will remain the same, but their meanings will change. GM becomes Government Motors; GMAC is Government Motors Assistance Corporation. Chrysler becomes part Italian, part U.S. government -- an arranged international marriage. Like dinosaurs mating.

Played for chumps, the bondholders from both original companies are left with chump change on the dollar. Pieces of the old GM, like Saturn or Hummer, will disperse like orphans of a dismembered family. Some may live on with others; others will die off in some backwater market. 

The federal government will have its sought-after mechanism to coerce us into small, fuel efficient vehicles. The American Green Fleet. Heralded as a partnership between the American labor movement and an enlightened government energy policy, the consumer of an American Green car will be called patriotic.

In Government Motors ads, unsolicited testimonials from delighted customers will champion the enhanced life style of being able to spend less money on gas, and more on, well, other things.  A GMAC ad will tell how buyers can take advantage of a special tax deduction by buying their Green Car on President's Day, or Labor Day weekend.

It will, in short, be the completed merger of hard automotive manufacturing science with the specious science of man made global warming.

For awhile, all will seem well -- until the Law of Unintended Consequences accelerates the train wreck toward an ugly impact.

The federal government and their junior partners, the United Auto Workers, will be like the two dogs that chased the garbage truck every day. One day the truck stopped and the dogs caught it. Now what do they do?

Never mind why the garbage truck stopped. Maybe it started stalling when senior management car guys, who knew how to make, and loved making, cars passed their leadership on to bean counters and sales-hype types. Or, maybe it was hubris born of unchallenged success. For some executives the motto "What's good for GM is good for America" became scripture. But consumers stopped reading that scripture in the 1970's. 

On January 15, 1953, GM President and CEO Charles "Engine Charlie" Wilson, testifying before a congressional hearing on his appointment as Secretary of Defense in the Eisenhower administration, said,

"[F]or years I thought what was good for our country was good for General Motors and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country."

Had Charlie seen the future, he might have said, "It goes on the welfare of the country." His beloved company became one of the biggest -- some banks are bigger still -- among the nation's new mega-welfare recipients. With many more welfare checks to come.

The Obama administration may assume that GM and Chrysler customers will remain loyal to the brands. But look, there weren't enough loyal customers last year to save them. So the government car wizards must assume that the new, leaner GM and Chrysler will lure customers away from Ford and the foreign brands. But wait, Ford's been gaining market share against the two new government automobile companies lately.

So down the track awaits Unintended Consequence (UC) #1: The old GM and Chrysler that once commanded a cadre of loyal customers now has new owners. Who's to say they'll remain loyal? When your favorite restaurant comes under new ownership, and that ownership has a reputation for serving bad food elsewhere, do you keep eating there? Only if you want food poisoning.

When sales of Chevy's and Hemi's continue to decline, the government will have to act to protect their -- meaning "our" -- investment (bailout). That'll require special tax breaks for Chevy-Hemi buyers, and higher taxes on those who buy other brands in order to make up the lost treasury revenues.

When that doesn't work, here comes UC #2: Additional tariffs on imported automobiles. But since many foreign brands are now manufactured in U.S. plants, that's won't work. So, foreign manufacturers operating U.S. plants will be subject to a Value Added Tax (VAT) to subsidize unsold government cars.

When people prefer the quality and superior fuel efficiency technologies of, say, Toyota and Honda, that'll trigger UC #3:  Forced downsizing, and even closure, of foreign brand U.S. manufacturing plants in the face of government pressure to unionize their work force. That means lost jobs for non-union American auto workers. The UAW will cry crocodile tears.

UC #3 will trigger UC #4: Tariff retaliation from nations who have auto plants here but also import products from the U.S. In short, a trade war.

And then there's that major fault line in the Obama administration's plan for the American Green Fleet. The federal government has taken over much of an industry that it knows nothing about operating for a profit. In fact, it has no clue how to operate anything for a profit.  It's only knows how to be a cost center, not a profit center.

So the government -- meaning "we" -- will subsidize the inevitable, sustained losses of Government Motors and the new Chrysler.  Ten of billions more coming in bailouts.

And that will lead to UC#5: We won't have enough money to keep GM and Chrysler alive indefinitely, even with the Federal Reserve's printing presses running in overdrive. The only way for GM and Chrysler to succeed, for awhile longer, will be for the government to substantially reduce competition from foreign brands and tax gas to the point that Ford's profitable reliance on trucks and SUV sales drives it, too, into bankruptcy. Anyone want to bet against that eventually happening?

Then, finally, there's UC #6: Many us have bought our last GM or Chrysler product and will abstain from further purchases on the following consumer principle, that still lives in this as yet only partially socialized nation.    

"The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterprises. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interest of capitalists nor about the fate of the workers who lose their jobs if, as consumers, they no longer buy what they used to buy."  Bureaucracy, Ludwig von Mises, 1944, pp. 20-21

To succeed, the Obama administration will ultimately have to monopolize most of the U.S. auto fleet. Half-way measures won't work. Just ask the USPS about their competitive disadvantages in operating against FedEx, UPS, et al.

The impact of the train wreck that will complete the devolution of the U.S. auto industry is coming. And it won't be pretty.