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GM-Chrysler: Too Dumb to Fail | The Nation

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GM-Chrysler: Too Dumb to Fail

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Make way for the American Trabant! All hail the Detroit version of the Zhiguli!

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Nicholas von Hoffman
Nicholas von Hoffman, a veteran newspaper, radio and TV reporter and columnist, is the author, most recently, of...

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The Trabant was the smoking, polluting, coughing East German Communist version of the Volkswagon Beetle. The Zhiguli was a similar car manufactured in the Soviet Union. With the prospective bailout of Chrysler and GM--in the form of a government-subsidized merger of these two losers--we can expect the American Trabant to start limping off the production lines any day now.

One of the salient features of the Soviet collapse was its subsidies for ill-managed, horrifically run industrial organizations that developed expensive, inferior products. As Russian communism imploded, it became apparent that the act of propping up losers is a chump's game, one which, if carried on long enough, leads to universal bankruptcy.

So with that example apparently lost on us, the US government is cranking up to put GM and Chrysler on life support. Once on it, no one will ever pull the plug.

It should be obvious that the men and women running these automobile companies are terminally incompetent. Here is what the Wall Street Journal has to say about their management of the industry:

In all this lies a tale of hubris, missed opportunities, disastrous decisions and flawed leadership of almost biblical proportions. In fact, for the last thirty years Detroit has gone astray, repented, gone astray and repented again in a cycle not unlike the Israelites in the Book of Exodus.

No one can list the number of times Rick Wagoner, GM's CEO, has announced his company is turning over a new leaf. That leaf has turned brown and disintegrated. Before Wagoner, his predecessors, including the never-to-be-forgotten Roger Smith, did the same.

As for Chrysler, ten years ago it merged with Daimler-Benz--and much good that did. It would appear that the embedded incompetence in the Chrysler business bureaucracy was impervious even to the famed precision and competence of the Germans, who gave Chrysler away last year to Cerberus Capital Management, a huge private equity investment firm, whose prominent figures include George Bush's former treasury secretary, John Snow, and Bush the First's vice president, Dan Quayle.

How merging these two losers is supposed to produce a winner has been left unexplained. The new entity will have the same old problems it had as separate organizations, not the least of which is, as the Wall Street Journal says, that "just as America didn't understand the depth of ethnic and religious divisions in Iraq, Detroit failed to grasp--or at least to address--the fundamental nature of its Japanese competition. Japan's car companies, and more recently the Germans and Koreans, gained a competitive advantage largely by forging an alliance with American workers."

American carmakers using American labor cannot make a profitable automobile; Japanese, Korean and German manufacturers using American workers in America can. So why give the American manufacturers billions of dollars? There has to be a better way to save the incomes of the thousands of workers who will lose their jobs if GM and Chrysler are euthanized.

A government-sponsored merger will take our society one step closer to Communist-style poverty, but some will get rich and others will get their bacon saved. The lawyers and the mergers and acquisitions people from the Wall Street firms we are already bailing out will walk away with millions in fees.

Cerberus will get its bacon saved. As of now, it is on the hook for Chrysler's pension obligations--but there is more. This outfit is the majority owner of GMAC, General Motors' finance company, which is already in such trouble that it has applied for a government handout. We are talking billions more here.

Cerberus bought GMAC in 2006 at the height of Alan Greenspan's frothy bull market. It was a dubious proposition then. BusinessWeek described the purchase as "an epic showdown between legendary buyout king Henry R. Kravis and New Age hedge fund manager Stephen A. Feinberg--and Feinberg won. On April 3, General Motors Corp. (GM) announced that it would get about $14 billion over the next three years for selling a 51 percent stake of its highly profitable GMAC finance division to a group led by Feinberg's firm, Cerberus Capital Management LP...[but] Kravis may someday look wise for having turned his back on a deal heavily laden with risk."

Not so. No risk at all if you can buy high and get bailed out low by the government. Anybody can be a daredevil entrepreneur if the government guarantees against loss.

In the meantime, as millions wonder what they will do for retirement income, they can look forward to the unveiling of the first American Zhiguli.

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