Freedomnomics

Article published Tuesday, March 31st, 2009, at Fox News.

Obama’s Driving the Car Now

By John R. Lott, Jr.

In a truly unprecedented move, the Obama administration has gotten into hand picking the CEO of a private company. This has never happened in US history. It is also something that doesn't seem to have occurred in leftist Europe at least since World War II.

Obama claimed Monday that he has "no interest or intention" of running the auto industry. But, whatever Obama's rhetoric, it is now his industry. Picking CEOs is just the surface. In Obama's speech he boasted that "my team will be working closely with GM to produce a better business plan," but who is Obama kidding? These are not suggestions, these are orders. When Obama claims that he is "absolutely committed . . . to meet one goal . . . building the next generation of clean cars," his top down industrial policy doesn't care that hybrid sales have fallen by two-thirds since April, much faster than overall car sales.

Obama is even micromanaging Chrysler's merger talks with Fiat -- for example, determining what Fiat engines will be built in the United States.

Many Democrats and independent industry observers view Obama as letting politics, rather than sound business policy, influence his decisions. Firing GM's CEO is undoubtedly politically popular with many. But Democratic Michigan Gov. Jennifer Granholm correctly called Wagoner a "sacrificial lamb." Jeremy Anwyl, at the automotive website Edmunds.com, called Wagoner's firing "political theater" to appease public opposition to bailouts.

The initial stock market reaction to Wagoner's removal was hardly favorable -- with GM's stock collapsing by 25 percent immediately after the announcement, a loss of over a half a billion dollars in wealth. Other factors undoubtedly contributed to this drop, but the drop in the overall stock market on Monday is hardly encouraging.

Possibly, GM's Rick Wagoner and members of the company's Board of Directors should be removed -- obviously the company has done terribly and Wagoner has been running GM since 2000 so he has a history of responsibility. One might even justify removing Wagoner but not Chrysler's Robert Nardelli, since Chrysler is in the middle of merger talks with Fiat. But these are all decisions for shareholders. Obama and his clique of academic eggheads have neither the corporate executive experience nor the financial incentives to get this right.

One need only look at the pressure that Obama is putting on the companies to produce what he claims are environmentally friendly cars to see that car company profits are not given much weight. It also provides additional evidence that GM and Chrysler will not be profitable for years to come.

Obama has found himself to the left of the Old Europe he so idealizes. Even Sweden has refused to bailout its automobile and other companies.

What many don't appreciate is the detrimental impact that Obama's policies have on Ford Motor Company, which has to compete with the continued subsidies being given GM and Chrysler. The latest subsidy is just guaranteeing GM and Chrysler warrantees, with the government "loaning" up to 110 percent of the expected cost of servicing warranty claims. No one really expects these "loans" to be repaid so it is more accurate to call them "gifts."

Obama already really controlled much of the current auto industry policy. It was at Obama's insistence that Bush went along with the original auto company loans. Yet, having the Obama administration determining GM's CEO and micro managing Chrysler's merger talks with Fiat makes this Obama's auto industry.

*John Lott is the author of Freedomnomics and a senior research scientist at the University of Maryland.

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