Is Restructuring the Silver Bullet for US Car Makers?

President Obama has responded to the request for assistance by most of the car manufacturing firms in the Us by demanding a set of rigorous responses from both Chrysler and General Motors. In particular, one of the preconditions for further financial assistance has been the requirement that the CEO of GM to step to be promptly replaced. I consider this degree of involvement in the affairs of a firm unacceptable for two reasons.

Firstly, a government that intends to spend public money has no business demanding that a specific person be replaced in a firm. That degree of involvement would only be acceptable for share holders and would only be acceptable in the situation of an outright purchase of the firm. Secondly, as I stated in an a number of early posts here and here, I am not sure that either of these firms will survive the economic crisis for the reason that their problems are not directly a result of the same. Instead, these two are corporations that have over time failed to compete and who should perhaps be left to the devices of their shareholders and managers.

Ad David Brooks of the NYT states, not only has GM especially been under restructuring in several disguises over decades, but the insertion of the Obama administration deeply into this problem merely makes it more difficult that the plug will be pulled should that be necessary. In my view, there's not much else that the US government can do for these corporations that would be in the public interest. therefore the tough talk by the Obama administration that the restructuring plans do not go far enough betrays the fact that there is a preferred plan.

As the article states, it is clear that the consideration here is entirely about protecting interests of unions but that could still be done in a more transparent way. It may require putting up vouchers for the workers and asking them either to use that as their severance pay or infuse the same into the corporations if they will. It would then be up to the management of Chrysler and GM to convince their employees that they are still worth investing in. My deep suspicion is that a substantial proportion of these employees would prefer to take the money. that would solve Obama's problem quite easily but it is not a solution that is politically feasible as it would amount to a direct bribe to future voters. Still, it is far better and more efficient that the complex corporate welfare schemes that are being tried out.