GM Bad Deal

In his 1953 confirmation hearing for Secretary of Defense in the incoming Eisenhower administration, former General Motors CEO Charles “Engine Charlie” Wilson was asked how he would handle conflicts of interests in the Defense Department’s dealings with his old firm. Wilson replied that “for years I thought that what was good for our country was good for General Motors, and vice versa.”

For decades, Wilson’s comment — misquoted as “What’s good for General Motors is good for the country” – has been paraded by liberals as an example of conservatives putting the concerns of a giant corporation ahead of those of the rest of America.

But since GM’s multi-billion dollar bailout and government takeover, the misquote from Wilson has become the philosophy of the Obama administration. They are treating the success of the initial public offering of the new GM, as proof positive that that the auto industry rescue and much of the rest of Obama’s economic polices must be good for the country.

But what exactly is so remarkable about a company coming back to life after a $65 billion taxpayer bailout, additional billions in tax breaks not available to other companies, and even an amazing “sovereign immunity” exemption for this IPO from anti-fraud securities laws and lawsuits? With this massive infusion of government aid and favors, even a company selling ketchup Popsicles to women wearing white gloves would likely show a profitable quarter! (Hat tip for the Popsicle analogy to David Spade in Tommy Boy — one of my favorite movies about business.)

But how successful and profitable the new GM will be — and there are still many doubts that linger on the company’s financial condition and unfunded liabilities (see this NPR piece) – is not the right question to ask if its bailout and takeover were good for the economy. As I wrote a year and a half ago on OpenMarket, “The measure of success should not be how fast Chrysler and GM emerge from this bankruptcy, but the degree to which contracts are honored in an impartial process.”

By this measure, due to the precedent set by the government running roughshod over the contractual rights of Chrysler’s secured lenders, GM’s bondholders and dealers franchised to sell both brands of vehicles, the bailout/takeover is a complete failure.