Financial Times Editorial Comment: Eyes on the road

Financial Times Editorial Comment: Eyes on the road
Copyright The Financial Times Limited 2009
Published: June 14 2009 18:30 | Last updated: June 14 2009 18:30
http://www.ft.com/cms/s/0/afd313a8-58fb-11de-80b3-00144feabdc0.html


To hear it from the US administration, it was pulled kicking and screaming into becoming the majority owner of General Motors. Denying plans for European-style industrial policy, the government promises to unwind its involvement as soon as possible, and to stay out of day-to-day management. It is the right road to take. It is also easier said than done.

GM’s and Chrysler’s state of chronic disease would have posed a dilemma to any American leader. On the one hand, US government involvement in private business provokes denunciations from the apostles of the free market. On the other, no buffer of political capital would have been able to withstand an uncontrolled GM collapse, with all its collateral damage.

Directing the companies into Chapter 11 was therefore the right choice, as was providing funds to maintain operations during bankruptcy. Much money and political agony would have been saved by making the decision sooner.

But contrary to what the administration thinks, the difficult work has barely started. GM must not remain a ward of the state. Its public owner promises it will not, but is finding it hard to convince people of this. The reason is that its promise will be hard to keep.

If GM and Chrysler solidify their market share and car sales revive enough, both will be able to make money again. But this is far from guaranteed, and depends not only on the companies’ unproven ability to compete successfully, but on general economic conditions.

Either company could succumb again if exposed to true market conditions. The government would then face the same political calculation that made it intervene in the first place. No one will expect the government not to use its equity stake actively or return to the rescue – unless it is clear that once the restructuring is done, the companies are on their own.

The administration will not discuss the prospect of a new failure. It is, of course, right to have managers focus on making the companies viable – not least to protect the taxpayer money it has put on the line. But ultimately, the government’s responsibility is not GM’s or Chrysler’s success. It is, rather, to ensure that what is good for America does not depend on what is good for them.

After damping the pain caused by its northern automakers’ failure, the government must not keep them too big to fail. That means letting the car industry face the market and accepting its natural migration to the southern states – and even out of the US altogether.