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http://www.forbes.com/2008/07/09/gm-washington-detroit-oped-cx_jt_0710tamny.html?partner=yahootix
There's an unpublicized view among foreign-car lobbyists that General Motors is much scarier dead or bankrupt than alive. When those lobbyists discuss what they fear most, increased stateside competition from our Big Three automakers pales in comparison to what the collapse of GM, Ford Motor or Chrysler might mean in terms of bad policy.
General Motors' (nyse: GM - news - people ) situation is particularly noteworthy, since its stock recently hit a 50-year low amid increased talk of bankruptcy. With a market cap of $5.7 billion, GM's market value is now less than that of Bed, Bath and Beyond.
While GM's vitality is increasingly irrelevant when it comes to the health and size of the U.S. economy, it is sadly a very relevant entity within the friendly confines of Washington, D.C. A collapsed GM would predictably lead to all manner of protectionist and currency-related punishment for those automakers who've apparently committed the grave offense of producing that which U.S. consumers want-- while being foreign.
GM's descent into pointlessness has occurred despite its status as one of the U.S.'--and the world's--most heavily subsidized companies. Those who doubt this need only reference the highway bills of the multi-hundred-billion-dollar variety that Congress routinely passes that make cars in the world's largest car market a necessity.
The highway subsidy isn't so bad when we consider Americans are at least free to use the roads, which have created a market for all carmakers irrespective of origin and which exist thanks to Congress' generosity with the money of others.
What's more offensive is that Americans have been routinely victimized by the automobile lobby in the form of voluntary export restraints imposed on Japanese producers, not to mention the tariffs placed on the exports offered up by those same producers.
U.S. carmakers have eagerly sought tariffs and various restraints on trade over the years, and they've burned U.S. consumers twice: first, for raising the prices of the goods they want and, second, for decreasing the size of overseas markets they themselves might like to export to. When we restrict the ability of exporters to send us what we want, we also restrict their ability to purchase from us.
But what's most problematic when it comes to U.S. automakers is their impact on U.S. currency policy. The Big Three have routinely agitated for a weaker dollar against the yen. In a 2005 op-ed in The Wall Street Journal, GM Chief Executive Rick Wagoner cast some of the blame for the company's poor performance on "unfair trading practices," in particular, "Japan's long-term initiatives to artificially weaken the yen."
Wagoner's thoughts were remarkable in a number of ways, but were notable because his comments about yen weakness were so impressively untrue. In reality, as recently as 1971, the dollar bought 360 yen. Today, it buys 107--a gain for the yen vs. the dollar of 236%! Over the last 22 years, since the imposition of the Plaza Accord meant to strengthen non-dollar currencies against the greenback, the yen has risen 124%. In the past year alone, the yen has risen 9% against the dollar.
Despite the dollar's collapse, GM's U.S. market share has continued to wither, falling from 41% in 1985 to less than 25% today. Over that same timeframe, GM shares have flatlined, while those of Honda (nyse: HMC - news - people ) and Toyota (nyse: TM - news - people ) have risen over 600% and 800%, respectively.
What's fascinating is that GM's management could be so obtuse about what aids its success. The obvious truth here is that, with GM a successful producer of large, gas-guzzling autos, a weak dollar has and always will be a killer for a shrunken unit of account, driving up not only the costs of commodity inputs for automobile production but also, more importantly, the price of oil itself. Not surprisingly, GM's shares rose 56% from June 1997 to May 2000--when the dollar was strongest and oil was cheap.
Some say GM's problems are rooted in bad deals made with unions over pay and defined benefit/health plans, but judging by the mistaken policies GM executives lobby for, it could realistically be said that GM suffers most from a lack of executive talent. It will never happen, but it is said that GM's saving grace would involve it moving its headquarters to either New York or San Francisco, two cities where there's human capital that would never live in the economic mistake that is Detroit.
So while GM and the Big Three take out ads in the major Washington newspapers that greatly exaggerate their economic importance to the overall U.S. economy, the unseen problem continues to be the negative impact of the unfortunate tariff and currency policies they've lobbied for, which restrict U.S. consumer choice while reducing the value of American paychecks.
Indeed, the dollar's sad enervation since the early '70s has materialized in the form of an increased tax burden on the incomes of U.S. workers. All that, and the resulting inflation, has curbed investment that would have helped the wages of those same workers not "lucky" enough to work for heavily subsidized U.S. automakers.
In the end, GM's continued existence will serve as an economic retardant not just for Michigan but for the whole U.S. economy. Thanks to GM's ability to punch well above its real economic weight in both Washington and Lansing, Mich., a fear of tariffs and currency devaluations will persist in undermining the nation's economic health. Meanwhile, Michigan's economy will continue to suffer from rising unemployment and lack of investment, the trade-offs that result when once-important companies are propped up as thanks for past glories.
Politicians known to be sympathetic to GM would do best by ignoring the company's alleged interests, all the while dusting off their unread copies of Adam Smith's Wealth of Nations to better understand what happens to stationary economies. Now, "stationary" describes General Motors, the State of Michigan and the entire U.S. auto sector.
There's an unpublicized view among foreign-car lobbyists that General Motors is much scarier dead or bankrupt than alive. When those lobbyists discuss what they fear most, increased stateside competition from our Big Three automakers pales in comparison to what the collapse of GM, Ford Motor or Chrysler might mean in terms of bad policy.
General Motors' (nyse: GM - news - people ) situation is particularly noteworthy, since its stock recently hit a 50-year low amid increased talk of bankruptcy. With a market cap of $5.7 billion, GM's market value is now less than that of Bed, Bath and Beyond.
While GM's vitality is increasingly irrelevant when it comes to the health and size of the U.S. economy, it is sadly a very relevant entity within the friendly confines of Washington, D.C. A collapsed GM would predictably lead to all manner of protectionist and currency-related punishment for those automakers who've apparently committed the grave offense of producing that which U.S. consumers want-- while being foreign.
GM's descent into pointlessness has occurred despite its status as one of the U.S.'--and the world's--most heavily subsidized companies. Those who doubt this need only reference the highway bills of the multi-hundred-billion-dollar variety that Congress routinely passes that make cars in the world's largest car market a necessity.
The highway subsidy isn't so bad when we consider Americans are at least free to use the roads, which have created a market for all carmakers irrespective of origin and which exist thanks to Congress' generosity with the money of others.
What's more offensive is that Americans have been routinely victimized by the automobile lobby in the form of voluntary export restraints imposed on Japanese producers, not to mention the tariffs placed on the exports offered up by those same producers.
U.S. carmakers have eagerly sought tariffs and various restraints on trade over the years, and they've burned U.S. consumers twice: first, for raising the prices of the goods they want and, second, for decreasing the size of overseas markets they themselves might like to export to. When we restrict the ability of exporters to send us what we want, we also restrict their ability to purchase from us.
But what's most problematic when it comes to U.S. automakers is their impact on U.S. currency policy. The Big Three have routinely agitated for a weaker dollar against the yen. In a 2005 op-ed in The Wall Street Journal, GM Chief Executive Rick Wagoner cast some of the blame for the company's poor performance on "unfair trading practices," in particular, "Japan's long-term initiatives to artificially weaken the yen."
Wagoner's thoughts were remarkable in a number of ways, but were notable because his comments about yen weakness were so impressively untrue. In reality, as recently as 1971, the dollar bought 360 yen. Today, it buys 107--a gain for the yen vs. the dollar of 236%! Over the last 22 years, since the imposition of the Plaza Accord meant to strengthen non-dollar currencies against the greenback, the yen has risen 124%. In the past year alone, the yen has risen 9% against the dollar.
Despite the dollar's collapse, GM's U.S. market share has continued to wither, falling from 41% in 1985 to less than 25% today. Over that same timeframe, GM shares have flatlined, while those of Honda (nyse: HMC - news - people ) and Toyota (nyse: TM - news - people ) have risen over 600% and 800%, respectively.
What's fascinating is that GM's management could be so obtuse about what aids its success. The obvious truth here is that, with GM a successful producer of large, gas-guzzling autos, a weak dollar has and always will be a killer for a shrunken unit of account, driving up not only the costs of commodity inputs for automobile production but also, more importantly, the price of oil itself. Not surprisingly, GM's shares rose 56% from June 1997 to May 2000--when the dollar was strongest and oil was cheap.
Some say GM's problems are rooted in bad deals made with unions over pay and defined benefit/health plans, but judging by the mistaken policies GM executives lobby for, it could realistically be said that GM suffers most from a lack of executive talent. It will never happen, but it is said that GM's saving grace would involve it moving its headquarters to either New York or San Francisco, two cities where there's human capital that would never live in the economic mistake that is Detroit.
So while GM and the Big Three take out ads in the major Washington newspapers that greatly exaggerate their economic importance to the overall U.S. economy, the unseen problem continues to be the negative impact of the unfortunate tariff and currency policies they've lobbied for, which restrict U.S. consumer choice while reducing the value of American paychecks.
Indeed, the dollar's sad enervation since the early '70s has materialized in the form of an increased tax burden on the incomes of U.S. workers. All that, and the resulting inflation, has curbed investment that would have helped the wages of those same workers not "lucky" enough to work for heavily subsidized U.S. automakers.
In the end, GM's continued existence will serve as an economic retardant not just for Michigan but for the whole U.S. economy. Thanks to GM's ability to punch well above its real economic weight in both Washington and Lansing, Mich., a fear of tariffs and currency devaluations will persist in undermining the nation's economic health. Meanwhile, Michigan's economy will continue to suffer from rising unemployment and lack of investment, the trade-offs that result when once-important companies are propped up as thanks for past glories.
Politicians known to be sympathetic to GM would do best by ignoring the company's alleged interests, all the while dusting off their unread copies of Adam Smith's Wealth of Nations to better understand what happens to stationary economies. Now, "stationary" describes General Motors, the State of Michigan and the entire U.S. auto sector.
